Cloud Revenue Jumps, Led by Microsoft and IBM

The virtue of fear as a source of animating energy has long been recognized in the quicksilver tech industry. “Only the paranoid survive,” as Andrew S. Grove, Intel’s longtime leader, put it — a guiding principle that was also the title of his 1996 book on management.

The fear factor is clearly at work now in the fast-growing market for cloud computing. The latest quarterly reports from technology companies and market research show that two of the fastest movers in the emergent cloud business are the incumbent giants of traditional software, Microsoft and IBM. Their business is most at risk from the shift to computing delivered over the Internet from distant data centers, with the business model of a pay-for-use service rather than a product.

Microsoft’s cloud revenue jumped 164 percent in the second quarter, while IBM’s surged 86 percent, according to a report last week by the Synergy Research Group. Amazon is still way ahead, with $962 million in cloud revenue, compared with $370 million for Microsoft, and IBM’s $259 million, Synergy estimates. But Amazon’s growth rate, at 49 percent, was only slightly ahead of the torrid 45 percent pace of the cloud market as a whole.

The progress by Microsoft and IBM was emphasized in the companies’ quarterly financial reports and conference calls with analysts. “It’s not just talk — they are backing it up with a lot of investment,” said John Dinsdale, an analyst at Synergy.

The so-called magic quadrant reports by Gartner, a technology research firm, are closely followed by tech suppliers and their corporate customers. The reports include assessments of tech companies’ strengths and weaknesses as well as a graphic plotting companies on two axes. Left-to-right placement in the graphic is based on “completeness of vision,” and bottom-to-top placement shows “ability to execute.” “Leaders” are in the upper-right quadrant of the graphic, while “niche players” are consigned to the lower left.

In Gartner’s report last year on basic cloud services, IBM was among the niche players (and in 2012, it wasn’t even included as a player at all). This year, helped by the acquisition of SoftLayer, a cloud start-up, and its own internal investment, it has moved sharply to the right, and higher, though it is not yet in the leaders area — the vision is strong, according to Gartner, but the execution still lags a bit.

Microsoft has moved up and to the right this year, into the leaders area. Last year, Gartner positioned Microsoft about where IBM is this year.

Amazon is still the star in Gartner’s chart of the cloud industry, some distance above Microsoft, the only other company in the leaders quadrant, among 15 companies Gartner included in the report.

Measurements in the cloud marketplace are tricky. Companies define their cloud businesses differently. And the big companies do not report their cloud revenue or profit separately, although they do occasionally make statements.


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