Azure revenue continues to slow down for Microsoft

Microsoft reported in its FY19, Q4 earnings report today that Azure, the company’s infrastructure as a service (IaaS) offering, grew at 64 percent. It may feel like a large number, but was part of a downward trend Microsoft has been experiencing throughout the entire fiscal 2019 earnings cycle.

The growth rates for FY19 were, Q1: 76 percent, Q2: 76 percent, Q3: 73 percent and all the way down to 64 percent this quarter. They’re probably not panicking in the hallways in Redmond today over these numbers as that is still a healthy growth rate, and the law of large numbers suggests that the bigger you get, the slower your growth is going to be. Gaudy numbers tend to be for upstarts.

Microsoft is clearly not in that category, sitting strongly in the number 2 position in cloud infrastructure market, and as Synergy Research’s John Dinsdale pointed out, while that growth rate may be slowing down, the more important marketshare percentage has continued to grow steadily upward.

“Microsoft is a clear number two in cloud infrastructure services (IaaS, PaaS, hosted private cloud), still a long way behind AWS but well ahead of the rest of the pack. Its revenue growth rate is way above the overall market growth rate, so it is gradually gaining marketshare – 9% in 2016, 11% in 2017, 14% in 2018 and 16% in the first quarter of 2019,” he said in a statement today.

CIS Q119

And even as the revenue growth slows, Microsoft announced a big win this week when AT&T announced it would be signing a contract worth $2 billion in Azure and Office 365 services. While Office 365 is not part of the IaaS market, it was still a significant customer acquisition for the company.

The cloud market is still growing at a rapid rate as companies are still in the relatively early stages of moving their workloads to public cloud vendors like Microsoft, Amazon and Google. There is a tremendous opportunity ahead for Microsoft and all of its rivals, and while Microsoft’s Azure earnings growth may be slowing down, there is still plenty of room for significant revenue for the foreseeable future.

AT&T signs $2 billion cloud deal with Microsoft

While AWS leads the cloud infrastructure market by wide margin, Microsoft isn’t doing too badly, ensconced firmly in second place, the only other company with double-digit share. Today, it announced a big deal with AT&T that encompasses both Azure cloud infrastructure services and Office 365.

A person with knowledge of the contract pegged the combined deal at a tidy $2 billion, a nice feather in Microsoft’s cloud cap. According to a Microsoft blog post announcing the deal, AT&T has a goal to move most of its non-networking workloads to the public cloud by 2024, and Microsoft just got itself a big slice of that pie, surely one that rivals AWS, Google and IBM (which closed the $34 billion Red Hat deal last week) would dearly have loved to get.

As you would expect, Microsoft CEO Satya Nadella spoke of the deal in lofty terms around transformation and innovation. “Together, we will apply the power of Azure and Microsoft 365 to transform the way AT&T’s workforce collaborates and to shape the future of media and communications for people everywhere,” he said in a statement in the blog post announcement.

To that end, they are looking to collaborate on emerging technologies like 5G and believe that by combining Azure with AT&T’s 5G network, the two companies can help customers create new kinds of applications and solutions. As an example cited in the blog post, they could see using the speed of the 5G network combined with Azure AI-powered live voice translation to help first responders communicate with someone who speaks a different language instantaneously.

It’s worth noting that while this deal to bring Office 365 to AT&T’s 250,000 employees is a nice win, that part of the deal falls on the under the SaaS umbrella, so it won’t help with Microsoft’s cloud infrastructure marketshare. Still, any way you slice it, this is a big deal.

Contract management startup Icertis becomes unicorn with $115M new round

Icertis, a Washington-headquartered startup that develops cloud-based software to help large companies manage contracts, has raised $115 million at more than a billion dollar valuation to become the latest SaaS unicorn as it looks to further expand its footprints across the globe.

