Cloud Revenue: The Question Vendors Keep Dodging

Amazon, IBM, Microsoft, and Google play coy when breaking down their cloud computing revenues. That reticence is no longer acceptable.
Steve Ballmer says he's thrilled with the momentum of Microsoft's cloud business. "We're in a steep ascent," Microsoft's CEO told InformationWeek recently. Customers, Ballmer said, have deployed "millions of seats" in Microsoft's cloud.

Sounds impressive, but what other metrics can Microsoft provide that demonstrate the vitality of its emerging cloud business? "I'm not close to what we're saying publicly on that," Ballmer replied, punting the question to the company's corporate communications VP.

As it turns out, Microsoft's doesn't disclose revenues related to its cloud services. And on that matter, it's not alone. Neither do Amazon, Google, or IBM.

The result is a gaping informational void for one of the tech industry's fastest growing (so we assume) new markets. Without sales data for cloud services, we can only guess at the market's size and growth rate and pace of enterprise adoption. CIOs are left to make gut decisions about competing services based on assumptions about who the market leaders are.

The challenge of sizing up the cloud market is complicated by the fact that analysts throw different types of services, such as software as a service and even Yahoo Mail, into their calculations. Forrester Research puts the public cloud market at $25.5 billion in 2011.

If that's an accurate estimate, then Amazon, regarded by many as a cloud leader, is actually a bit player. Amazon, with its Elastic Compute Cloud, plays in one of the smallest segments of the market, infrastructure as a service. Forrester puts the IaaS category at $2.94 billion this year. On my scratch pad, Amazon will account for only about one-third of that $2.94 billion, possibly much less.

How much revenue does Amazon Web Services bring in? Amazon won't say. On its financial statement, it lumps AWS revenue into a bookkeeping category called "other" that also includes revenue from marketing and promotional arrangements, from co-branded credit card agreements, and from so-called "seller" sites. In the first quarter of this year, Amazon's "other" revenue amounted to $311 million, or just 3% of the company's $9.86 billion in net sales. AWS revenue was an unknown slice of that $311 million. As they've done for years, financial analysts tried to coax finer-grained details on AWS from the company during the call to discuss its first-quarter results. "If I look at the 74% growth in North America in 'other' revenue, is that primarily due to Amazon Web Services?" asked Goldman Sachs' James Mitchell.

As they've been for years, Amazon officials were vague in response. "It's a combination of all those things that we've talked about in the past," said CFO Thomas Szkutak. "Certainly, Web Services is a meaningful part of that." Translation: Next question.

IBM is vague, too. Big Blue says its cloud revenue in the first quarter was five times what it was a year ago, but five times what? There's no dollar amount tied to that eye-opening growth rate, making it an almost useless bit of information.

Google, like Amazon, lumps its enterprise cloud services, including Google Apps, into "other revenue," which for the most recent quarter was $269 million. Last October, when Google did talk about its business segments during a discussion of its third-quarter 2010 financial results, there was no mention of its cloud apps. That lack of transparency caused my colleague Chris Murphy to observe that, by withholding information, Google execs leave open "doubt about how deeply committed they are to the enterprise business."

Fortunately, we're not flying entirely blind. Hosting service provider Rackspace, one of the cloud market leaders, breaks out its cloud revenue in meaningful detail. The company's cloud revenue in the first quarter of 2011 was $37.1 million, an 18% increase from the previous quarter and 93% jump from the year-earlier quarter. In comparison, Rackspace's managed hosting business is still much larger, at $192.9 million in net revenue for the quarter, but that business is growing more slowly, 21% compared to a year ago.

Rackspace even discloses its total number of servers (70,473), the technical square footage of its data centers (181,848), and annual net revenue per technical square foot ($5,083). That kind of information can be invaluable to IT teams trying to sort out cloud competitors and their capabilities and relative strengths.

Other cloud vendors would do well to follow Rackspace's lead. Microsoft may be "all in" the cloud market, as Ballmer told us 14 months ago, but we have no way of gauging its progress. In fact, Ballmer indicated just a few weeks ago that Microsoft's Azure platform-as-a-service offering isn't growing as fast as he had anticipated. We can only wonder what the actual numbers look like.

As cloud computing emerges as the next big thing, displacing servers and software and causing companies to rethink their data center requirements, the vendor reticence to disclose sales is no longer acceptable. If vendors want us to believe that their cloud services and strategies are leading the market, it's time that they show us the money.

John Foley, editor of InformationWeek Government, can be reached at [email protected].

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