Analysts David Mitchell Smith and Ed Anderson say opaque reporting by vendors means customers should evaluate providers not based on earnings but on which offering best matches their use case.
“Assessing vendor cloud revenue claims has become more challenging, with many vendors' IT-related businesses being complicated and nuanced,” Gartner’s Smith and Anderson write in the report, which was issued in late December. “We recommend CIOs direct their organizations to never take vendor cloud revenue at face value, and evaluate vendors on their strategy and service mix.”
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One of the most common tricks vendors use is to include non-cloud technology in their cloud earnings. A vendor may, for example, include cloud-enabling technologies in their cloud revenue, such as servers, virtualization software or management tool sales. These are all components of a cloud, but are not an actual cloud service.
Some vendors lump hosted or managed hosting revenues in with cloud earnings. Those are perfectly legitimate markets, but they’re not IaaS cloud. Consulting and professional services revenue related to cloud have been found to be bundled with cloud revenue, too, in order to inflate the figure.
Frustration in evaluating revenues of emerging technology is an “age-old” issue says Jeff Kaplan with THINKStrategies, a cloud watcher. “It should be part of an overall evaluation. But it’s always been difficult to discern what money a vendor is generating from a specific product line.”
Technology transformations like the emergence of cloud computing can be tumultuous times for vendors who have made a living selling hardware, software and services to large businesses. Buyers are transitioning to an operating-expense model instead of purchasing capital equipment. Legacy IT vendors want to show Wall Street investors that they’re rapidly making the shift to sell new cloud technologies while hoping it does not cannibalize their existing revenue streams. Some vendors are having more success than others in doing this.
In the IaaS market, Amazon Web Services seems to be the most transparent, breaking out the revenue for its Web Services division separately from its core ecommerce revenues. AWS had another record quarter and closed out 2015 with more than $7.5 billion in revenue with $1.8 billion in profit. AWS is likely sharing these financials because it is proud to boast them.
Other vendors are more cloudy with their reporting. Microsoft combines many cloud initiatives into its commercial cloud revenue figures. These include its Office 365 SaaS tools, along with Azure IaaS and Dynamics CRM. It’s unclear what percentage of the $8.2 billion revenue is related to SaaS and how much can be devoted to IaaS. So, it’s nearly impossible to compare AWS to Azure from a financial performance measure.
Google does not break out cloud revenues in its earnings, but instead lumps them in with “other revenues” that are separate from its core advertising-related sales, so there’s no way to compare its cloud business with Amazon and Microsoft’s.
IBM has some of the most confusing “cloud” reporting. Despite boisterous claims that it earned $9.4 billion in cloud revenue last year, a closer look at the figures raises questions showing that $4.5 billion of that revenue is related to “as a service” offerings. Gartner wonders: “What cloud revenue is not ‘as a service’” leading it to believe IBM is lumping non-cloud revenue, such as consulting and professional services in with cloud line items.
On the SaaS side, Salesforce is quite transparent, mostly because it is a pure-play SaaS company that is publicly traded. It hopes to earn $6.6 billion in revenue this fiscal year. One of its chief competitors, SAP, is a little bit more concealing with its reporting. SAP says any “flexible, IT-related service” available through the Internet is defined as cloud. So when it said it earns $4.1 billion per quarter in cloud that may include some other HANA-related, non-cloud products.