The numbers are finally official -- well, almost -- and they show Amazon Web Services (AWS) easily outdistancing IBM Corp. in terms of cloud services revenues. Moreover, AWS is more profitable than most pundits thought, based on an Amazon earnings disclosure today. Still, I think IBM has several cloud market advantages that some pundits are overlooking.
Here's the fuzzy math, which paints a clear market winner so far...
1. Annual Cloud Services Revenue:
- Amazon: CEO Jeff Bezos today said AWS is now a $5 billion business; I suspect that means AWS generated $5 billion in revenue over the past 12 months. Plus, Bezos says AWS revenue growth is accelerating -- a rather impressive feat considering the cloud business is roughly a decade old.
- IBM: The company earlier this month said its cloud services revenues hit a $3.8 billion "annual run rate" in Q1 2015 vs. $2.3 billion "annual run rate" in Q1 2014. But run-rate is a theoretical number that looks at the current quarter and multiplies by four. Translation: IBM hasn't disclosed actual annual cloud services revenues. Instead, it's trying to show what the forward momentum looks like. Based on those two data points ($2.3 billion and $3.8 billion), I'd say IBM's actual annual cloud services revenues are closer to $3 billion.
- Annual Edge: Amazon by roughly $2 billion+ annually.
2. Quarterly Cloud Services Revenue:
- Amazon: AWS generated $1.566 billion in revenue during Amazon's Q1, up from $1.050 billion in Q1 last year. AWS operating income was an impressive $265 million for Q1, up from $245 million for the corresponding quarter last year.
- IBM: Based on the $3.8 billion annual run rate, you can safely estimate that IBM's quarterly cloud services revenues are roughly $950 million.
- Edge: Amazon by roughly $600 million in the most recent quarter.
Careful of the claims: Some revenue claims can be downright confusing. Pushing beyond the "services" conversation, IBM said its overall cloud revenues in 2014 were $7 billion. But that figure included all sorts of hardware and software sales -- rather than pure recurring revenue cloud services business.
Don't Underestimate IBM
All that said, I'm still bullish -- very bullish -- on IBM's cloud business.
- New IBM cloud data centers seem to open every month.
- New analytics and big data applications constantly surface in IBM's cloud.
- And vertical-market efforts like Watson Health Cloud are incredibly promising.
- More and more of IBM's own software platforms are shifting to SaaS consumption, further strengthening IBM's overall cloud business.
IBM was late to the cloud, but the company has made rather incredible progress in the past two years. Surely, that bodes well for IBM's existing CIO relationships -- allowing IBM to extend on-premises relationships into the company's cloud data centers.
If I had to guess, I think Amazon currently owns the cloud B2C market -- thanks to customers like Netflix running on AWS. I think Amazon also retains the early edge on the cloud B2B market -- thanks to a new generation of ISVs plugging into AWS. But over the next year, I suspect IBM will close that cloud B2B market gap... especially as IBM-loyal CIOs seek consulting guidance toward the cloud...
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