Seattle vs. San Francisco: Who is tops in the cloud?

In football, city livability rankings — and now in the cloud — San Francisco and Seattle are shaping up as fierce rivals.

Who’s winning? Seattle, for now. It’s due mostly to the great work, vision and huge head-start of Amazon and Microsoft, the two top dogs in the fast-growing and increasingly vital cloud infrastructure services market. Cloud infrastructure services, also called IaaS, for Infrastructure as a Service, is that unique segment of the cloud market that enables dreamers, start-ups and established companies to roll-out innovative new applications and reach customers anytime, anywhere, from nearly any device.

Amazon Web Services (AWS) holds a commanding 29 percent share of the market. Microsoft (Azure), is second, with 10 percent. Silicon Valley’s Google remains well behind, as does San Francisco-based Salesforce (not shown in the graph below).

cloud leaders

The Emerald city shines

I spoke with Tim Porter, a managing director for Seattle-based Madrona Venture Group. Porter told me that “Seattle has clearly emerged as the cloud computing capital.  Beyond the obvious influence of AWS and strong No. 2, (Microsoft) Azure, Seattle has also been the destination of choice for other large players to set up their cloud engineering offices.  We’ve seen this from companies like Oracle, Hewlett-Packard, Apple and others.”

Seattle is also home to industry leaders ConcurChef, and Socrata, all of whom can only exist thanks to the cloud, and to 2nd Watch, which exists to help businesses successfully transition to the cloud. Google and Dropbox have also set up operations in the Emerald City to take advantage of the region’s cloud expertise. Not surprisingly, the New York Times said “Seattle has quickly become the center of the most intensive engineering in cloud computing.”

Seattle has another weapon at its disposal, one too quickly dismissed in the Bay Area: stability. Washington has tougher non-compete clauses than California, preventing some budding entrepreneurs from leaving the mother ship to start their own company. The consequence of such laws can lead to larger, more stable businesses, with the same employees interfacing with customers over many years. In the cloud, dependability is key to customers, many of whom are still hesitant to move all their operations off-premise.

Job hopping is also less of an issue. Jeff Ferry, who monitors enterprise cloud companies for the Daily Cloud, told me that while “Silicon Valley is great at taking a single idea and turning it into a really successful company, Seattle is better for building really big companies.”

The reason for this, he said, is that there are simply more jobs for skilled programmers and computing professionals in the Bay Area, making it easier to hop from job to job, place to place. This go-go environment may help grow Silicon Valley’s tech ecosystem, but it’s not necessarily the best environment for those hoping to create a scalable, sustainable cloud business. As Ferry says, “running a cloud involves a lot of painstaking detail.” This requires expertise, experience, and stability.

San Francisco (and Silicon Valley)

The battle is far from over. The San Francisco Bay Area has a sizable cloud presence, and it’s growing. Cisco and HP are tops in public and private cloud infrastructure. Rising star Box, which provides cloud-based storage and collaboration tools, started in the Seattle area but now has its corporate office in Silicon Valley. E-commerce giant Alibaba, which just so happens to operate the largest public cloud services company in China, recently announced that its first cloud computing center would be set up in Silicon Valley.

That’s just for starters.

I spoke with Byron Deeter, partner at Bessemer Venture Partners (BVP), which tracks the cloud industry. He told me that five largest “pure play” cloud companies by market cap are all in the Bay Area: Salesforce, LinkedIn, Workday, ServiceNow and NetSuite.

The Bay Area also has money. Lots of money. According to the National Venture Capital Association, nearly $50 billion in venture capital was invested last year. A whopping 57 percent went to California firms, with San Francisco, San Jose and Oakland garnering a rather astounding $24 billion. The Seattle area received only $1.2 billion.

venture capital by region

The Bay Area’s confluence of talent, rules and money will no doubt continue to foster a virtuous and self-sustaining ecosystem, one that encourages well-compensated employees to leave the nest, start their own business, and launch the next evolution in cloud innovation. If Seattle has big and focused, San Francisco has many and iterative.

The cloudy forecast

Admittedly, this isn’t sports. There’s no clock to run out and not everyone keeps score exactly the same. Just try to pin down Microsoft’s Azure revenues, for example. It’s also worth noting that the two regions do not compete on an even playing field. Washington has no personal or corporate income tax, and that is no doubt appealing to many — along with the mercifully lower price of real estate, both home and office.

The cloud powers healthcare, finance, retail, entertainment, our digital lives. It is increasingly vital to our always-on, from anywhere-economy, and a key driver of technical and business model innovation. If software is eating the world, the cloud is where it all goes to get digested. Here’s hoping both cities keep winning.