The Series E round for the 10-year-old firm was led by Greycroft and PremjiInvest, and saw participation from existing investors B Capital Group, Cross Creek Advisors, Eight Roads, Ignition Partners, Meritech Capital Partners, and PSP Growth. The startup, which also has offices in Seattle, Pune, Singapore, London, Paris, Sydney, has raised $211 million to date.

Icertis said it would use the fresh capital to expand its technology platform to address wider use cases. It said it would also expand its blockchain framework that integrates with enterprise contract management platforms to solve challenges such as transparency in supply chain and certification compliance. Its revenue are at about $100 million currently — another key area it intends to scale.

The firm, which claims that five of the world’s most valuable companies are its clients (one of which is Microsoft), said it would also scale its sales and marketing efforts to reach “every leading company in the world” and expand its partner ecosystem. It is also looking to acquire startups that are a good fit to its contracting business.

Icertis lets users manage almost all kinds of contracts. Companies use Icertis’ products to handle procurement, sales, and corporate contracts, including non-disclosure agreements. In addition to helping users create contracts, Icertis’ software also tracks when terms are met, ensures regulatory compliance, and automates administrative tasks like sending renewal reminders.

Icertis, which was founded originally in India, says it has more than 2,000 high profile customers and it helps them manage more than 5.7 million contracts with an aggregate value of more than $1 trillion. In a statement, Mark Terbeek, a partner at Greycroft, said Icertis’ ability to win “a huge stable of blue-chip customers” was among the factors that attracted them to invest in the company.

“Nothing is more foundational than contract management as every dollar in and every dollar out of a company is governed by a contract. As the CLM market takes off, we are thrilled to have Premji Invest join the Icertis family, Greycroft double down by co-leading this round, and all investors re-up their commitment as we execute on our mission to become the contract management platform of the world,” said Icertis’ cofounder and CEO Samir Bodas, in a statement.

Icertis competes with a number of firms including Apttus — which has raised north of $400 million, Springcm — which was acquired by DocuSign, Conga — which has raised over $100 million, Ariba, and Concord.

Judge dismisses Oracle lawsuit over $10B Pentagon JEDI cloud contract

Oracle has been complaining about the procurement process around the Pentagon’s $10 billion, decade-long JEDI cloud contract, even before the DoD opened requests for proposals last year. It went so far as to file a lawsuit in December, claiming a potential conflict of interest on the part of a procurement team member. Today, that case was dismissed in federal court.

In dismissing the case, Federal Claims Court Senior Judge Eric Bruggink ruled that the company had failed to prove a conflict in the procurement process, something the DOD’s own internal audits found in two separate investigations. Judge Bruggink ultimately agreed with the DoD’s findings:

We conclude as well that the contracting officer’s findings that an organizational conflict of interest does not exist and that individual conflicts of interest did not impact the procurement, were not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. Plaintiff’s motion for judgment on the administrative record is therefore denied.

The company previously had filed a failed protest with the Government Accountability Office (GAO), which also ruled that the procurement process was fair and didn’t favor any particular vendor. Oracle had claimed that the process was designed to favor cloud market leader AWS.

It’s worth noting that the employee in question was a former AWS employee. AWS joined the lawsuit as part of the legal process, stating at the time in the legal motion, “Oracle’s Complaint specifically alleges conflicts of interest involving AWS. Thus, AWS has direct and substantial economic interests at stake in this case, and its disposition clearly could impair those interests.”

Today’s ruling opens the door for the announcement of a winner of the $10 billion contract, as early as next month. The DoD previously announced that it had chosen Microsoft and Amazon as the two finalists for the winner-take-all bid.

With $34B Red Hat deal closed, IBM needs to execute now

In a summer surprise this week, IBM announced it had closed its $34 billion blockbuster deal to acquire Red Hat. The deal, which was announced in October, was expected to take a year to clear all of the regulatory hurdles, but U.S. and EU regulators moved surprisingly quickly. For IBM, the future starts now, and it needs to find a way to ensure that this works.

