Microsoft and Oracle Team Up for the Cloud

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The future took a step closer to the present on June 24 when Microsoft (NASDAQ: MSFT) and Oracle (NYSE: ORCL) teamed up in an effort to take a piece of the cloud market. The move means that the former rivals see major benefits in working together, and that means Amazon (NASDAQ: AMZN) will have its work cut out for it to stay on top of the cloud market.

Rivals prompted Microsoft and Oracle to team up, and I think this will catapult the firms to the top of the industry-leader race. Microsoft has reached $1 billion per year in cloud-related sales, the firm reported. However, Amazon posted $2 billion of sales per year, according to Morgan Stanley. 

What the partnership means for the companies

In this partnership, customers can run Oracle software on Windows Azure platforms and on the Microsoft Server Hyper-V. Oracle Database, Oracle Java, Oracle WebLogic Service and Oracle Linux will also now be available to Windows Azure customers. This, essentially, takes all of the innovation each of the companies have managed to generate, and puts it into a single package. That makes the product more attractive for customers, and the "two-brains-are-better-than-one" theory will help each company form a product that combines the best of Oracle with the best of Microsoft. That could result in a major evolution in cloud computing, sending customers (and profits) to Microsoft and Oracle, while Amazon loses market share. But, it is still too early to tell whether Amazon can continue to dominate the market, given the recent partnership.

Oracle and Microsoft need the boost

This is good news for Oracle shareholders, or those looking to buy, as the company recently missed fiscal Q4 estimates, sending shares of the world's No. 3 software provider falling. The partnership could be exactly what the firm needs, as it has fallen far behind Amazon, Microsoft, and IBM in the race for cloud computing supremacy.

Microsoft is the world's largest software manufacturer, but it still needs help if it wants to catch up to Amazon. Azure has had trouble catching up with the sales momentum of Amazon Web Services, that firm's answer to cloud computing. Microsoft dedicated its entire 2011 research and development budget to cloud computing, about $9.6 billion.

Amazon leads the way

According to Morgan Stanley, Amazon Web Services will generate $24 billion in revenue by 2022. The research firm went on to say there is steady competition ready to take down Amazon, and its current lead in cloud revenue-generating of $2 billion per year, which is twice that of Microsoft. However, the study states Amazon is a bigger threat to those players. The report was released in May, prior to the joining of efforts between Microsoft and Oracle, so expect Morgan Stanley to change its tune, though the firm might still be confident that Amazon will dominate cloud computing.

Is now the time to buy, under speculation that Amazon will dominate the clouds? With the scheduled July 22 2Q13 report, net sales at the firm are expected to grow between 13%-26% from 2Q12. That's a total of between $14.5 billion-$16.2 billion in sales. If that beats earnings estimates, which have decreased to $0.06 from $0.22 as of writing on June 24, then expect an upswing in the share price.

Who will come out on top?

In short, it's too early to tell. The team effort that is set to take place with Microsoft and Oracle certainly causes some concerns for Amazon. However, the two companies will have to show how they are going to dominate the market by working together. If they are able to work together efficiently, then I can see Microsoft and Oracle being the leader in cloud computing.  

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Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of, Microsoft, and Oracle.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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