By Aaron Tilley
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 15, 2020).
Microsoft Corp. and Amazon.com Inc. are embracing a new tactic
to win the supercharged battle for cloud-computing business, luring
fast-growing startups by promising to help sell their services.
Microsoft on Monday announced a partnership with Abnormal
Security Corp., under which the San Francisco-based email-security
startup will move its software onto the tech giant's Azure cloud.
Microsoft, in return, promises to sell Abnormal's services to its
large enterprise clients, which Microsoft says is its first such
arrangement. The companies didn't disclose financial terms.
Amazon also has used the partnership model to bolster its cloud
business. In January, it signed an agreement with Apptio Inc., a
Bellevue, Wash.,-based software company that helps users manage
their cloud spending. Apptio agreed to expand its use of Amazon Web
Services, the online retail giant's cloud, and Amazon now sells the
startup's services to its cloud customers.
"All these cloud platforms would love startups to build on top
of them," said Matt McIlwain, managing director at Seattle-based
venture-capital firm Madrona Venture Group. "What's new is this
intentionality and saying, 'We're going to partner.'"
For the two cloud-computing giants those partnership deals could
help sustain growth in a business segment that has become crucial
to their financial fortunes -- and increasingly competitive. The
partners can tap the vast sales reach Microsoft and Amazon offer,
providing access to a range of customers many startups and small
enterprises could struggle to reach independently.
Amazon has a 45% market share in providing the so-called public
cloud infrastructure, ahead of Microsoft with almost 18%, according
to research firm Gartner Inc., which puts other rivals at below
10%. Amazon said the cloud generated about 12.5% of the company's
total sales last year. Microsoft, which calculates cloud revenue
differently, said those sales represented more than 30% of its
In the two years since its founding, Abnormal used AWS, spending
several million dollars annually on the service. Moving to another
provider can be cumbersome and costly. However, Abnormal's chief
executive, Evan Reiser, said that selling its security service to
the huge enterprise customers with ties to Microsoft was so
attractive it outweighed the downside of making the switch in cloud
Microsoft and Amazon both have seen accelerated adoption of
their cloud services during the pandemic, as companies embrace
tools for remote work. Usage has driven investor expectations sky
high, leaving little room for missteps. Microsoft's stock has risen
more than 30% this year. Amazon's stock is up more than 70%, driven
by the strength of its cloud and online retail sales during the
Amazon popularized the cloud model, but Microsoft has stepped up
its challenge to win more of the lucrative and fast growing
business. The two have been battling fiercely, including over
multibillion-dollar government contracts. The Pentagon this month
said it was moving ahead with a potentially $10 billion
cloud-computing contract with Microsoft after losing bidder Amazon
challenged the deal.
Amazon's early focus on the cloud gave it a jump on winning
business from startups. Many of them were early adopters of
Amazon's computing services that allowed them to avoid sinking
money into buying their own servers and software. But Amazon also
has spooked some tech companies that use its cloud, sometimes
launching competing products.
Three years ago, Amazon quietly launched AWS Connections, a
program designed to link startups with some of its biggest
customers. Since 2019, Amazon said it has arranged around 2,000
meetings between startups and potential customers.
New York-based digital insurance startup Slice Insurance
Technologies Inc. used the Amazon program to win businesses from a
health-insurance provider operating in Australia, the startup's CEO
Tim Attia said, giving the company exposure overseas. "If you're a
startup, having a big brother doesn't hurt," he said of the
relationship with Amazon.
For Microsoft, the partnership model is part of a broader push
to secure more of that business, which can start small but can
become huge. One challenge for Microsoft has been wooing startups
that could be leery of the tech giant whose business software can
include competing products. Amazon, which doesn't have those
successful software tools, makes it an easier partner, Mr. McIlwain
said, whose firm was an early investor in the e-commerce giant.
Microsoft in April appointed Jeff Ma to court startups, and he
approached venture-capital firms Greylock Partners, Benchmark and
Andreessen Horowitz to try to snare business among their portfolio
Saam Motamedi, a board member at Abnormal and general partner at
Greylock Partners that has backed the startup, said Microsoft has
been aggressively promoting its Azure cloud to those young
businesses. "Microsoft is spending a lot of resources on this," Mr.
For Microsoft, the deal with Abnormal is a sign the partnership
model works, Mr. Ma said. "We'll learn from this."
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(END) Dow Jones Newswires
September 15, 2020 02:47 ET (06:47 GMT)
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