Azure is gaining ground on AWS among AI startups as Microsoft's cloud is considered a "no-brainer" choice.

• Y Combinator startups are being enticed by Microsoft with more cloud credits to access the technology required for running artificial intelligence workloads.
• An Azure credits offer was accepted by 58% of Y Combinator startups, according to a Microsoft spokesperson.
• Microsoft's increased offer of Azure credits was like "manna from heaven," said Padmanabhan Krishnamurthy, co-founder of EzDubs.

EzDubs, a language-translation technology developer, began like many tech startups by launching on public clouds from both Amazon Web Services and Microsoft Azure.

After completing the Y Combinator startup program, EzDubs made a swift shift by incorporating cloud technology. This was due to the founders discovering a partnership that granted Y Combinator companies $350,000 in credits on Microsoft Azure.

Padmanabhan Krishnamurthy, co-founder of EzDubs, stated in a CNBC interview that the message was a "manna from heaven" because Microsoft has been at the forefront of the artificial intelligence boom and has invested in OpenAI and hosted numerous projects that utilize the company's large language models (LLMs).

Azure granted EzDubs access to advanced GPUs for AI model training, which no other cloud provider could match.

"Krishnamurthy, co-founder of his company established in 2022, stated that at that moment, it was a clear choice to utilize generative AI as it was gaining popularity. The required GPU availability was readily available, making it the ideal setup for their needs."

Microsoft's perceived strength in AI is giving the company an edge, especially among startups, in the AI landscape. While Amazon Web Services maintains the market lead in cloud infrastructure and Google remains a popular option for companies utilizing multiple clouds, Microsoft's AI capabilities are gaining attention.

In Amazon's Q2 earnings report, the company announced a 19% increase in AWS revenue from the previous year, which was lower than Microsoft's 29% growth for the same period, although this includes revenue from other cloud services besides Azure.

In 2013, AWS launched its Activate program, which provided credits to young companies in order to attract them to its cloud services. This program was successful in establishing Amazon's dominance in public cloud, as it followed the launch of key EC2 and S3 services in 2006.

Microsoft's extensive experience as an enterprise technology company and its access to powerful GPU clusters are transforming the industry narrative, while financial considerations also play a significant role.

In November, Microsoft partnered with Y Combinator, a renowned accelerator that has helped launch companies such as Airbnb, Dropbox, and Stripe, to provide $350,000 in credits to startups participating in the accelerator. Additionally, startups in select other programs, including the Alchemist Accelerator and Alt Capital's Generate, are also eligible for the funding.

In April, Amazon announced $500,000 in credits to Y Combinator companies, including $200,000 in cloud credits and $300,000 in credits for proofs of concept using AWS's Trainium and Inferentia chips for AI. The current offer includes $350,000 in AWS credits, plus $300,000 reserved for tapping the custom silicon, an AWS spokesperson said in an email.

Microsoft corporate vice president Annie Pearl revealed to CNBC that only around 5% of Y Combinator companies were utilizing Azure prior to their partnership. However, by May, more than 50% of the program's startups were using Azure. A spokesperson later stated that 58% of Y Combinator startups had taken advantage of Microsoft's credit offer, though this does not necessarily reflect actual Azure usage.

AWS said it's seeing a different dynamic play out.

"The AWS spokesperson responded to Pearl's claim that over half of Y Combinator startups were using Azure in an email, stating that startups typically use promotional credits from multiple cloud providers in their early stages but ultimately choose the provider with the best security, reliability, and scalability for their organization's future."

In an April blog post, Amazon stated that over 80% of startups from Y Combinator's 2022 and 2023 batches utilized AWS.

Narrowing the gap

Microsoft and Amazon are competing for startups beyond accelerator programs. Last month, AWS doubled the maximum amount of credits a startup can use if it has raised a Series A funding round in the past year, according to CNBC. In the Microsoft for Startups Founders Hub program, companies can receive $150,000 in Azure credits.

Azure has closed the gap with AWS in the cloud market, according to research firm Canalys. In the first quarter of this year, AWS had a 31% share, while Azure was in second place at 25%. Three years earlier, AWS had a 32% market share, while Azure was at 19%, Canalys estimated.

During an October earnings call, Microsoft CEO Satya Nadella stated that there was a growing interest in Azure among emerging businesses due to the increasing demand for OpenAI's models.

"We're expanding our reach with digital-first companies," he said. "Azure customers are also leading AI startups that use OpenAI to power their AI solutions."

In early 2023, InKeep, a company that uses chatbots to search internal documents, decided to use Azure while participating in Y Combinator. This was shortly after OpenAI launched ChatGPT, and InKeep chose Azure because OpenAI's underlying LLMs weren't available on other clouds.

Nick Gomez, InKeep's co-founder and CEO, stated in an interview that OpenAI had state-of-the-art models when he started using them. Additionally, InKeep began utilizing Cloud Platform for specific workloads.

Azure has less downtime than other clouds and acts quickly even when dealing with compute-intensive AI models, according to Gomez. He also stated that data privacy is crucial to customers when it comes to AI training. OpenAI initially trained models with customer data but later stopped the practice, CEO Sam Altman revealed in an interview with CNBC's Andrew Ross Sorkin last year.

"Gomez stated that people frequently inquired, "Are you using our data for training?" He added, "Responding with, 'No, we don't train on your data; we utilize Azure, which doesn't retain it,' provided comfort to many individuals.""

The cloud infrastructure market is not a zero-sum game, as evidenced by the steady revenue growth of Amazon, Microsoft, and Google. According to Canalys, the market is expected to expand by 20% this year, reaching almost $350 billion.

To avoid being overly dependent on a single vendor and to take advantage of the diverse services and technologies offered by different providers, large companies are increasingly using multiple clouds. On the other hand, startups that rely on venture funding to fund their operations can keep their expenses under control by accepting credits from multiple suppliers, which is especially important given the high costs of running AI workloads.

Raising money is "almost like accepting credits," said Prady Modukuru, co-founder and CEO of Sync Labs, a developer of lip-synching technology.

According to Modukuru, a former Microsoft product manager, it is impossible to allocate between $20,000 to $30,000 per month for infrastructure expenses.

Modukuru stated that Sync Labs has utilized Amazon, Google, and Microsoft, but began with Azure earlier this year while in Y Combinator. He explained that Azure is the only location where the company can obtain GPUs.

"As a startup, we required access to them on Azure within an hour and a half of requesting it, according to Modukuru."

Microsoft technicians provided guidance to Sync Labs on running high-performance code on multiple GPUs during office hours, while AWS offers its experts to Y Combinator founders, a spokesperson stated.

Amazon is competing with Microsoft and its partnership with OpenAI through its investment in Anthropic, which is developing its own LLMs. Anthropic has released a model that is at least as good as OpenAI's GPT-4, according to Greptile CEO Daksh Gupta.

Greptile will switch from Azure OpenAI to AWS' Bedrock tool, Gupta announced, as Anthropic's model is now available on AWS.

""It doesn't make sense to save money on the quality of experience, we will spend whatever is necessary," he stated."

Microsoft has a significant advantage in AI due to OpenAI's rapid market penetration, which has helped the company address complex AI infrastructure maintenance issues.

"Nassar stated that he knew the product had been tested in battles and it showed some wear and tear, despite not encountering major issues."

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