The cloud computing market is dominated by some familiar names.

Amazon’s cloud service is its most profitable unit. Microsoft has pegged its future to its cloud computing businesses, leading to a very enthusiastic response from Wall Street. Google, too, is betting big on cloud computing as something that could be bigger than its advertising business.

What exactly are these companies selling? Who’s buying it? And why is one company that wasn’t even in enterprise technology a decade ago — Amazon — beating the pants off everyone else?

Here’s the state of play in the cloud game.

Why everybody’s going to the cloud

The most important concept in cloud computing is “hyperscale.”

To support their own websites and services, Amazon, Microsoft, and Google have all built a ton of computing infrastructure. Their data centers are vastly bigger — and way more efficient — than those operated by or could be built by most other companies.

For years now, these giants have rented out some of their computing capacity to developers and companies around the world. A developer or a company can swipe a credit card and get access to fundamentally unlimited computing power.

By tapping into the power of these cloud computing systems, companies can serve many more customers for much less expense with much less downtime and much greater performance than they could through their own data centers. And as an additional benefit, they don’t have to worry about maintaining their own servers.

All the major cloud computing players offer the same basic set of services:

  • Infrastructure as a Service, or “IaaS,” which is the most basic layer of cloud computing. It provides customers with virtual servers and storage.
  • Platform as a Service, or “PaaS,” which is the set of tools and services that make it easier for developers to build applications without worrying about which servers they’re running on.

(There’s a third layer called “Software as a Service,” or SaaS, which refers to applications that run in the cloud like Microsoft’s Office 365, Google’s G Suite and Salesforce’s products for sales and marketing. While these products are powered by the cloud, they’re generally note what people mean when talking about “cloud computing.”)

The basic game plan for all the cloud-computing vendors is to make their services indispensable to both independent software developers and big companies. Customers might dip their toes in the water of cloud computing with a single app — but as their businesses grow, the cloud service vendors are betting that their cloud usage will also.

Amazon points to something it calls the “virtuous cycle” that has helped drive the cloud industry. The more customers a cloud platform provider signs up, the more servers it can afford to add. The more servers is has, the better it can take advantage of economies of scale and offer customers lower prices for more robust features, including ones likely to appeal to enterprises. The lower the prices and the better the products, the more customers the provider will likely attract — and the more new customers will switch over to the cloud.

Amazon got there first, which is why it’s so far ahead

Amazon Web Services sits at the top of the cloud computing mountain. Since its origins as a Jeff Bezos-approved experiment in 2006, it’s grown into a mammoth business that generated more than $12 billion in revenue last year.

“AWS invented this market,” said Dave Bartoletti, a principal analyst at Forrester Research. “They had a five-year head start before anyone else got their act together.”

When AWS first launched, it only offered a basic set of infrastructure services. Customers could get access to virtual servers through a service Amazon called the Elastic Compute Cloud, or EC2. They could also use AWS for file storage, through Amazon Simple Storage Service or S3.

At first, AWS was primarily used by smaller developers as a cheap way to test things or run simple websites. Over time, many of those experimental apps and simple sites grew into popular, widely used services. Even as they did, the companies behind them, including Netflix, Airbnb, and Slack, kept AWS at the core of their offerings.

Andy Jassy, AmazonAmazon Web Services CEO Andy Jassy Amazon

This trend kicked off Amazon’s own virtuous cycle. With the revenue brought in by early customers, Amazon was able to invest in more enterprise features and higher-performance services. That helped it attract ever more popular and sophisticated apps and sites.

“There’s no question that Amazon is still the preferred platform for developers,” said Ed Anderson, an analyst who covers cloud services at research firm Gartner.

These days AWS counts among its customers big companies and organizations like Comcast, Hess, and even the Central Intelligence Agency, each of which use it for at least some of their computing infrastructure.

Amazon’s years-long lead on the competition is a major factor in its success. Because Amazon’s virtuous cycle has been running longer than anyone else’s, the company has been able to develop and offer a broader set of features and a larger scale than many of its rivals.

cloud infrastructureCanalys

As a result, AWS has become a kind of standard in cloud computing. Companies turn to AWS almost by default, in much the same way a previous generation of IT managers used to say that “nobody ever got fired for buying IBM.”

About a year ago, Andy Jassy, AWS’ CEO said he thought his unit could be the biggest single part of Amazon. Meanwhile, Gartner once estimated that AWS offered as much computing capacity as the next 14 players in the market combined, though that figure is now out of date.

