The big cloud is making big bucks

There’s money to be made in the cloud.

Smaller companies may have trouble realizing revenue from their cloud offerings, but for billion-dollar businesses, the cloud can be very, very profitable. Let’s look at some examples.

Do you know what Amazon‘s profits would look like without Amazon Web Services (AWS)? Actually, that’s a trick question. Amazon would be unprofitable without its cloud.

What? You thought Amazon could somehow make money by low-balling every other retailer on the planet? Nope!

In its 2016 Fiscal Year (FY), AWS brought in $12.2 billion of revenue with $3.1 billion in operating income profit. Not bad money is it?

You may not have known it, but Micosoft has been shifting its business plan toward the cloud for years now. The name of its game has been to move from  traditonal software licensing to cloud services. While it didn’t work out quite the way the company first planned — the “mobile” first part of “mobile first, cloud first” didn’t take — Microsoft’s cloud has become a vital part of its revenue stream.

In Microsoft’s most recent quarter, its commercial cloud annual run rate — derived from Office 365, Azure, Dynamics 365 and other cloud properties’ revenue — broke $14 billion.

Amy Hood, Microsoft’s CFO said, “I am pleased with our results this quarter We see strong demand for our cloud-based services and are executing well on our long-term growth strategy.”

I’m sure she is pleased. I would be too.

Google’s parent company, Alphabet, is also doing well. While Alphabet doesn’t spell out exact numbers, Google CEO Sundar Pichai said, “Our cloud business is on a terrific upswing.”

Google lists cloud revenue under “other revenues.” Advertising is, of course, where Google really makes it money. Still,under other revenues, Alphabet made $3.4 billion. That’s up a cool 62 percent from $2.1 billion the same time last year.

Pichai added, “For both GCP [Google Cloud Platform] and G Suite, expanding our partner ecosystem continues to be a big focus, and last quarter the team announced new alliances including Intel, Improbable, Slack, Pivotal and Red Hat.”

Thinking of Red Hat, if you still see it as being only a Linux company, look again. Red Hat is determined to become a cloud power. And, you know what? The company’s well on its way there.

In its most recent quarter, Red Hat reported a net income of $66 million, or 36 cents per share. Of that, while most of it was still from Red Hat Enterprise Linux (RHEL) subscriptions, the cloud is becoming an increasing big part of its revenue stream.

“Approximately one-third of Red Hat’s largest deals in Q4 contained OpenStack and the company now has over 500 customers running OpenStack,” said Brian White, an analyst at the investment banking firm Drexel Hamilton.

Rob Oliver, an analyst at the investment bank Baird, wrote, “Highlights in Q4 included one mega-deal over $100 million and billings well ahead of consensus, Emerging products revenue accelerated as OpenShift [Red Hat’s PaaS (platform-as-a-service) cloud] and OpenStack investments are beginning to bear fruit.”

I’ve said it before. I’ll say it again: “The future belongs to the cloud.” And, the future of technology companies also belongs to the cloud.


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