Security to sustain Microsoft’s cloud growth amid rising rivalry
This analysis is by Bloomberg Intelligence Senior Industry Analyst Anurag Rana and Bloomberg Intelligence Associate Analyst Andrew Girard. It appeared first on the Bloomberg Terminal.
Microsoft’s growing portfolio of security products is emerging as a key differentiator in cloud services, which we believe could drive 35-40% growth in Azure over the next two years despite increased competition from Amazon.com, Google and new entry Oracle. Microsoft’s security-product sales are over $15 billion a year, about 3x that of Palo Alto Networks, the largest pure-play security provider.
Security products making strong inroads
Microsoft’s increased investment into security products could become an important strategic factor, as companies seek more public-cloud infrastructure services as the number and severity of cyberattacks intensify. The company has become a leader in several of Gartner’s magic quadrants for security categories, such as unified-endpoint management, endpoint-protection platform, access management and cloud-access security broker.
Microsoft recently disclosed that its security products generate more than $15 billion in annual sales. This is substantially higher than any pure-play security provider, including Palo Alto Networks, which is the largest of these companies with revenue of about $5.5 billion.
Microsoft hiring of ex-AWS chief affirms security push
Microsoft’s appointment of Charlie Bell in September 2021 as executive vice president of its Security, Compliance, Identity and Management team reinforces our thesis of the increased security focus over the next several years. Bell helped build Amazon Web Services (AWS) for 23 years under Andy Jassy, who became Amazon’s CEO in 2021. We believe Bell will be an integral component as Microsoft seeks to crack down on network attacks, including those associated with its Microsoft Exchange breach. The company is likely to ramp up spending on security organically and via acquisitions as it further expands its cloud portfolio.
Azure could sustain 35-40% growth through fiscal 2023
Security products are usually sold as add-ons to basic cloud services and we expect they could help boost Microsoft’s Azure revenue by 35-40% through fiscal 2023, despite tough comparisons and global economic deceleration. The steady migration to the public cloud of on-premise enterprise applications could be the biggest contribution. Not only can security products potentially aid sales, but also margins, given these offerings have higher profitability than basic compute and storage services.
We expect an uptick in the use of cloud-based databases, another high-margin product, as clients gradually transition more analytics to the cloud.
Google, Oracle cloud gains more hype than fact
Media reports of increased traction by Google and Oracle in cloud infrastructure appear overblown to us, especially given the size of the sector’s top two providers — Amazon’s AWS and Microsoft’s Azure. Though Google is a viable third alternative to AWS or Azure, we’re more skeptical about Oracle.
Google accounted for about 5% of the infrastructure-as-a-service market as of 2021, compared with AWS at 47% and Microsoft’s 14%, based on IDC data. Even for Microsoft, it would be almost impossible to catch up to AWS, despite faster growth. AWS continues to expand at or above the pace of the overall market.
IoT, edge computing, metaverse next cloud accelerators
Several factors will start to emerge and contribute to cloud growth, we believe, as corporate IT budgets rebound from the current macroeconomic woes toward late 2023 and into 2024. These factors had been relegated to the back seat over the past couple of years by spending constraints and include edge computing, Internet of Things and metaverse — which is several technologies combined, such as augmented and virtual reality. Social media is also emerging as an area ripe for investment into consumer and enterprise tech products and needs a cloud infrastructure to run.