Amazon Web Services (AWS), the highly successful cloud computing division of Amazon, has experienced substantial growth for over ten years. As an initial provider of public cloud infrastructure, it has capitalized on its early market position to become the leading company in this sector. Indeed, it’s reasonable to suggest that numerous modern startups would not have been viable without cloud providers like AWS offering straightforward access to infrastructure, eliminating the need for self-construction.

According to Amazon’s latest financial results, AWS produced revenues of $11.6 billion, representing an annual run rate exceeding $46 billion. This positions the next significant AWS achievement – a $50 billion run rate – as potentially attainable within the next two quarters, assuming its current revenue growth continues.

Although the cloud segment’s growth is decreasing in percentage terms due to the inevitable impact of scale, where AWS must demonstrate growth each quarter against an increasingly large revenue base, the rate at which it adds $10 billion increments to its annual revenue run rate is actually increasing.

During this year’s AWS re:Invent conference for customers, AWS CEO Andy Jassy discussed the changing speed of growth over time, noting the following number of months it took to achieve each $10 billion increase in run rate:

Based on this observed pattern, AWS is projected to reach a $50 billion run rate from its current $40 billion level in under 12 months. Jassy affirmed this, stating that “the rate of growth in AWS continues to accelerate.” He also highlighted that AWS is now the fifth-largest enterprise IT company globally, surpassing established companies such as SAP and Oracle.

Remarkably, AWS attained this level of scale in a relatively short timeframe, having been founded in 2006. This rapid expansion leads to the question: Is it possible for any competitor to halt AWS’s progress?

The immediate response suggests this is improbable.

Cloud market landscape

Beginning with an analysis of the cloud infrastructure competition provides insight into potential challengers to the current market leader. As reported by Synergy Research, Amazon Web Services (AWS) maintains a significant lead, and it appears unlikely any competitor will overtake AWS in the near future without a substantial shift in market conditions.

AWS currently commands approximately one-third of the market, establishing it as the dominant provider. Microsoft is its nearest competitor, holding around 20% of the market share. For context, AWS generated $11.6 billion in revenue last quarter, while Microsoft’s Azure reported $5.2 billion. Although Microsoft’s cloud revenue is increasing at a faster rate of 47%, similar to AWS, this growth is gradually slowing as it expands its market share and revenue, encountering the challenges associated with increasing scale.

Encouragingly for other companies in the field, despite the market’s size and maturity, considerable growth opportunities remain, a point emphasized by Jassy during his keynote at this year’s re:Invent conference.

“Considering the proportion of total global IT expenditure currently allocated to the cloud – only 4% at present – and the belief that the majority of computing will eventually transition to the cloud over the next 10 to 20 years, significant growth lies ahead, even given the impressive expansion the cloud has already experienced,” he stated.

While AWS aims to secure a large portion of this remaining market, Microsoft possesses the necessary resources to capture its own share, despite allowing its competitor an initial advantage. Nevertheless, the substantial amount of IT spending yet to move to the cloud suggests ample opportunity for other companies to gain traction and establish successful cloud businesses. However, surpassing AWS as the market leader remains a challenging prospect.

Continuous innovation

Despite significant potential for expansion within the cloud market, AWS is unlikely to relinquish its leading position without demonstrating a considerable lack of initiative – a scenario that hasn’t materialized thus far. Indeed, the foremost cloud infrastructure provider consistently introduces new capabilities at a noteworthy speed. For instance, during this year’s re:Invent event, Jassy unveiled 27 new products and improvements during his three-hour presentation.

In total, the company states that it revealed 180 new features or products throughout its three-week virtual conference this year. Although some previous years featured an even greater volume of announcements, the rate of development remains quite swift for an organization of AWS’s scale and maturity, which is substantial enough to function as an independent entity (refer to the subsequent section).

Furthermore, it’s crucial to note that for several years, AWS primarily concentrated on providing a purely cloud-based service, allowing competitors such as Microsoft, Google, and IBM to dominate the hybrid cloud sector. However, in recent times, it has begun to make progress in this area as well, with solutions like Outposts, which enables customers to deploy a completely managed AWS appliance within their own data centers. This allows IT professionals to maintain workloads both on-premises and within the AWS cloud, managing them through a unified system.

This approach reflects an effort to cater to the broadest possible market segment and proactively address any identified need – or any request from a customer – by developing a solution, whether through internal creation or acquisition. While other companies are pursuing similar strategies, AWS benefits from its position as the market leader.

The extent of this advantage warrants further examination. Therefore, let’s revisit the concept of AWS operating as an independent company and assess its historical growth performance.

If AWS were a company

Imagining AWS as an independent entity is a compelling idea, much like contemplating the global ranking of California’s GDP if it were a sovereign nation. Both scenarios are largely theoretical, as AWS is intrinsically linked to Amazon, and California’s economic success is dependent on its place within the United States.

However, exploring this concept can still yield valuable insights. Specifically, we can examine the speed of AWS’s expansion and determine whether its past growth rate was exceptional in relation to other businesses. Understanding how rapidly AWS matured in its initial phases will provide a clearer perspective on the challenges involved in attempting to surpass its current position.

To address these questions, we will analyze AWS’s historical performance. Unfortunately, Amazon only began to disclose AWS revenue and operating profit figures in 2015, with data extending back to 2013. Therefore, the earliest available information pertains to a period seven years after the inception of its cloud services. We will proceed using the data at hand.

In 2013, AWS generated revenues of $3.108 billion and achieved an operating income of $673 million. By 2014, these figures increased to $4.644 billion in revenue and $660 million in operating income. This represents approximately 50% growth for AWS during its eighth year of operation.

To provide context, let’s compare this to the growth trajectory of Salesforce. Salesforce, like AWS, was a pioneering force in its respective market. Founded in 1999, Salesforce concluded its fiscal year 2007 (largely corresponding to calendar year 2006) with revenues of $497 million and operating income of less than $1 million.

Salesforce has become a highly successful business, currently operating at an annual revenue run rate of nearly $22 billion. It has consistently led the way in its industry and served as a model for SaaS companies. Nevertheless, AWS is currently twice as large as Salesforce and was more than nine times larger when both companies reached their seventh year.

Perhaps even more crucial than overtaking Amazon is achieving the necessary scale to remain a competitive and successful participant in the PaaS and IaaS markets. Microsoft and Google clearly possess the capabilities to do so, even if they don’t ultimately surpass AWS. Beyond these two, the pool of contenders becomes considerably smaller. Unless Azure can increase its percentage growth rate relative to AWS, Amazon is likely to maintain its dominance in the public cloud for the foreseeable future.