Amazon Dominates With Cloud
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Amazon.com (NASDAQ: AMZN) is such a giant retailer in so many industries that it would be hard to talk about everything it is doing at a certain moment. However, one area it is dominating is the cloud storage and cloud computing market. Amazon is so thoroughly ahead of its competition that nobody ever really talks about anyone catching up, they merely mention that there is a competition for second place. With so many features on such a low cost cloud, I can’t imagine any company displacing Amazon’s Web Services.
One of the main arguments hurled at Amazon was that it supported a very specific coding language, essentially stopping any developers from leaving or joining its team. That is no more, as it recently announced that it would support development for SQL server and .NET language. Many see this as a blow to Microsoft (NASDAQ: MSFT), as it is one of the competitors vying for second place. Amazon has given Microsoft developers a reason to leave, as they will not even have to learn a new coding language to switch companies.
Another major blow to Microsoft is Amazon’s partnership with enterprise giant SAP (NYSE: SAP). Not only is this partnership another huge benefit and incentive for businesses to go with Amazon, but SAP announced one year before that it would be choosing Microsoft as its partner. Yes, Microsoft and SAP can still announce a partnership, but at this point it matters only to companies looking to overtake Microsoft’s cloud.
Further integrating its cloud storage, Amazon created an app to run on both Windows and iOS operating systems that will make it much easier to access your cloud. The app will be just like any icon you have on your computer screen, which you can drag and drop files into. These files will then be automatically stored in the cloud and can then be accessed from anywhere. Additionally, Amazon says the app is robust enough to keep you data in the case of a loss of Internet connection or computer restart.
The biggest challenge for its competitors will be convincing any company to switch from Amazon’s cloud to its own. Each competing cloud is attempting to make it harder for its existing customers to switching, something that Amazon is doing very well too. There has been a fast race to the bottom to secure as many customers as possible, and in terms of cost cutting, I am not sure any of the competing cloud solutions understand Amazon. It has had no problem accepting razor thin margins in the past, and I am surprised to see the likes of Microsoft or Google (NASDAQ: GOOG) willingly take these margins.
To give specifics, it is estimated that Amazon’s cloud services have a market share of around 70%, with its cloud responsible for keeping companies such as Netflix and Pinterest running. With cloud based service revenues projected to increase well into the future, Amazon has certainly positioned itself very well. The more businesses that convert to its cloud, the more incentive other businesses have to join them. Since Amazon runs its website e-commerce business from its cloud, you can be sure the quality will continue.
But in a field that is quickly becoming saturated, I must mention the competition.
First, as mentioned before, Microsoft is trying very hard to outdo Amazon with its Azure cloud. It has begun to recruit startups, specifically in Bangalore to enroll them in its cloud. The idea for Microsoft is to beat Amazon by recruiting the next big companies before becoming big. Additionally, it is recruiting abroad, something Amazon has not prioritized.
Microsoft and Google have very similar offerings as Amazon really. The problem for the Microsoft and Google is that they began offering platform-as-a-service, whereas Amazon offered infrastructure-as-a-service, which was much more effective in securing value added business customers. The scoop is that both Microsoft and Google will be offering IaaS options now to more effectively compete.
On the consumer end of the spectrum, every company is on even playing field. Prices are relatively similar, with Microsoft offering the first 7GB of storage free. The leader in this field is privately held Dropbox. This is a segment of the cloud market that Amazon has little interest in, other than to maintain competition. Consumers are not the drivers of high revenues and have very little use for the value added services that Amazon offers.
Then there is Hewlett-Packard which banked heavily on high-powered servers to run big data operations. As reported, businesses have been all too ready to switch to lower cost alternatives such as Amazon, Microsoft, or Google, which has left HP is a sore state. In response to poor business conditions, HP now plans to cut upwards of 30,000 jobs.
Much like Hewlett-Packard, Dell (NASDAQ: DELL) banked on businesses running on its custom build servers, only to see the industry switch to the commoditized servers that run Amazon’s cloud. Since HP and Dell run the same open source OpenStack on its servers, the two companies are almost partners against Amazon. To some extent the companies have to be. Failure by one company would signal the end of OpenStack and lead to the failure of the other.
All of this leaves us in the same spot. Amazon’s web services are the dominant cloud storage and computing platform, and there is little to suggest this will change anytime soon. I would expect Google or Microsoft to bite into its bottom line, but in the end, these two companies will merely take the second prize. As for Dell and HP, I don’t imagine either company will pose a real threat. Both will be working hard to keep its current customers. Servers have become commodities, and neither company got this right. As long as its ecommerce business runs on its cloud, expect the cloud to be dominant. For Amazon’s core business to work, it has to be.
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