Big Tech is zeroing in on Canada as the next frontier in the cloud wars
Arvind Krishna’s appointment last Thursday as the next CEO of IBM was a sign of the times.
Under its outgoing chief executive, Ginni Rometty, the century-old firm had made some moves to maintain its status as one of the world’s leading suppliers of business technology; Krishna, however, has spent the last few years on the front lines of that battle. As head of IBM’s cloud division, he was in direct competition against younger rivals Microsoft, Amazon and Google.
In a little over a decade, cloud technology — which provides businesses with essentials like software and data storage as a service, letting them save capital costs and run their operations over the internet — has become a key technology for every sector from finance to fashion. As a result, the rivalry between these four technology behemoths has become increasingly intense — epitomized most recently by Microsoft winning the US$10-billion Joint Enterprise Defense Infrastructure contract from the Pentagon, which prompted Amazon to file a court challenge, alleging bias; the company now risks its rivals winning new contracts opened by the CIA. The firms’ commitments to cloud computing show in their leadership — like Krishna, Microsoft CEO Satya Nadella previously led his company’s cloud division — but these big American players have another thing in common: they’ve all identified Canada as the next frontier.
For the taking is a chunk of a public cloud-services market that is set to grow from about $6 billion in 2019 to over $10 billion in 2023, according to the International Data Corporation’s (IDC) Worldwide Semiannual Public Cloud Service tracker.
By 2024, half of Canada’s enterprises will be hosted on hybrid cloud and multicloud platforms, IDC predicts. The race to get there, however, is shaping out differently than what’s taken place south of the border, as the country’s public and private sectors have taken a cautious approach to cloud technology, focusing on security before all else.
The multinationals, however, have not been deterred, as made evident by the four firms’ combined hundreds of active Canada-based cloud-related job postings — for everything from software engineers to chief technology officers. While only Amazon Canada would share actual numbers on its national cloud labour force, none of the big four denied they were expanding quickly in Canada.
We’re past a tipping point here. Canada is now in the tsunami of cloud
Kevin Peesker, president of Microsoft Canada
“We’re past a tipping point here,” said Kevin Peesker, president of Microsoft Canada. “Canada is now in the tsunami of cloud.”
“It doesn’t matter what industry it is, the intensity of technology adoption has escalated and is significantly higher than it was five or 10 years ago,” Peesker said. “I’ve never seen a period like we are seeing today.”
The importance of the cloud to the tech giants’ bottom lines was reinforced in their latest round of earnings. Amazon Web Services (AWS) accounted for US$9.95 billion of Amazon’s US$87.4 billion in fourth-quarter revenue, its 34 per cent growth higher than analysts had expected. Amazon’s share of the cloud market is approximately two and a half times greater than its nearest competitor, but its rivals are catching up as they expand on their own cloud technologies. Revenue from IBM’s cloud business rose 21 per cent to US$6.8 billion in the fourth quarter of 2019, spurred by the Red Hat acquisition. Microsoft, too, reported higher second-quarter revenues, with its “intelligent cloud” division raking in US$11.9 billion; Azure, its 10-year-old cloud computing service, grew 62 per cent, and server products and cloud services revenue was up 30 per cent. Alphabet reported Google Cloud revenue for the first time: it stands at US$2.6 billion in the fourth quarter of 2019, an increase of about 53 per cent from the same period last year.
Those companies now see an opportunity in Canada in part because the country’s businesses have “reached a point where they no longer struggle with why they need to be on the cloud,” said Megha Kumar, a research director at IDC Canada. One reason for that, she added, was Big Tech firms setting up shop in Canada to give businesses here easier access to what she calls the “underlying infrastructure” for modern-day innovation.
IBM was the first Big Tech company to bring the cloud to Canada in 2012, when it invested US$90 million to install a data centre in Ontario. Things picked up speed, as Amazon and Microsoft set up their respective data centres four years later. Google followed in 2018. Other major American players like Oracle and Salesforce have made moves into Canada as well.
But the country was slow to embrace the technology. According to Peesker, the country’s public and private sectors chose a “deliberate” approach to cloud technology before adopting it.
“There was a lot of learning that had to be done here, and a deep desire to learn security protocols,” Peesker said, adding that this resulted in a time-intensive process where every potential cloud contract involved extensive privacy reviews and discussions.
Not coincidentally, Peesker is concerned that Canada is ranked as only the 17th most innovative country globally, and 21st in terms of information- and communication-technologies adoption.
“That’s not where we want to be,” he said, arguing that adopting cloud technology can help Canada move up the rankings. “The movement was a little bit slower than other countries, but we are rapidly picking up the pace.”
Perhaps the best example of the speed with which the sector is now growing in Canada is Amazon. Though it launched AWS in 2006, its cloud division didn’t expand north until a decade later. However, Amazon expects to have 16,000 employees in Canada by 2022, said Rejean Bourgault, the top executive for AWS Canada, whose Canadian clients and partners include Humber College, Purolator, Lululemon and the federal and Ontario governments. AWS has advertised some 500 job postings in the last few months alone. Around 5,000 employees will be working out of the tech giant’s vast new Vancouver office, focused entirely on software development. Others will join the AWS office that opened in Winnipeg last year. The company will soon open a third availability zone — the physical infrastructure for the cloud technology — in Montreal.