Microsoft pulled off an epic pivot

One would think that in the famously competitive tech industry, the giants would have raced to compete with Amazon.

But no. Microsoft had been playing with cloud concepts since the mid-2000s, but it didn’t introduce Azure, its formal AWS competitor, until 2010 — or about four years after Amazon’s cloud service launched.

Microsoft and other enterprise-software giants initially treated the cloud as a novelty or a fad. Only later did they see it as a threat. Microsoft eventually recognized that if customers moved to AWS, they wouldn’t have as much need for products like Windows Server and SQL Server, which were popular, multibillion-dollar software offerings that were used in most companies’ data centers.

Microsoft AzureMicrosoft cloud boss Scott Guthrie. Microsoft

Microsoft has since turned its weakness into a strength. Cloud computing is now one of the biggest factors driving Microsoft’s revenue growth, and Wall Street is eating it up.

When Azure first launched, it was called “Windows Azure.” It provided a platform-as-a-service (PaaS) layer, helping developers build their apps more easily. Since then, Microsoft has expanded its Azure offerings to include the lower level infrastructure services that originally made Amazon so popular.

As the head of Microsoft’s infrastructure business, Satya Nadella led Azure through this transition and was awarded the CEO position in 2014 partly because of his success. Microsoft has since made Azure a top priority. To help promote it, the company has been emphasizing how tightly Azure integrates with Windows Server and its other enterprise products that many of its biggest customers are still using.

COTD_7.21 3Mike Nudelman/Business Insider/Statista

Microsoft has a new product line called “Azure Stack” that lets companies install a version of Azure in their own data centers. In many ways, it’s the culmination of the software giant’s vision for how Azure can work together with what its customers already own.

“[Azure Stack] is a potential game-changer,” Anderson said.

Still, Microsoft’s key advantage isn’t necessarily in technology, but rather in its enterprise know-how and established customer base. Lots of Microsoft’s biggest customers have contracts with the company that give them steep discounts on its software. Microsoft has been using those agreements to give customers big incentives to try Azure.

Microsoft has also worked to make Azure more attractive to software developers. Under Nadella, the company has swallowed its pride and begun to support in Azure technologies it previously tried to crush. Most notably that includes the Linux operating system — a bit of software that developers absolutely love, but that ex-Microsoft CEO Steve Ballmer once called “a cancer” and “communism,” because it’s available for free.

That newfound openness to open-source code like Linux has won Microsoft a lot of appreciation from programmers. At last count, Linux accounted for about a third of all Azure usage, according to Microsoft.Microsoft AzureOne of the data centers from which Microsoft Azure runs.Microsoft

Despite its remarkable turnaround in the cloud, Microsoft is still lagging behind Amazon, although it’s hard to say by how much, because the company doesn’t break out its Azure revenue numbers specifically.

Microsoft recently announced that its cloud computing business as a whole — including not just Azure, but Office 365 and its other cloud services — is now pulling in revenue at an $18.9 billion annualized pace. You can’t compare that number directly with AWS’ revenue, because Amazon doesn’t offer anything comparable to Office 365, which remains a huge business for Microsoft.

Regardless of how the two businesses compare, it’s clear that Microsoft has momentum. In its latest earnings report, Microsoft said its revenue from Azure in its more recent quarter was almost double what it posted in the year-ago period. By all accounts, Azure is growing fast, presenting Amazon with a worthy rival.

“Microsoft has really caught up in many, many ways to AWS,” Bartoletti said. “Microsoft is nipping at their heels.”

Way back in 2015, Microsoft CEO Satya Nadella called the cloud game a “Seattle race” between Amazon and Microsoft, with most others irrelevant. So far, that’s mostly borne out, although one huge company is trying to make it a three-way contest.

The resurgence of Google

Google is in a funny place when it comes to the cloud.

Nobody doubts that Google’s cloud service can offer huge scale and up-to-date technology, since it runs out of the same data centers that host Google’s search engine, Gmail, YouTube, and all of Google’s other services. The same tech that helps those sites reach billions of people every day can help Google Cloud customers run their apps and services better, faster and for less money than they could run them on their own servers.

urs holzle googleGoogle Senior VP Urs Hölzle, one of the primary architects of Google’s cloud infrastructure. Matt Weinberger/Business Insider

Similarly, nobody doubts that Google can innovate. When hip startup Docker kicked off the craze over so-called software containers, Google revealed that it had been already using similar technology in its data centers. It then released its Kubernetes technology, which manages software containers, for free to the community. Kubernetes has become a smash hit — even Microsoft now supports it — helping burnish Google’s image as a cloud visionary.

