Microsoft and Amazon are using a new tactic to win the tough battle for the cloud computing business. They attract fast growing startups with promises to help sell their services.
Microsoft announced a partnership with Abnormal Security Corp. in September. known. Why the San Francisco-based email security startup is moving its software to the tech giant’s Azure cloud. In return, Microsoft promises to sell Abnormal’s services to its large corporate customers. Microsoft says this is the first such deal. The companies did not disclose any financial terms.
Amazon also used the partnership model to strengthen its business. In January, the company signed an agreement with Apptio Inc., a software company based in Bellevue, Washington, to help users manage their cloud spending. Apptio has agreed to expand the use of Amazon Web Services, and Amazon is now selling the startup’s services to its cloud customers.
“All of these platforms would love it if startups built on them,” said Matt McIlwain, executive director of Seattle-based venture capital firm Madrona Venture Group. “The novelty is this intention of saying, ‘Let’s partner up.'”
For the two cloud computing giants, these partnership agreements can help sustain growth in a business that is vital to their financial wealth and is becoming increasingly competitive. Partners can leverage the vast sales reach of Microsoft and Amazon and provide access to a range of customers that many startups and small businesses may find difficult to reach independently.
Amazon has a market share of 45% in the provision of the so-called public cloud infrastructure, ahead of Microsoft with almost 18%, according to the research company Gartner Inc., which brings other competitors under 10%. According to Amazon, the cloud generated around 12.5% of the company’s total revenue last year. Microsoft, which measures cloud revenue differently, said those sales account for more than 30% of its total revenue.
In the two years since its inception, Abnormal has used AWS and spent millions of dollars on the service annually. Switching to another provider can be complicated and expensive. However, Evan Reiser, CEO of Abnormal, said that selling its security service to large corporate customers associated with Microsoft is so attractive that it offsets the disadvantage of switching cloud providers.
Microsoft and Amazon saw their cloud services accelerate during the pandemic as companies rolled out tools for remote working. Its use raised investor expectations and left little room for error. Microsoft’s shares are up more than 30% this year.
Amazon rose more than 70% due to the strength of its cloud and online retail sales during the health crisis.
Amazon popularized the cloud model, but Microsoft stepped up its challenge to attract more profitable, fast-growing companies. The two fought fiercely, including over billions of dollars in government contracts. The Pentagon announced this month that it is entering into a potential $ 10 billion cloud computing deal with Microsoft after Amazon lost the offer and challenged the deal.
Amazon’s initial focus on the cloud gave it a jump into the successful start-up business. Many of them were the first to adopt Amazon’s computer services, which helped them avoid the expense of buying their own servers and software. However, Amazon has also scared some tech companies using its cloud, sometimes bringing competing products to market.
Three years ago, Amazon quietly launched AWS Connections, a program designed to connect startups with some of its largest customers. Since 2019, Amazon has organized around 2,000 meetings between startups and potential customers.
New York-based digital insurance startup Slice Insurance Technologies Inc. used Amazon’s program to win the business of a health insurer operating in Australia, the startup’s CEO Tim Attia said outside. “If you’re a newbie, it doesn’t hurt to have an older brother,” he said of the relationship with Amazon.
For Microsoft, the partnership model is part of a broader effort to secure more businesses that can start small but grow big. One challenge for Microsoft is to attract startups who may be wary of the tech giant whose business software may contain competing products.
Amazon, lacking these successful software tools, is becoming an easier partner, said McIlwain, whose company was one of the e-commerce giant’s early investors.
In April, Microsoft named Jeff Ma a start-up and sought out venture capital firms Greylock Partners, Benchmark and Andreessen Horowitz to attract companies from its portfolio.
Saam Motamedi, board member of Abnormal and general partner of Greylock Partners who backed the startup, said Microsoft was aggressively promoting its Azure cloud with these young companies. “Microsoft spends a lot of resources on this,” said Motamedi.
For Microsoft, the abnormal deal is a sign that the partnership model is working, Ma said. “Let’s learn from this.”
Translation by Luiz Roberto M. Gonçalves