Amazon needs to stay ahead of competition from Microsoft, analysts say

Amazon Web Services still has a wide lead in the cloud-computing market, but Microsoft is starting to narrow the gap through big deals and partnerships — and analysts expect AWS to explore price cuts and a change in market strategy to attract bigger customers and hold on to its position.

Amazon Web Services started out primarily selling to startups, while Microsoft has a long history of selling to large enterprise companies. Timothy Horan, an Oppenheimer & Co. managing director and AWS analyst, said he expected AWS to spend aggressively and even discount prices to win those larger customers.

“We expect AWS to improve their go-to-market strategy to attract more legacy enterprise customers,” Horan told Business Insider. “This is a huge market, and we are only 10% of the way through adoption, so capturing customers the next two years … is critical.”

Amazon declined to comment for this story. But the company has already made changes to offer new discounts and court larger customers.

AWS recently made a “complete overhaul” of its pricing model for its most popular service and offered new discounts to make it more difficult for customers to switch to competitors like Microsoft and revealed a big hiring push for marketing staff and salespeople capable of scoring big enterprise deals.

Microsoft is gaining

Amazon Web Services still leads the cloud-computing market by a lot, but analysts think Microsoft is catching up. Gartner’s most recent public-cloud market-share report, released in July, showed Amazon’s 2018 market share was more than three times the size of Microsoft’s – about 47.8% to 15.5%, respectively.

Since then, Microsoft has closed notable deals and partnerships, including beating Amazon to secure a $10 billion cloud-computing contract with the Pentagon (though Amazon is challenging the award in court) and signing deals with big companies like Salesforce, SAP, and Oracle to get the Azure cloud in front of more customers.

Dan Ives, a Wedbush Securities analyst who’s often bullish on Microsoft, even expects the company to gain “significant” market share from Amazon Web Services in the near future.

“As we head into 2020, we believe this next phase of cloud is Microsoft’s to go after and further close the gap with AWS,” Ives told Business Insider. “We also foresee Microsoft getting more aggressive on cloud M&A and could see them making some more significant deals to further bulk up their product suite. We see 2020 as a year in which Microsoft starts to win the next phase of cloud versus AWS.”

Scoring enterprise customers

Analysts expect AWS to make big investments to score more enterprise customers.

AWS has already acknowledged one big investment to court larger companies. Amazon Chief Financial Officer Brian Olsavsky on the company’s most recent quarterly earnings call said the company was hiring more marketing staff and salespeople to go after enterprise customers.

“We are investing a lot more this year in sales-force and marketing personnel mainly to handle a wider group of customers, an increasingly wide group of products — we continue to add thousands of products and features a year — and we continue to expand geographically,” Olsavsky said of AWS in October.

AWS in November also introduced a new discount model for its Amazon Elastic Compute Cloud, known as Amazon EC2, requiring customers to make a one- to three-year commitment for a minimum amount of spending on the platform.

This new model, which AWS is calling Savings Plans, makes it not only easier for customers to save money but also harder for them to move onto a cloud competitor. 

Corey Quinn, a cloud economist at the Duckbill Group, a company that helps AWS customers manage spending, said Amazon has already cut prices more than 70 times and has never increased prices on a generally available service.

“I don’t think narrowly targeted price cuts are going to significantly impact the approach a company would take when evaluating a cloud provider,” he said.

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