We’ve seen some very public, big money cloud deals going on in the wake of Snap Inc IPO roadshow. First from the IPO filing, we learned that Snap has a five-year, $2 billion dollar deal with Google Cloud, making them one of their biggest customers, if not the biggest, overnight. Then Snap later disclosed they have a separate $1 billion deal with AWS that will gradually escalate over the next several years. I image this was done as a hedge in case they need to grow in China or other markets Google doesn’t operate in. But with all that big news, where was Microsoft?
As I’ve written before, it’s tough to get a sense of how Microsoft and Google are doing in the public cloud, because they lump together their cloud divisions in with other profit centers. So teasing out how much Azure is making compared to Microsoft Server is an educated guess.
Well Microsoft was able to announce a substantial deal of their own. The Indian e-commerce giant Flipkart entered into a strategic partnership with Redmond to adopt Azure going forward. This is a big get for Microsoft, but perhaps not as big as it appears on face.
While Flipkart is often called the Amazon of India, it’s a lot smaller. Near the end of last year, it’s valuation was around $5.54 billion. For some perspective, Amazon’s AWS division by itself made $3.5 billion in a quarter, and Snapchat was just valued at $19.5 billion. It’s big, but I don’t think it’ll totally change Azure’s revenue stream right away. The other thing is that this isn’t an all out migration. Flipkart was previously running on AWS, but in the second half of 2015, moved a lot of its architecture in-house. This deal isn’t so much to totally take over their infrastructure, but to supplement it with advanced analytics processing, including Microsoft’s Cortana AI suite. It’s probably the reason we’re not seeing any numbers out of the deal.
So is this mostly a PR win for Microsoft? It actually looks more like some of their long term strategy is playing off. The Indian market is largely untapped when it comes to a number of tech spaces, public cloud included. But it can be harder to enter due to many of the government restrictions on data locality and component sourcing. To address this, Amazon just opened a data center in the second half of 2016, and Google has plans to do so in the near future. But Microsoft has had data centers in the country since 2015. While not a huge amount of time, I think their foresight into moving early into the market is paying off, and I wouldn’t be surprised if a lot of smaller companies followed suit in the market.
Microsoft knows that Azure is the key to their long term growth. The perception has been for a while that they’re a solid second place behind AWS. But recently Google has been very aggressive with their public cloud offerings. Microsoft is not oblivious to the competition, nor are they willing to settle in their current position with Amazon. While the Flipkart partnership isn’t a blockbuster deal that will immediately generate tons of revenue like Snap Inc, I think it’s the product of a smart strategy that will only pay off more over time.
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