Microsoft’s Azure Cloud Platform Explained – Part 1

Microsoft (NASDAQ:MSFT) launched its cloud platform, Azure, in 2010. Since the launch, the service has posted triple digit growth, and last year generated over $1 billion in revenue, according to reports. Considering the latest quarterly results, in which the company claimed that its cloud revenue grew a 128% year over year, we estimate that the annual revenue run rate for Azure can be close to $2.3 billion. ^[1] Azure, currently, is the only major cloud platform that is consistently ranked as a leader for both infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS). While Microsoft continues to use the same platform that is used in Azure for some of its offerings such as X-box live, Bing, Office 365, SQL etc., it is extensively marketing its cloud offering to enterprises to roll out their apps on its platform. This is a two part article. While in the first part we will explore the cloud computing industry, in the second note we will look at Microsoft’s Azure offering.

See our complete analysis of Microsoft here

The Cloud Market

Cloud computing is a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction. ^[2] The cloud computing stack consist of three services namely software as a service (SaaS), infrastructure as a service (IaaS) and platform as a service (PaaS). Among the three categories, SaaS is expected to grow the fastest followed by IaaS. However, in the near future all three segments are projected to experience healthy demand. The primary reason for this growth is global demand for technology based services, which in turn depends on the state of global economy.

The Three Services Explained

The three services in the cloud stack i.e. SaaS, IaaS and PaaS are interconnected and dependent on each other to deliver a cost effective solution to clients. Most of the Cloud services are provided on a “multitenancy” architecture which represents a shared infrastructure and/or resources topology along with the advantages of virtualization and remote access to new business models and services. Each stack or service can either be availed independently or in conjunction.  A brief description of these stack are:

• Software as a Service (SaaS) is software that is deployed over the internet. With SaaS, a software company licenses an application to customers either as a service on demand, through a subscription “pay-as-you-go” model, or at no charge when there is opportunity to generate revenue from streams other than the user such as from advertisement. An obvious example of SaaS is Microsoft’s Office 365, where the applications run remote from the user’s computer.  Another model that is coming to fore is the hybrid “freemium” model which gives free access to the basic functionality of software, but the user has to pay a subscription fee for using advanced functions. SaaS is a rapidly growing market as indicated in recent reports that predict ongoing double digit growth. According to Forrester, SaaS solutions accounted for $36 billion in revenue in 2013, and are expected to increase to $133 billion by 2020. ^[3]
• Infrastructure as a Service (IaaS) is a way of delivering Cloud Computing infrastructure – servers, storage, network and operating systems – as an on-demand service via secure IP-based connectivity. Rather than purchasing servers, software, datacenter space or network equipment, clients instead buy those resources as a fully outsourced service on demand. IaaS is often based on virtualization techniques, i.e., creating a virtual computer that is independent of the actual hardware on which it exists, which may indeed be smaller or larger than its virtualized counterpart. ^[4] An example of IaaS would be a Microsoft SQL Database implementation  that is sourced remotely from an enterprises own infrastructure.  In this case, the data and the analytics exist as a virtualized implementation that utilizes the service provider’s servers.  Compared to SaaS and PaaS, IaaS users are responsible for managing more: applications, data, runtime, middleware, and the O/S.
• Platform as A Service (PaaS ) is the most complex of the three stacks. PaaS can be defined as a computing platform that allows the creation of web applications or software quickly and easily and without the complexity of buying and maintaining the software and infrastructure underneath it. We can extend our analogies above for Office 365 SaaS and SQL IaaS implementations, by adding development tools, etc., that allow enterprise administrators to customize analytics and applications on the remote,  virtualized machines.   PaaS is similar to SaaS except that, rather than being software delivered over the web, it is a platform for the creation of software, delivered over the web. According to Forrester, a PaaS solution generated $4.7 billion in 2013, and is expected to generate $44 billion in revenues by 2020. ^[3]

Growth In Cloud Services Across PaaS And IaaS Market

Over the past few years, cloud services have come to fore for both large and SME (small and medium size enterprise) companies that are looking to improve their businesses by employing IT solutions and services. The advantage of cloud services is the scalability and accessibility to new applications, resources and services. Furthermore, cost associated with using these services are less as the onus of management of these services lie with the cloud services provider. As a result, demand is growing for virtualization services, which enable service provider to create a virtual computer domain independent of the underlying software and hardware that not only increases manageability but also reduces cost. As a result, cloud services are expected to reach a market size of $555 billion in 2020 from $209.9 billion in 2014 at a CAGR of 17.6%, according to the new report by Allied Market Research. ^[5]

However, public cloud services market is expected to grow to $200 billion by 2018 according to market research firm Infonetics Research. ^[6] Within the public cloud services, IaaS is expected to grow from about $23 billion in 2014 to $34 billion in 2015, and PaaS to grow from 13% of the total cloud revenue in 2013 to 16% in 2018. ^[7] Considering the size and growth of cloud services, companies such as Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), IBM (NYSE:IBM) and Google (NASDAQ:GOOG) are rolling out new services, and extending functionality in this domain.

In the next note, we will explore Microsoft’s Azure cloud services.

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1. Earnings Transcript for Q1 2015, October 23 2015 [↩]
2. NIST Cloud Computing Program, www.nist.gov [↩]
3. The Public Cloud Market Is Now In Hypergrowth, April 24 2014, www.forrester [↩] [↩]
4. Virtualization, www.wikipedia.org [↩]
5. Global Cloud Services Market is Expected to Reach $555 Billion by 2020, July 2 2014, www.bizcloudnetwork.com [↩]
6. Cloud services to top $200 billion by 2018; Google, IBM, Amazon lead market, November 13 2014 [↩]
7. Worldwide Competitive Public Cloud Platform as a Service 2014–2018 Forecast and 2013 Vendor Shares, July 2014 [↩]