The Battle of Cloud Services: How Could AI Change the Competitive Landscape of Amazon and Microsoft

The cloud divisions of Google, Oracle, Microsoft, and Amazon are poised to reap substantial benefits from the burgeoning generative AI infrastructure market, which is projected to reach $309 billion. As firms lacking the capital to invest in proprietary AI servers seek alternatives, renting computing power becomes a viable solution, positioning these cloud providers to capitalize on the growing demand.

■ The market space for cloud infrastructure services is still huge

In the US, a mere 18% of enterprises have fully transitioned their IT infrastructure to the public cloud, suggesting there is significant potential for more businesses to migrate their workloads. Although 79% of the surveyed enterprises utilize public cloud services to some extent, it's estimated that only a small proportion are truly maximizing the sophisticated tools available. Existing processes from corporate data centers are moved to the cloud primarily to utilize basic computing and storage services as a cost-saving measure.

Besides, Bloomberg's latest statistics show that 72% of companies have planned to increase investment in IT infrastructure this year. Enterprise IT spending, the source of revenue for tech companies' cloud businesses, has been declining for 18 consecutive months.

Over time, it's expected that these initial cloud deployments will evolve, adopting more advanced cloud-native solutions such as serverless computing and managed databases. This progression toward modern cloud frameworks is anticipated to not only drive revenue growth for cloud infrastructure providers but also enhance their profit margins.

■ Generative AI brings the second curve to cloud computing

Generative AI infrastructure-as-a-service – which includes computing, networking and inferencing -- will be essential at the platform or application level. IDC estimates that IaaS related to generative AI will grow at an annual rate of 54%, reaching 309 billion within ten years.

Considering the existing volume of the cloud market will be approximately more than 500 billion US dollars in 2023, with a growth rate of 10%+, the empowerment of AI will certainly boost the market space of cloud computing.

Among major players, Microsoft's relationship with OpenAI gives it a first-mover advantage that may soon be reflected in Azure's performance. For other cloud providers, Generative AI is likely to start boosting sales in 2024 as well, as businesses test new large language models.

■ Amazon's AWS emerges as the leader from cost and performance perspective, but AI poses new challenges

The Bloomberg survey has also revealed the level of satisfaction with each cloud provider, indicating Amazon's advantage over Microsoft in terms of cost efficiency, scalability, and data analysis performance.

Nearly half of the participants (45%) rated Amazon Web Services (AWS) as the top cloud provider based on these criteria. This is in contrast to Microsoft, which received a 24% endorsement, and Google with 19%. Nevertheless, the gap has narrowed among large enterprises with over 5,000 employees — a sector typically dominated by Microsoft. AWS was the preferred provider for 32% of respondents, slightly ahead of Microsoft's 29%.

Still, some analysts warned that Amazon's initial effort in the AI age came off as half-baked. AWS, a powerhouse behind the success of giants like Netflix and Airbnb, now faces the possibility that emerging startups might opt to build their platforms on the frameworks provided by Microsoft or Google instead. Last year, Microsoft introduced the new Azure, with AI's new features including avatars, video insights, text translation and more.

In the short term, AWS is expected to hold its ground. Despite a deceleration in sales growth, Amazon's server infrastructure remains the go-to choice for businesses aiming to upgrade legacy systems or engage in online activities. While generative AI has demonstrated remarkable potential, the technology still exhibits errors and carries a hefty cost. For the majority of businesses, it remains more of an exploratory venture than an essential service.

However, to stay competitive, AWS must effectively engage with generative AI, as JB McGinnis, a principal at Deloitte who assists firms in leveraging AWS, points out. "If they're not actively competing, they risk falling behind in the cloud race as well," he warns.