Bourgault believes cloud technology presents myriad opportunities for Canada’s research and development community. For example, Novartis, a Swiss pharmaceutical company, wanted to test the capabilities of a new cancer drug against 10 million compounds; technical researchers said it would require a new data centre, a $40-million budget and a week of work. “We did that for them in nine hours and $4,232,” Bourgault said. “We found three compounds that tested positive in fighting the cancer cell. It showed the agility of cloud technology, which can do everything in an instant.”
He claims this skillset puts the company “years ahead of our closest competitor.”
“There’s no algorithm for experience,” he said.
While Amazon’s appeal to Canadian clients is based on its experience and scale, its competitors are working hard to close the gap.
Earlier this month, Microsoft announced the largest expansion of its Canadian cloud computing infrastructure since the launch of its first two cloud data-centre regions almost four years ago. The company was one of the first to be awarded a federal certification to securely store data in its cloud, and it also hosts Transport Canada and the Treasury Board. Its clients include Suncor, PCL Construction, the Healthcare of Ontario Pension Plan and CIBC.
Peesker said Microsoft has been “very deliberate” in its attempts to educate Canada’s business community about the cloud by creating an “AI business school for senior executives to learn what is occurring.” The company is “putting in multiple millions in training and scaling,” he said, in order to expand the technical proficiencies of those wanting to use cloud technology.
“We are a learning organization,” Peesker said. “And today, every role in our company is a cloud role.”
Google is looking to triple its global cloud sales force over the next few years. While the company would not make an executive available for an interview, Google has dozens of job postings open in Canada related to its cloud operations, which count Loblaws, Shopify, Geotab, ATB Financial and Scotiabank among its clients. Canadian tech companies like OpenText and Mitel, which helps power call centres, have also bet on Google for its cloud technology. According to one posting for a Google Cloud platform lead, new members of this growing Canadian division “will be part of a Team managing the tools of development for continuous deployment, integration, and automation of infrastructure.” This team is a significant part of the national expansion Google announced Thursday, which could bring its Canadian workforce from the current 1,500 to 5,000 by 2022.
“For us, our cloud business is anchored in extraordinary technology,” said Ruth Porat, CFO of Alphabet and Google. She added the company is now focusing on “pulling together the go-to-market effort and meaningfully increasing investment and support for our enterprise customers.”
Porat believes Canada’s cloud market “is still in an early stage,” but that there is “tremendous momentum.” As the market evolves, both in risk management and security protocols, Porat sees room for her company to offer more services like its Anthos enterprise cloud platform.
For its part, IBM said it is focused solely on startups and financial services. The company is launching its first multizone region, a larger and more sophisticated infrastructure setup that will expand its hyper-cloud capabilities. It touts as one of its main partners Payments Canada, which manages over US$200 billion every business day.
IBM’s goal, said Frank Attaie, vice-president of cloud and software sales at IBM Canada, is to use the cloud to “democratize technology.”
“There are rapidly becoming two types of technology companies in the world,” Attaie said. “There’s the IBMs of the world, who build technology to enable other businesses to be successful. The other type builds wonderful technology platforms, and rapidly expands that platform into as many businesses as they want.”
“For them, growth is ‘How can I expand into as many different marketplaces as possible?’ … We are one of the few that are in business to support business and grow the economy and contribute to other people’s success.”
Attaie said IBM’s advantage is that many institutions — including government and banking firms — have been using its core computing technology for a long time, making their transition to its cloud services an easier decision.
There is no more ‘Hey, I’m not in tech.’ You’re either on the cloud or you’re not
Frank Attaie, vice-president of cloud and software sales at IBM Canada
If there’s a prime example of how cloud technology can help Canada’s economy compete, these companies see it in the oilsands’ embrace of the technology. At the end of 2019, Cenovus Energy announced a partnership with AWS and IBM to adapt cloud services in its daily operations. That news came just weeks after Suncor Energy formed a similar partnership with Microsoft. As of October 2019, Calgary’s TC Energy had migrated about 90 per cent of its business operations to AWS.
“Cloud, just like any other digital tools, are just tools that solve complex business problems,” said Pavel Abdur-Rahman, IBM’s head of data, who has been working on the company’s Big Oil partnerships. “Oil and gas, agriculture, mining — these industries are very data-rich, but insight-poor. We’re helping them build optimal platforms that help them make quite sophisticated decisions more quickly.”
In the end, Abdur-Rahman wants a platform that can ingest data in real time from all of the many sensors in an oil company and provide information, whether it’s to look for a drilling target, optimize safety in a large plant or provide more detailed maintenance information.
He added that IBM has found industry clients mainly want to drive down costs and generate new revenue. “None of this can come to fruition without scaling them up to hybrid clouds,” he said.
Beyond the oilsands, the cloud companies see huge opportunities in industries like banking, and in Canada’s public sector. Governments of all levels in Canada are looking to shift their operations to cloud computing, the companies said, and as The Logic has reported, this has led to a concerted lobbying effort for government cloud contracts. In 2018, Amazon lobbied the federal government 84 times, Google did so 21 times, Microsoft 20 times and IBM 11 times.
In the years to come, they predict the pace of adoption will only increase.
“It’s a hyper-competitive marketplace,” Attaie said. “No matter where you are in Canada’s economy — whether you’re in oil and gas, whether you’re a startup, whether you’re in retail — there is no more ‘Hey, I’m not in tech.’ You’re either on the cloud or you’re not.”