A 'street battle' is brewing between Amazon and Microsoft

Amazon Web Services is the clear leader in cloud computing now, but Wall Street thinks it's about to face much stronger competition from Microsoft's own cloud computing platform, Azure, next year.

In a note published Tuesday, market research firm FBR Capital Markets predicted Azure will reach an annual run rate trajectory of $8 billion-plus in 2016. That's about the same run rate as AWS this year.

"We continue to believe 2016 will be a '206 area code street battle for the cloud,' with Microsoft firmly best positioned as the vendor to compete with AWS on the enterprise cloud front for years to come," FBR wrote in the note.

The report said Microsoft CEO Satya Nadella's decision to put a lot more emphasis on the cloud is starting to pay off, and Microsoft's already large footprint in the enterprise gives it a huge advantage over other competitors playing catch-up to AWS.

"We believe Microsoft and Azure have a long runway to cross-sell into their massive enterprise customer bases with a broad platform of cloud offerings for the next few years," it said. "We believe its best cloud days are ahead given our positive checks from the field around solid uptake of key cloud products (e.g., Office 365, Azure) heading into 2016."

Microsoft's move to expand sales on its existing customers is a common tactic in the enterprise, but certainly something it's in a better-position to do, since it has a long history of dealing with large companies and an already huge market share built from the pre-cloud era.

In fact, Deutsche Bank also noted in a report last month that the so-called "land and expand" strategy has been Microsoft's focal point in selling Azure so far.

"According to Microsoft, its immediate 'land' goal is to drive the penetration of Azure, such that every Microsoft customer is using at least a little of Azure," it wrote. "Microsoft is in a much earlier-stage in reaching the 'expand' part of the sales strategy, but has had some success, claiming that some customers are now well into the 'millions of dollars per year' spending level with Azure."

But Deutsche Bank also noted that Azure is perceived as a "Microsoft-centric" solution, in which it's "less open" than AWS. Some of the people it quoted described Azure as a "Microsoft shop," while calling AWS a more "generic platform."

Regardless, Deutsche Bank agrees next year will be the year when Azure really steps up its game, and becomes a formidable rival to the market-leading AWS.

"While the consensus from our checks is that AWS is likely to maintain its overwhelming lead, we are bullish about Microsoft's rotation into the cloud, Azure adoption and Azure's suitability for much of the Microsoft customer base," it wrote. "We see no reason why this won't continue into 2016."

Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.