Google App Engine, the very first service in what’s now known as Google Cloud, launched in 2008, only a little while after Amazon launched AWS. But despite Google’s long tenure in the business and even though its service won over some early fans, the company long struggled to find traction with larger, more lucrative business customers.

To address that problem, Google hired Diane Greene, the former VMware cofounder and the so-called “Queen of Silicon Valley,” to lead its cloud efforts. With her experience and executive leadership, Greene has redoubled Google’s push into the cloud. The company consolidated all of its cloud products and put her in charge of them as part of its revitalization effort.

As the search giant rapidly puts in place the features and technology it needs to take on Amazon, “Diane Greene has become a rallying point for Google’s strategy,” Anderson said.  Google Diane GreeneGoogle cloud boss Diane GreeneGoogle

But Google isn’t trying to offer just another AWS. Instead, it’s worked to give Google Cloud developers access to some of its most cutting-edge services, including artificial intelligence and machine vision, Anderson said. Over time, Google is making more and more of its internal technology available to developers, for a price.

“Google is definitely innovating in its own right,” Anderson said. “They’re not just copying what Amazon is doing.”

The company’s effort seems to be working. Google’s signed marquee customers like Nintendo, Home Depot, Coca-Cola, and Spotify. Google Cloud is still relatively small compared with Amazon and Microsoft, but its momentum is picking up. The only question is how long that momentum will continue.

The fix is in

Amazon may have invented the cloud computing market and put lots of effort into it since, but the legacy IT companies haven’t been sitting on their thumbs the whole time.

Oracle, for example, has explicitly taken aim at Amazon. Larry Ellison, the database giant’s legendary cofounder, has taken any excuse to slam AWS and promote his company’s own Oracle Cloud. The main claim to fame for Oracle Cloud is that it’s capable of running Oracle databases lightning-fast.

That business has seen some significant growth. But Oracle’s focus on databases could eventually be a detriment, considering that Amazon can offer so many more features and options, Bartoletti said. What’s more, both Amazon and Microsoft offer services that allow customers to quickly migrate Oracle databases to their clouds.

“Oracle’s stuck in that legacy mindset,” Bartoletti said.

larry ellisonOracle Executive Chairman Larry Ellison Kimberly White/Stringer/Getty Images

IBM has invested heavily in technology like IBM Bluemix, which makes it easier for developers to build apps in the cloud. The company also offers Watson, its pioneering artificial intelligence service, through its cloud.

At the same time, though, the growth of the cloud industry has seriously damaged IBM’s legacy hardware business, which in turn has dented its earnings quarter after quarter and cast a shadow over the company’s outlook.

To combat that trend, IBM has been bolstering its own cloud offerings by offering consulting services focused on installing and integrating cloud applications. So while Big Blue likes to talk up how fast its cloud business is growing, what it’s doing can’t be directly compared to the other players, because its cloud business isn’t just offering cloud computing. And IBM is not really a strong contender for Amazon’s throne, Anderson said.

Even if IBM isn’t a real challenger to the big guys, there may still be room in the market for smaller and regional players, Bartoletti said. The startup DigitalOcean is targeting small developers. Chinese retail giant Alibaba offers its Alicloud service in its home country. Just because they’re not as big or well-known as Amazon, Microsoft, or Google doesn’t mean they can’t succeed.

Ginny RomettyIBM CEO Ginny Rometty AP

Still there’s clearly not space in the market for everyone, and there have already been some shakeouts. GoDaddy just sold off its cloud computing division. Early cloud provider Rackspace pivoted to offering support for others’ platforms, and HP and VMware both threw in the towel entirely. It’s expensive to compete with Amazon.

That’s why, if there’s one thing that Bartoletti and Anderson both agree on, it’s that Amazon and Microsoft have the no. 1 and no. 2 slots locked down for at least the next few years.

“The fight now is for no. 3,” Bartoletti said.

In a few years, “Amazon will still be the leader, and Microsoft will have closed the gap to be a strong second,” added Anderson.