There are always going to be layers of complexity in a deal of this scope, as IBM moves to incorporate Red Hat into its product family quickly and get the company moving. It’s never easy combining two large organizations, but with IBM mired in single-digit cloud market share and years of sluggish growth, it is hoping that Red Hat will give it a strong hybrid cloud story that can help begin to alter its recent fortunes.

As Box CEO (and IBM partner) Aaron Levie tweeted at the time the deal was announced, “Transformation requires big bets, and this is a good one.” While the deal is very much about transformation, we won’t know for some time if it’s a good one.

Transformation blues

It was a really bad month for the internet

If these past few weeks felt like the sky was falling, you weren’t alone.

In the past month there were several major internet outages affecting millions of users across the world. Sites buckled, services broke, images wouldn’t load, direct messages ground to a halt and calendars and email were unavailable for hours at a time.

It’s not believed any single event tied the outages together, more so just terrible luck for all involved.

It started on June 2 — a quiet Sunday — when most weren’t working. A massive Google Cloud outage took out service for most on the U.S. east coast. Many third-party sites like Discord, Snap and Vimeo, as well as several of Google’s own services, like Gmail and Nest, were affected.

A routine but faulty configuration change was to blame. The issue was meant to be isolated to a few systems but a bug caused the issue to cascade throughout Google’s servers, causing gridlock across its entire cloud for more than three hours.

On June 24, Cloudflare dropped 15% of its global traffic during an hours-long outage because of a network route leak. The networking giant quickly blamed Verizon (TechCrunch’s parent company) for the fustercluck. Because of inherent flaws in the border gateway protocol — which manages how internet traffic is routed on the internet — Verizon effectively routed an “entire freeway down a neighborhood street,” said Cloudflare in its post-mortem blog post. “This should never have happened because Verizon should never have forwarded those routes to the rest of the Internet.”

Amazon, Linode and other major companies reliant on Cloudflare’s infrastructure also ground to a halt.

A week later, on July 2, Cloudflare was hit by a second outage — this time caused by an internal code push that went badly. In a blog post, Cloudflare’s chief technology officer John Graham-Cumming blamed the half-hour outage on a rogue bit of “regex” code in its web firewall, designed to prevent its customer sites from getting hit by JavaScript-based attacks. But the regex code was bad and caused its processors to spike across its machines worldwide, effectively crippling the entire service — and any site reliant on it. The code rollback was swift, however, and the internet quickly returned to normal.

Google, not wanting to out-do Cloudflare, was hit by another outage on July 2 thanks to physical damage to a fiber cable in its U.S. east coast region. The disruption lasted for about six hours, though Google says most of the disruption was mitigated by routing traffic through its other data centers.

Then, Facebook and its entire portfolio of services — including WhatsApp and Instagram — stumbled along for eight hours during July 3 as its shared content delivery network was hit by downtime. Facebook took to Twitter, no less, to confirm the outage. Images and videos across the services wouldn’t load, leaving behind only the creepy machine learning-generated descriptions of each photo.

instagram creepy

Instagram was one of the many Facebook-owned services hit by an outage this week, with several taking to Twitter noting the automatic tagging and categorization of images (Image: Derek Kinsman/Twitter)

At about the same time, Twitter too had to face the music, admitting in a tweet that direct messages were broken. Some complained of “ghost” messages that weren’t there. Some weren’t getting notified of new messages at all.

Then came Apple’s turn. On July 4, iCloud was hit by a three-hour nationwide outage, affecting almost every part of its cloud-based service — from the App Store, Apple ID, Apple Pay and Apple TV. In some cases, users couldn’t access their cloud-based email or photos.

According to internet monitoring firm ThousandEyes, the cause of the outage was yet another border gateway protocol issue — similar to Cloudflare’s scuffle with Verizon.

apple status

Apple’s nondescript outage page; it acknowledges issues, but not why or for how long (Image: TechCrunch)

It was a rough month for a lot of people. Points to Cloudflare and Google for explaining what happened and why. Less so to Apple, Facebook and Twitter, all of which barely acknowledged their issues.

