ity to run different applications in a software environment that emulates different hardware platforms), data storage,
and networking. 9
The total size of the information
technology market in 2018, including
software, hardware, and services, was
estimated to be approximately $3 trillion. 2 Cloud revenues remained a relatively small part of this total number
but were growing 20% to 30% annually: SaaS revenues in 2018 were estimated at over $55 billion; IaaS revenues approximately $45 billion; and
PaaS revenues just under $11 billion.
Public cloud services cut across all
three categories, with AWS by far the
market leader in recent years. Gartner
and Goldman Sachs put AWS’s mid-
2019 market share at 47%, followed by
Microsoft (22%), Alibaba (8%), and
Google (7%). 8
Among these companies, Microsoft’s Web business was growing the
fastest. We can expect further growth
but also intensifying vendor competition between Microsoft and Amazon,
especially for enterprise users. Both
companies offer the most popular
cloud platforms and marketplaces
for software development as well as
powerful IaaS platforms for running
those applications. There is now little
doubt that Microsoft—which made
its fortune from packaged versions of
Windows and Office—has successfully
made a transition in its business model
from desktop software to the cloud.
1. Amin, A. Google’s Market Share in the Cloud Space
Has Increased. Marketrealist.com, February 2019.
2. Bartels, A. Global Tech Market Will Grow By 4% in 2018,
Reaching $3 Trillion. Forbes.com, October 18, 2017.
3. Carr, A. and Bass, D. The Nadellaissance. Bloomberg
Businessweek, May 6, 2019.
4. Coles, C. AWS vs. Azure vs. Google Cloud Market
Share 2017. Skyhighnetworks.com, March 5, 2018.
5. Dignan, L. Microsoft Q4 Strong as Commercial Cloud
Revenue Hits $6.9 Billion. ZDNet.com, July 19, 2018.
6. Malik, O. Amazon Cuts Prices on S3. Gigaom.com.
October 9, 2008.
7. Novenet, J. Amazon lost cloud market share to
Microsoft in the fourth quarter: Keybanc. CNBC.com,
January 12, 2018.
8. Stalcup, K. AWS vs. Azure vs. Google Cloud
Market Share 2019: What the Latest Data Shows,
ParkMyCloud.com, April 30, 2019.
9. Watts, S. SaaS vs. PaaS vs. Iaas: What’s the difference
and how to choose. BMC.com, September 22, 2017.
Michael A. Cusumano ( email@example.com) is
a professor at the MIT Sloan School of Management
doing research on computing platforms for business
and coauthor of The Business of Platforms: Strategy in
the Age of Digital Competition, Innovation, and Power
(Harper Business, 2019).
Copyright held by author.
hosting service users and application
developers. Its shift to the cloud began
in 2010, when Microsoft began to offer
Azure as an online service consisting
mainly of Windows Live and Office
Live. Azure initially appeared to be a
weak competitor to Amazon and
Google because of Microsoft’s strong
preference for the packaged software
business model. That preference
gradually changed as increasing num-
bers of Microsoft customers asked for
software delivered as a service and
preferred to pay via short-term licenses
and annual subscriptions.d
Google was an early innovator in
Web services but lost ground to Ama-
zon and Microsoft probably because
it lacked the experience, and the
strategy, to sell services to enterpris-
es. Most of what Google offers its us-
ers (except advertisers) it offers for
free. However, this may change in the
future. Google is now spending bil-
lions of dollars to upgrade its cloud
infrastructure and marketing efforts,
with the intention of attracting more
enterprise users for its services. 1
As we look back, though, it is Microsoft that most stands out for its
successful shift in strategy under
CEO Satya Nadella that led the company to repackage many of its key
software products and development
tools as online services. 3 For example, Azure made available all the services that had been ported to the online versions of Windows and Office
as well as Microsoft SQL Server, Microsoft CRM, .NET services, and
Sharepoint services. These Web offerings made it possible for customers
to continue using Microsoft’s products as Web services rather than buy
new versions of the packaged software. At the same time, Microsoft enabled its customers to integrate Microsoft services with products from
other vendors, thereby positioning
Azure as a relatively neutral hosting
environment and innovation platform. On Azure, software engineers
can use various programming languages and not just Microsoft’s proprietary .NET environment.
Microsoft’s cloud revenues have
continued to rise as customers built
d See https://azure.microsoft.com/en-us/overview/
new applications using the Azure Web
services and ran them on the Azure
platform rather than on Windows. Microsoft lumps several cloud services
together, but one estimate is that, in
fiscal 2018, Microsoft had revenues of
approximately $23 billion from Azure
out of total company revenues of $110
billion. The Azure business in 2018
and 2019 was also growing at annual
rates between 70% and 90%. 5, 8 This
growth has helped propel Microsoft
beyond Apple and Amazon to become
the most valuable publicly listed company in the world, with a market value
over $1 trillion.
For the past 10 years or so, industry
analysts have been tracking cloud software revenues in increasing detail, with
annual reports on the different market
segments. “Software as a Service” refers
to software products delivered via the
Web and priced generally on a subscription or on-demand basis, with the full
applications stack and data running on
the software company’s cloud servers.
“Platform as a Service” (PaaS) refers to
features that users access via the cloud
while managing their own software applications and data on internal (
on-premises) company servers. These features include middleware applications,
the operating system and updates, data
storage, networking, and tools for developing new applications. PaaS covers the
new cloud-based innovation platforms.
There is also “Infrastructure as a Service” (IaaS), which generally refers to
when customers manage their own applications, databases, middleware, and
operating systems while receiving some
basic services via the cloud. These other
services include virtualization (the abil-
We can expect further
growth but also
for enterprise users.