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January 18, 2016updated 31 Aug 2016 10:02am

Is cloud revenue indicative of cloud growth? What CIOs should look for in financial reports from cloud vendors

News: While AWS cloud market share grows and could see it surpass Amazon.com's profitability, it’s important not to get lost in revenue figures.

By James Nunns

How do you tell if your cloud vendor is as successful as it says it is when revenues are being counted in so many different ways?

While one vendor may only count SaaS services, others have found a way of including some hardware revenue. This paints a deceptive picture to both customers and Wall Street over how well cloud is doing.

That’s according to the Gartner report, "Vendor Cloud Revenue Claims – Should Enterprises Care?"

Microsoft has already been called out by its former CEO Steve Ballmer who criticised the lack of visibility regarding profit margins and sales for its cloud and hardware business.

The problem is that Microsoft categorises revenue from Office 365, Azure and Dynamics CRM as cloud revenue; this is despite Office 365 sales including both desktop and device. While it offers cloud features, it is not really a cloud service and there is no guarantee that these cloud features are being used.

According to Gartner, Oracle has managed to find a way to label some of its hardware leases as Infrastructure-as-a-Service, whileSalesforce operates dedicated hardware for some clients.

The point is that when looking at a cloud vendor, you should probably take the financial results with a pinch of salt and not use these as a guideline for a cloud vendor to join.

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This isn’t to say that companies are not seeing great success with their cloud services; Amazon for example could see its cloud arm AWS surpass the parent company’s retail arm for profitability.

According to a report by RBC Capital Markets, 2016 could see AWS profitability surpass retail. This isn’t too surprising given the strength of the cloud company and when you look at the third quarter financial results.

These showed revenue from Amazon’s entire North American online retail business being closely matched by AWS.

From 2013 to 2016 AWS has seen its share of the market increase by 5% from 34% to 39%, while others like Google have seen the percentage of people using it drop from 40% to 32% over the same period.

While the growth of AWS is impressive, it’s important not to get lost in these figures and consider it as the go-to cloud vendor.

Gartner suggests a few questions that should be asked ahead of any cloud decision that should help to understand and see through some of the revenue complexity.

The questions include asking what revenue is cloud-associated. You should also be asking, however, which non-cloud services are included in cloud revenue and how much of the cloud business is actually being deployed, this is versus cloud shelfware, or services that aren’t actually in use.

Questions like these should help you to identify how quickly a cloud vendor is actually growing and you should want to know this because many decisions are based upon use cases.

This means that you are looking at examples of how others are using cloud services and what vendors are being chosen. You need to know that the growth figures are realistic because it’s good to know that others trust the service and that it’s likely to grow and expand as your business expands.

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