Why India has become a key battleground for Amazon and Microsoft3 min read . Updated: 11 Aug 2020, 01:35 PM IST
Amazon and Microsoft are locked in a tussle for the fast-growing cloud-services market. And India is shaping to be an important front in that fight
Last week, Bharti Airtel announced it was entering into a strategic partnership with Amazon to deliver cloud computing solutions to enterprises, enabled by the latter’s Amazon Web Services (AWS) suite. The Airtel-AWS partnership comes a year after Reliance Jio entered into a similar arrangement with Microsoft, to provide its clients cloud solutions enabled by Microsoft’s Azure.
The two global leaders in cloud services are present in India by themselves. Each is now also aligned to the two leaders in Indian telecom, making India the latest front in the battle between the two American technology majors. At stake is India’s burgeoning cloud-computing market, expected to be worth $8 billion by 2023, according to estimates from the Boston Consulting Group.
It’s a tussle of contrasts. While Amazon was an early mover in the cloud space, Microsoft has been a late bloomer. To catch up, Microsoft has been quite innovative with its Indian strategy. In addition to its comprehensive partnership with Reliance Jio, Microsoft has also been picking up equity stakes in internet firms such as Flipkart. While AWS is still the market leader for cloud services in India, both Azure and AWS are growing at a phenomenal clip, quarter after quarter.
In an increasingly networked world where 2.5 quintillion bytes (18 zeroes) of information are generated every day, cloud-computing capabilities provide a digital backbone to large and small enterprises alike. Cloud services are omnipresent in the digital economy, ranging from email servers to advanced data warehousing and analytics capabilities for large corporations.
The coronavirus-enforced lockdown has only enhanced this importance. Working from home means organizations require greater connectivity and more remote data-storage capabilities. Thus, even as total IT spend is set to shrink by 7% in 2020, revenues from cloud services are projected to grow 6%.
AWS is the clear leader in cloud services, capturing 33% of the total industry spend, as of July 2020. Launched in 2006, AWS had the first-mover advantage. Microsoft launched Azure in 2010, but it has grown steadily and holds about 18% share currently. Over the past year it has gained market share, though not at the expense of others in the top four.
Even though Microsoft doesn’t declare revenues from Azure alone, estimates by research firm Jefferies place it at $23.6 billion in 2020, roughly 17% of its annual revenues. AWS is expected to contribute $46.1 billion, or about 13.5% of Amazon’s revenues.
Although the revenue share of the cloud business still remains modest for both firms, it is growing fast. In the pandemic-ravaged June quarter, Amazon AWS revenues grew 29% on a year-on-year basis, while Microsoft’s intelligent cloud business (of which Azure is a part) grew 17%. And then, there’s profitability: AWS delivered an operating margin of 31% and accounted for 57% of Amazon’s operating profit in the last quarter.
In order to maintain this growth, India is a key market. It’s small at the moment: $2.4 billion in 2019, or 1.2% of global revenues in cloud services, according to Gartner. But with 24% growth, it ranked number three on that metric in 2019, after China and Indonesia. For 2020, the research firm expects India to grow at 26%, against the global rate of 17%.
Microsoft has been especially aggressive in its India expansion. In February 2017, e-commerce giant Flipkart signed an exclusive arrangement with Microsoft, and transitioned from AWS to Azure. Two months later, Microsoft invested $200 million in Flipkart. Microsoft didn’t say so explicitly, but industry observers drew a link between the two developments. In late-2019, Microsoft was reported to be in talks with ride-hailing company Ola—an Azure customer—for a similar investment, but that deal was not confirmed.
The most significant partnership for Microsoft in India is with Reliance Jio. In August 2019, the two entities entered into a 10-year strategic partnership, where Jio would set up data centers across India, with Microsoft deploying its Azure platform to support Jio’s offerings. Their stated objective was to enable affordable access to cloud services to Indian businesses. Jio’s formidable fund-raising over the past few months, with investments from both Facebook and Google, has enhanced the possibilities from this engagement.
While Microsoft has been aggressive in its India bets, AWS is showing its competitive intent with its Airtel partnership. AWS has also benefited immensely from the skyrocketing popularity of Zoom and Slack recently, which are predominantly hosted on its servers. Neither Amazon nor Microsoft puts out segment-specific numbers for India.
In terms of big stakes, the cloud is another front for Microsoft. It lost the search battle to Google years ago. It lost the phone battle to Apple. It would like to win the cloud battle. Competing against Amazon, that’s easier said than done. And that perhaps explains its aggressive stance in India.
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