In the growing competition to provide lucrative cloud computing services, Amazon.com (AMZN) - Get Amazon.com, Inc. Report is still poised to hold onto its throne, even as the likes of Microsoft (MSFT) - Get Microsoft Corporation (MSFT) Report and Alphabet (GOOGL) - Get Alphabet Inc. Class A Report attempt to usurp the e-commerce giant.
Amazon hosted its Amazon Web Services (AWS) Public Sector Summit on Monday and Tuesday in Washington, D.C. with over 7,500 partners and clients attending.
"AWS's investment and innovation continues with ~1,000 new products expected to launch this year (compared to 772 launched in 2015 and 214 in 2014)," wrote JMP Securities analyst Ron Josey in a Wednesday note. "We emerge from the summit incrementally positive on AWS's overall opportunity."
Even in a competitive environment, AWS is constantly differentiating itself through product innovation, he noted, adding that he projects AWS to generate revenue of $12.1 billion (54% Y/Y) and consolidated segment operating income of $3.3 billion (27.6% margin) in 2016.
Over the years, AWS has emerged as a crown jewel of Jeff Bezos's empire as the industry at large heads toward the cloud, where remote servers on the Internet are used to store information. The unit has been generating explosive growth and continues to expand at an impressive rate despite its size.
And despite growing competition, Amazon won't be giving up its seat at the head of the table anytime soon as it continues to keep innovating to stay ahead of rivals.
"Amazon still has a really big lead," said Edward Jones analyst Josh Olson via phone. "From an innovation perspective, they're really doing a lot. They've continued to invest and Bezos continues to very aggressively innovate on the platform."
For example, Microsoft has seen its cloud computing business Azure take off under CEO Satya Nadella. Alphabet has also made solid progress in developing its Google Cloud Platform (GCP).
"In terms of the landscape, with Google entering the fray, it will be a three-horse race here with Google, Amazon and Microsoft [in cloud computing]," Olson said while adding that Amazon's lead is quite substantial and it will be difficult for anyone to surpass the e-commerce giant.
According to Synergy Research Group, for 2015, AWS's market share of the entire cloud market stood at 31%, followed by Microsoft (9%), IBM (7%) (IBM) - Get International Business Machines (IBM) Report , Google (4%) and Salesforce (CRM) - Get salesforce.com, inc. Report (4%).
Amazon essentially created the cloud business model in 2006 by offering outside companies the ability to use its infrastructure to store data remotely. And even before officially rolling it out in 2006, Amazon had used and experimented with cloud computing internally in the early 2000s.
"[Bezos] really perfected that internally. He realized [that] this is actually powerful stuff," Olson said.
In fact, AWS has been a typical chapter out of Amazon's playbook, which centers around initially experimenting with a new business and then heavily investing in it if it gains traction.
"The capital he put behind it was pretty astounding," Olson said. "He was investing very aggressively way before Google and Microsoft were really thinking about it in a serious way."
Amazon will continue to hold a substantial share of the market, but will likely have to sacrifice some profits, he said.
The cloud computing stack consists of three pillars: software as a service, platform as a service and infrastructure as a service. Oracle (ORCL) - Get Oracle Corporation Report and Salesforce (CRM) - Get salesforce.com, inc. Report dominate software as a service, while Microsoft has made inroads in platform as a service. But Amazon dominates the infrastructure layer.
"Google's participating there, but they're really [just] ramping up their efforts," Olson said, adding that while Amazon and Microsoft have a nice lead now, Google has the infrastructure and human capital to support cloud. "It's really a matter of monetizing it."
GCP's differentiation versus other cloud platforms is in its automation and an increasingly rich set of data analysis and machine learning tools, Pacific Crest Securities analyst Evan Wilson wrote in a Tuesday note.
Google's new cloud head, Diane Greene, has bulked up the division over the past seven months, and the search giant continues to introduce new features to its cloud platform such as a Maps API and a dashboard for monitoring the weather where servers are located.
"While we are increasingly confident that GCP could build a multi-billion dollar cloud business by using its automation and data insight toolkit, the cloud market is large enough and moving fast enough" that Amazon can sustain robust growth even as GCP and Azure continue to grow, Wilson added.
Still, GCP and Azure are still a few years behind AWS, asserted 451 Research Group analyst Carl Brooks via phone.
"They're absolute maniacs in terms of execution," Brooks said of Amazon. "I've never seen someone execute this way in the IT infrastructure space."