What can we learn? For one, internet providers need to do better with routing filters, and, secondly, perhaps it’s not a good idea to run new code directly on a production system.

These past few weeks have not looked good for the cloud, shaking confidence in the many reliant on hosting giants — like Amazon, Google and more. Although some quickly — and irresponsibly and eventually wrongly — concluded the outages were because of hackers or threat actors launching distributed denial-of-service attacks, it’s always far safer to assume that an internal mistake is to blame.

But for the vast majority of consumers and businesses alike, the cloud is still far more resilient — and better equipped to handle user security — than most of those who run their own servers in-house.

The easy lesson is to not put all your eggs in one basket — or your data in a single cloud. But as this month showed, sometimes you can be just plain unlucky.

A Cloudflare outage is impacting sites everywhere

If you’ve been experiencing “502 Bad Gateway” notices all morning, for better or worse, you’re not alone. Cloudflare has been experiencing some major outages this morning, leaving many sites reeling in its wake. In fact, the company’s System Status page, which collects global incidents, reads like a laundry list of every major city across the globe.

Cloudflare has acknowledged what looks to be an extremely widespread issue, and appears to be working to address the issue. “Cloudflare has implemented a fix for this issue and is currently monitoring the results,” the company writes. “We will update the status once the issue is resolved.” We’ve reached out to the company for more information and will do the same.

For now, maybe go take a walk around the block. It’s nice outside.

Update: Cloudflare co-founder and CEO Matthew Prince offers up some insight into what’s going on here. “Massive spike in CPU usage caused primary and backup systems to fall over. Impacted all services. No evidence yet attack related. Shut down service responsible for CPU spike and traffic back to normal levels. Digging in to root cause.”

Prince adds that the fix has addressed the outage. Normal service should be restored to the impacted sites.

Enterprise SaaS revenue hits $100B run rate, led by Microsoft and Salesforce

In its most recent report, Synergy Research, a company that monitors cloud marketshare, found that enterprise SaaS revenue passed the $100 billion run rate this quarter. The market was led by Microsoft and Salesforce.

It shouldn’t be a surprise at this point that these two enterprise powerhouses come in at the top. Microsoft reported $10.1 billion in Productivity and Business Processes revenue, which includes Office 365, the Dynamics line and LinkedIn, the company it bought in 2016 for $26.2 billion. That $10.1 billion accounted for the top spot with 17 percent

Salesforce was next with around 12%. It announced $3.74 billion in revenue in its most recent earnings statement with Service Cloud alone accounting for $1.02 billion in revenue, crossing that billion-dollar mark for the first time.

Adobe came in third, good for around 10% market share, with $2.74 billion in revenue for its most recent report. Digital Media, which includes Creative Cloud and Document Cloud, accounted for the vast majority of the revenue with $1.8 billion. SAP and Oracle complete the top companies

SaaS Q119

A growing market

While that number may seem low, given we are 20 years into the development of the SaaS market, it is still a significant milestone, not to be dismissed lightly. As Synergy pointed out, while the market feels mature, if finds that SaaS revenue still accounts for just 20 percent of the overall enterprise software market. There’s still a long way to go, showing as with the infrastructure side of the market, things change much more slowly than we imagine, and the market is growing rapidly, as the impressive growth rates show.

“While SaaS growth rate isn’t as high as IaaS (Infrastructure as a Service) and PaaS (Platform as a Service), the SaaS market is substantially bigger and it will remain so until 2023. Synergy forecasts strong growth across all SaaS segments and all geographic regions,” the company wrote in its report.

Salesforce is the only one of the top five that was actually born in the cloud. Adobe, an early desktop software company, switched to cloud in 2013. Microsoft, of course, has been a desktop stalwart for many years before embracing the cloud over the last decade. SAP and Oracle are traditional enterprise software companies, born long before the cloud was even a concept, that began transitioning when the market began shifting.

