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How Crucial Cloud Is For Amazon, Google, Microsoft?

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Amazon, for those outside of the technology industry, is the e-commerce leader that has shaken up the retail industry for good; the Walmart of the internet, essentially. But while the number from Amazon’s e-commerce operations is impressive, the cash cow is actually Amazon Web Services (AWS), the company’s cloud computing service.

A breakdown of figures suggests that almost three quarters of Amazon’s revenue comes from selling products, and that only nine percent is attributed to AWS. However, while the company is a revenue machine in e-commerce, it has razor-thin margins. It is AWS, which is helping the company’s bottom-line. In its most recent quarter, the company reported revenue of $5.1 billion, an increase of 44 percent compared to the fourth quarter of last year. Total revenue for 2017 was $17.4 billion, a 43 percent jump over its total in 2016.

Operating income also increased – AWS took in $1.3 billion in operating income during the quarter, while Amazon as a whole reported operating income of $2.1 billion. That means that 61 percent of the overall company’s income is attributed to AWS.

With these numbers, it’s no surprise that so many other tech companies have been vying to make their own mark in the cloud computing market. For example, Google’s parent company Alphabet, whose revenue still comes mainly from advertising, sees so much potential in cloud that executive chairman Eric Schmidt said that the company had invested $30 billion to build out cloud services.

In 2016, Gartner predicted that cloud computing would have a $1 trillion dollar impact on IT spending by 2020. The potential is certainly there – Google Cloud SVP Diane Green told the Wall Street Journal that 95 percent of the world’s data is not in the cloud (yet).

Building Out the Bottom Line

Perhaps most significantly for the likes of Amazon, Alphabet and Microsoft – with its Azure cloud offering – is that cloud computing is lifting their financial results. Last year, all three companies said cloud computing was growing faster than their larger, older businesses. In other words, it was growing faster than the online retail, software and internet search areas for which these company’s are renowned for.

AWS CFO Brian Olsavsky suggested on a conference call that AWS revenue was now on a $20-billion-a-year pace. This is an increase from the $18-billion-a-year pace it was on when it reported earnings last quarter, and despite the growing threat coming from other vendors.

This explains why the three leading companies in the sector are all throwing more money at their cloud computing portfolios; bulking up their offerings with new features to grab the attention of enterprises that are either looking to migrate from on-premise infrastructure or from a cloud rival – as Spotify did when it moved from AWS to Google Cloud Platform (GCP).

The likes of artificial intelligence, machine learning and IoT are attracting a lot of interest from businesses, and its unsurprising that AWS, Azure and GCP have all incorporated new features with these trends in mind to show existing and prospective customers that they are continually updating their offerings in line with current developments. They need to be able to provide at least the basic tools in these areas for enterprises and the developer community, and those slowest to react may lose out on major business.

How is This Trend Affecting the Enterprise?

One of the key issues has been a cloud computing skills shortage – something that those within industry have been warning organizations about for years. In fact, a recent survey from UK publication Computing found that more than 70 per cent of IT decision-makers in medium to large organizations reported a likely shortfall in technical cloud skills.

The main gaps within cloud technical skills were for security and compliance and data governance, followed by technical architecture, integration and refactoring applications to enable them to run in a cloud environment. Most of these are associated with the migration and integration process itself – suggesting that once this hurdle has been overcome, simpler times are ahead.

However, a poll compiled by cloud hosting provider Rackspace and the London School of Economics of European IT executives and professionals found that more time is being consumed by companies in the cloud. Almost half (44 percent) of IT pros said they were spending more time than they initially expected to manage daily IT cloud operations, while half of executives in cloud-intensive organizations reported that 15 percent or more time is spent managing cloud amount their staff.

This suggests that cloud computing skills – or lack thereof – is an issue even once the migration and integration process has been completed. And, there is a direct effect on an enterprise’s bottom line too; the same Rackspace study found that 71 percent of IT decision makers said their organization is losing out on revenue because their firm lacks specific cloud expertise. On average, this accounts for five percent of total global revenue, which isn’t a small about of change.

“Without access to a solid pool of relevant expertise, organizations’ ability to take full advantage of the benefits offered by the cloud will always be limited,” said John Engates, CTO of Rackspace.

And with businesses using an average of eight different cloud services including the likes of Amazon, Microsoft and Google’s public cloud technologies – and private cloud offerings such as VMware and OpenStack, there is a lot to grasp in the area.

There are many vendor-specific courses and industry certifications, while each company is making an effort to make their cloud platform more user-friendly. However, it is imperative that company’s who are opting to move to AWS, Azure, GCP or any other cloud platform, understands what capabilities they will need in-house. They may not need traditional IT skills like server management any more because their cloud provider will have people doing this – but they need new cloud skills.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.