Why India has become a key battleground for Amazon and Microsoft
Just last week, Bharti Airtel declared it was entering into a strategic partnership with Amazon for delivering
cloud computing solutions to enterprises, apparently enabled by the latter’s Amazon Web Services (AWS) suite. Moreover, the Airtel-AWS partnership arrives one year after Reliance Jio entered into a similar arrangement with Microsoft, to provide its clients cloud solutions enabled by Microsoft’s Azure.
As of fact, the two global leaders in cloud services are significantly present in India by themselves. Making India the latest front in the battle amidst the two American technology majors, each is now also aligned to the two leaders in Indian telecom. Now at stake is India’s flourishing cloud-computing market, apparently expected to be worth $8 billion by 2023, according to estimates from the Boston Consulting Group.
As it rolls, it’s a tussle of contrasts. While Amazon was an early striker in the cloud space, Microsoft has been a procrastinated bloomer. Microsoft, to catch up, has been pretty innovative with its Indian strategy. As an addition to its comprehensive partnership with Reliance Jio, Microsoft has also been choosing equity stakes in internet firms, as like, Flipkart. While AWS is yet the market captain for cloud services in India, both Azure and AWS are burgeoning at an excellent clip, quarter after quarter.
In an incrementally networked world, where 2.5 quintillion bytes (18 zeroes) of information are generated every individual day, cloud-computing abilities supply a digital backbone to large and small enterprises alike. Also, furthermore, cloud services are omnipresent in the digital economy, ranging from email servers to advanced data warehousing and analytics capabilities for large corporations.
Due to the rapid spread of coronavirus, the lockdown has only enhanced this significance. Now, working from home means organizations need greater connectivity and likely, more remote data-storage capabilities. Therefore, even as total IT spend is set to contract by 7% in 2020, revenues from cloud services are subjected to flourish by 6%.
By all accounts, AWS is the clear leader in cloud services, capturing 33% of the total industry spend, as of July 2020. AWS had the first-mover advantage when launched in 2006. Microsoft launched Azure in 2010, but it has grown steadily and grasps about 18% share currently. Over the past year it has gained market share, though not at the expense of others in the top four.
Despite the fact that Microsoft does not announce 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 modestly remains for both firms, it is growing hastily. 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) sprouted by 17%. And then, there’s profitability: AWS delivered an operating margin of 31% and, also, accounted for 57% of Amazon’s operating profit in the last quarter.
As the means 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, in accordance with Gartner. However, 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%.
Evidently, Microsoft has been especially aggressive in its Indian expansion. E-commerce giant Flipkart, in February 2017, signed an exclusive arrangement with Microsoft, and further, transitioned from AWS to Azure. Two months hence, Microsoft invested $200 million in Flipkart. Microsoft didn’t say so explicitly, but industry surveyors outlined a link amid 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 important partnership for Microsoft in India is with Reliance Jio. The two entities, in August 2019, entered into a 10-year strategic partnership, where Jio would establish data centers across India, with Microsoft deploying its Azure platform to support Jio’s offerings. Their firmly mentioned objective was to enable affordable access to cloud services to Indian businesses. Apparently, Jio’s formidable fund-raising over the past few months, with investments from both Facebook and Google, has enhanced the possibilities from this engagement.
Moreover, as of information, while Microsoft has been aggressive in its India bets, AWS is prominently making visible the competitive intent with its Airtel partnership. AWS has also benefited throughly from the darting popularity of Zoom and Slack recently, which are predominantly hosted on its servers. Neither Amazon nor Microsoft puts out segment-specific numbers for India.
The cloud is another front for Microsoft, in terms of big stakes. It was defeated in the search battle to Google years ago. It was too defeated in the phone battle with Apple. It would like to embrace triumph in the cloud battle. Competing against Amazon, that’s easier said than done. And that probably explains its aggressive stance in India.