Microsoft Azure, the world's biggest cloud? Someone's fudging

Matt Asay

Amazon Web Services (AWS) may be the cloud leader, but Microsoft Azure is gaining fast and should surpass AWS revenues by the end of 2014 -- at least, according to Nomura analyst Rick Sherlund.

Still, as well as Microsoft may be doing, Sherlund's $5.7 billion revenue target for Azure doesn't stand up to serious scrutiny.

Azure on fire
Let's be clear: Microsoft Azure is doing well -- really, really well.

Though neither Microsoft nor Amazon break out their cloud services revenues, Microsoft noted in its last earnings call that cloud revenue grew 147 percent year-over-year. This led Nomura analyst Sherlund to predict Microsoft will hold the crown as top cloud by revenue by the end of 2014.

While Sherlund's contention is almost certainly wrong (more on that below), Microsoft has concrete Azure numbers, shared at WPC 2014, that should buoy even the most ardent Azure admirers. As Neowin's Brad Sams captures:

  • 57 percent of Fortune 500 companies now use Azure
  • More than 300,000 active websites
  • More than 30 trillion storage objects
  • 3 million requests per second
  • 13 billion authentications per week
  • More than 1 million SQL databases in Azure
  • 300 million Azure Active Directory users
  • 1.65 million developers registered with Visual Studio Online

All this is impressive. More impressive is Microsoft CFO Amy Hood telling investors on Microsoft's earnings call that Azure storage revenue doubled and compute tripled over the past year. No wonder Microsoft has been investing so heavily in its data centers to the tune of $15 billion.

As big as these numbers may be, they don't add up to the industry's biggest cloud by any metric.

Cloud = Azure?
Not that Microsoft is guilty of plumping its numbers. While some have wanted to translate Microsoft's "cloud revenue" to "Azure," Microsoft hasn't crossed this line. As Hood said in the earnings call:

Our commercial cloud revenue grew 147 percent this quarter, driven by both Office 365 and Azure. Our commercial cloud annual revenue run rate more than doubled this year and now exceeds $4.4 billion and with this rapidly growing scale we continue to expand our cloud gross margins.

That's awesome. It's big -- but it's not Azure. In fact, it's not even clear how much of this revenue derives from Azure -- or whether it's true cloud revenue at all.

After all, it would seem that the overall cloud revenue number includes Services Provider License Agreement (SPLA) income -- that is, rented software to Microsoft services partners, much of which may simply be part of a volume contract that may represent software sold but not ultimately used.

This is reminiscent of Microsoft in 2013. Back then, Barb Darrow dissected Microsoft's "Azure is a $1 billion business" and found the $1 billion appeared to include all sorts of noncloud revenue, like "software provided to partners," which "probably means Microsoft is lumping in sales of on-premises software."

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