Microsoft can still dominate the cloud? Report: Azure revenue in 2022 is less than half of Amazon AWS.

The document submitted by the US antitrust regulatory agency to a US court this week finally sheds some light on one of the biggest secrets in the cloud computing industry: the true scale of Microsoft Azure's cloud business division.

According to a report by The Information on Thursday, internal documents briefly released on a court website by federal antitrust regulators show that "in the 12 months ending June 2022, Azure's revenue was only half that of its main competitor, Amazon Web Services (AWS)."

The documents reveal that "in June of last year, Microsoft CEO Satya Nadella told the company's board that Azure's cloud services business would generate $34 billion in revenue in the 12 months ending June of that year, while AWS had revenue of $72 billion during the same period."

These documents were later removed from the court website.

For years, Microsoft has kept the true scale of its Azure cloud business division a closely guarded secret, preventing investors from understanding how it truly compares to AWS, widely regarded as the industry leader.

This news may come as a shock to some investors, as "it implies that Azure's market share in the cloud computing business is a few percentage points smaller than what most analysts have estimated." The Information states that this figure could change investors' perception of Microsoft's success in the cloud computing field, indicating that Microsoft's performance may not be as good as widely believed.

A year ago, Microsoft informed its board that the company had a 16% share of the global cloud services market, while AWS had 38%. In comparison, around the same time last year, IT research firm Gartner estimated Microsoft's market share to be 21% and AWS to be 39%.

"It is difficult to know whether the gap between AWS and Azure has narrowed or widened in the year since this document was written." Unlike AWS and Google Cloud, Microsoft has consistently refused to disclose Azure's actual revenue, instead reporting the revenue of its Intelligent Cloud business segment, which includes Azure data, as well as enterprise services, Windows Server, and SQL Server.

In Microsoft's latest fiscal third-quarter earnings report for 2023, Intelligent Cloud revenue reached $22.08 billion, a 16% increase from the same period last year, surpassing Wall Street's forecast of $21.94 billion. However, investors cannot determine how much of this figure is generated by Azure.

"Since July of last year, Microsoft has undergone a comprehensive overhaul of its Azure product plans, incorporating OpenAI's artificial intelligence into them, with the hope that this will bring more business to Azure in the long run." Part of the reason is to attract more customers who want to run artificial intelligence applications in the cloud. Microsoft sells OpenAI's artificial intelligence software to Azure customers and charges separate fees for OpenAI-based features in Office 365 (which is not part of the cloud business).

Holger Mueller, an analyst at research firm Constellation Research, called on Microsoft to consider eventually disclosing Azure's revenue to alleviate investor concerns about the attribution of any innovative revenue. He said:

"Large software vendors have been found to do this more than once in the past, and while there is no indication that Microsoft is involved in any improper business, the only way to address this concern is to increase transparency." "Microsoft is not obligated to share Azure's revenue, but this transparency would be welcomed by customers and investors."

In addition, analysts have had differing opinions on whether Microsoft's cloud business is profitable or not.

The analysis suggests that increased transparency would also make Azure's profitability clearer. Although court documents show Azure's revenue, there is still no evidence of whether Azure was profitable during the period ending June 2022. Since 2014, AWS has generated substantial profits from its cloud business, but Google Cloud has not been as successful, although it finally achieved its first-ever profit in May of this year.

Finally, this document indicates that Microsoft remains open to large acquisitions, which will help the company further penetrate the consumer market. The analysis suggests that Microsoft has been striving to attract new consumers to use its products, especially on mobile devices. The deal with Activision was announced earlier this year and, if approved, will further expand Microsoft's presence in the consumer market.

However, this week's court case did not disclose any further details.