UPDATED: Has AWS redefined infrastructure software revenue growth for the last time?
Even under new leadership, AWS continues to blow the doors off of their results:
Since I started in the infrastructure software space more than 25 years ago, I’ve been as much a student of the financial aspects of these businesses as I have a SME on their technology, strategy and differentiation. From books like Information Rules to The Business Of Software, I have been particulary fascinated by the unique economic drivers of these organizations (e.g. network effects, switching costs, etc.) and how those dynamics have changed over the course of my career (e.g. shift from perpetual to SaaS licensing, an increasing reliance on pro/support services vs licenses, etc.) Still, there is no substitute for the awe and respect that is generated by explosive revenue growth, especially for businesses that shatter what were previously thought to be unbreakable records.
Microsoft clearly set the standard in the late 80s and early 90s, with honorable mentions going to companies like Novell and Citrix. It wasn’t until VMware showed up in the late 90s that I had my first “Aha! moment” in this respect. Watching VMW’s growth was a site to behold, even if I were later to discover that they didn’t actually grow as fast a Microsoft did in the early days. Still, as a pure-play infrastructure software firm (which Microsoft was clearly not), VMW was the fastest growing company I had watched from inception and I remember saying to myself, “it’s going to be a long time until we see something like this again.”
Well it wasn’t quite a decade later when AWS came on the scene and raised the bar once again. Watching their revenue performance over the past decade has been absolutely awe-inspiring! So much so that I felt compelled to dig into the data and produce a snazzy b-school chart:
This chart plots the compound annual revenue growth rates (CAGR) of AWS, Microsoft and VMware against their actual quarterly revenue performance (based on the best available data for AWS† and publicly available data for MSFT and VMW) over 24 consecutive (yet different) quarters. I decided to try and level the comparison by taking quarterly revenue for 6 years after each company respectively hit $1B in sales.
Here’s what I learned. MSFT outperformed VMW with both a higher CAGR and also hit a larger absolute revenue number at the end of the period (almost $7.5B vs just under $5B). Granted they did this with a diversified set of products that included Office, one of the most successful applications in history. However, they also did it almost two decades prior to VMW, so you have to give them props from an inflation-adjusted perspective.
But the “shock and awe” award still goes to AWS. Their CAGR was even higher than Microsoft’s and their revenue after the 24-quarter period was just shy of $10B. Think about that for a second - they went from $1 to $10B in 6 years! Not sure how many other companies in history have done that, if any (checkout some impressive multi-billion dollar growers here.)
†https://www.statista.com/statistics/250520/forecast-of-amazon-web-services-revenue/