Getting to a billion

Yet in spite of being late to the game, these numbers show that the market is still dominated by the old guard enterprise software companies and how difficult it is to achieve market dominance for companies born in the cloud. Salesforce emerged 20 years ago as an early cloud adherent, but of all of the enterprise SaaS companies that were started this century only ServiceNow and WorkDay show up in the Synergy list lumped in “the next 10.”

That’s not to say there aren’t SaaS companies making some serious money, just not quite as much as the top players to this point. Jason Lemkin, CEO and founder at SaaStr, a company that invests in and supports enterprise SaaS companies, says a lot of companies are close to that $1 billion goal than you might think, and he’s optimistic that we are going to see more.

“We will have at least 100 companies top $1 billion in ARR, probably many more. It is just math. Almost everyone IPO’ing [SaaS company] has 120-140% revenue retention. That will compound $100 million or $200 million to $1 billion. The only question is when,” he told TechCrunch.

SaaS revenue numbers by company

Chart courtesy of SaasStr

He adds that annualized numbers are very close behind ARR numbers and it won’t take long to catch up. Yet as we have seen with some of the companies on this list, it’s still not easy to get there.

It’s hard to develop a billion dollar SaaS company, and it takes time and patience, and perhaps some strategic acquisitions to get there, but the market trajectory continues to move upward. It will likely only grow stronger as more companies move to software in the cloud, and that bodes well for many of the players in this market, even those that didn’t show up on Synergy’s chart.

Google is building a new private subsea cable between Portugal and South Africa

Google today announced Equiano, a new private subsea cable that will connect Portugal and South Africa. The cable will be built by Alcatel Submarine Networks and the first phase of the project is scheduled for completion in 2021. In April, the WSJ first reported the company’s plans for this cable.

This is the company’s third private cable after Dunant between Europe and the U.S., and Curie, which spans between the U.S. and Chile. In addition, Google is also a partner in a number of cable consortiums that operate cables that span the globe.

Cloud Map with Equiano FINAL

The company notes that Equiano, which was named after Nigerian writer and abolitionist Olaudah Equiano, will be the first subsea cable that uses optical switching at the fiber pair level. This makes it easier to allocate capacity as needed.

Google also stresses that this new cable is able to carry about 20 times the capacity of the last cable that was built to serve this region. The cable will feature numerous branching units that it can then use to connect lines to other countries along the way. The first branch will connect the cable to Lagos, Nigeria. Other branches will follow in the future.

Unlike some of its competitors, Google does not currently operate any data centers on the African continent and has yet to share any plans to do so. This makes fast connections to Europe even more of a necessity, though it’s also possible that Google is putting this new cable in place to prepare for a data center launch in South Africa, for example.

 

 

Chronicle, X’s security moonshot, moves to Google Cloud

Google Cloud today announced that Chronicle, the enterprise security company Google’s parent company Alphabet incubated under its X “moonshot factory,” is moving to Google Cloud and becoming part of Google’s security portfolio.

Chronicle officially launched out of X in January 2018, when it became an independent company under the Alphabet umbrella. Stephen Gillett, who was previously the COO of security company Symantec, became its CEO.

Spinning out Chronicle instead of bringing it to Google Cloud always seemed like an odd move. It was likely meant to see if its products, including malware and virus scanning service VirusTotal and its enterprise security intelligence and analytics platform, could stand on their own. It’s unclear how well Chronicle did in the market, but given Google’s focus on growing its cloud business, it seems like a logical move to now integrate Chronicle into Google Cloud.

“Chronicle’s products and engineering team complement what Google Cloud offers,” Google Cloud CEO Thomas Kurian writes today, “Chronicle’s VirusTotal malware intelligence services will be a powerful addition to the pool of threat data informing Google Cloud offerings, and will continue to support applications running on our platforms.”

He also notes that the team saw that both Chronicle and Google Cloud were already on a trajectory that saw them converge on the same kind of solutions.

He expects to see a full integration of Chronicle’s security tools into Google Cloud by this fall.