Retail retaliation: How Amazon’s success hurts AWS cloud

Amazon Web Services might finally lose its edge at the head of the cloud computing wars. Target, Walmart, and other brick-and-mortar retailers and supermarkets are pulling their business from AWS as Amazon itself grows larger and becomes a bigger threat to their bottom line. Is this loss of cloud computing business affecting AWS cloud, and by how much?


AWS Cloud
Flickr / Mike Mozart

As Target has difficulties competing with Amazon’s online retail onslaught, it’s trying to at least not fund its major competitor. CNBC reports that Target “is scaling back its use of Amazon Web Services, according to sources familiar with the matter, as the company aims to take greater control over its infrastructure and stop financing its chief rival.”

Of course, Amazon has grown considerably over the years, especially after Amazon Prime began delivering items quickly while the prices stayed low. As they grew, brick-and-mortar retailers fell, with Target’s stock losing about 20 percent of its market value over the past year.

The larger Amazon grows, such as its recent purchase of Whole Foods, whose prices were immediately lowered upon purchase, the more likely it is that these other retail companies will try to not put more money into their competitor’s pocket, and Microsoft Azure is well aware of this.

According to CNBC’s sources, Azure is fighting hard to get Target’s cloud business, as well as others who are affected by the ever-expanding Amazon. Target’s plans are to “aggressively move e-commerce activities, mobile development, and operations away from AWS through the end of the year and probably into 2018,” although neither Target nor Amazon would comment on this directly.

Target, instead, reinforced that they use multiple cloud computing services and will continue to do so, such as utilizing Spinnaker, the open source system built by Netflix to work with many different public clouds. However, the retail retaliation against AWS cloud seems to be more than simply utilizing a multicloud approach.


AWS Cloud

Walmart, in fact, isn’t just trying to switch their own data from AWS cloud, but they also reportedly told their partners and tech vendors that their services cannot run on AWS. Instead, Walmart suggested that they should consider Microsoft Azure, while Walmart itself uses “a combination of on-premises servers and services provided by Microsoft and others.”

Microsoft pitched its Azure software to retailers in July, shortly after Amazon bought Whole Foods, claiming that they can provide “flexibility, scale, and security along with a ready-to-use IoT Suite that can help retailers monitor in-store traffic patterns and shelf stock levels.”

With AWS falling out of favor and brick-and-mortar retailers planning to “spend 34 percent of their software budgets on the cloud in 2017, up from 26 percent in 2016,” Azure is pushing its way in at an opportune time.

In an interview with the Wall Street Journal, Walmart spokesman Dan Toporek explained, “It shouldn’t be a big surprise that there are cases in which we’d prefer our most sensitive data isn’t sitting on a competitor’s platform.” He continued to add that only a small number of vendors were asked to move away from AWS.

According to the Wall Street Journal report, Walmart isn’t the only retailer that’s been asking partners to leave AWS. A large segment of the retail market that is in competition with Amazon has “expressed concern about funding Amazon and its affiliates,” according to Forrester Research principal analyst Dave Bartoletti.

As Amazon moves toward the physical market and Walmart leans in the direction of the cloud, these competitors don’t seem like they’ll stop their fight for market share anytime soon.

What does this mean for AWS cloud?

AWS cloud

As Target, Walmart, and others move away from AWS as Amazon expands, does this affect AWS as much as these retailers are hoping?

Unfortunately for the other retailers, it seems to not be the case. “In the second quarter,” according to Synergy Research Group, “AWS controlled 34 percent of the cloud infrastructure market, topping Microsoft, IBM and Google combined.”

Additionally, stores that don’t directly compete with Amazon, or potentially even see Amazon as a partner, are sticking with AWS. This includes brands such as Brooks Brothers, Nordstrom, Nike, and Under Armour.

Another problem for those wishing to move away from AWS is that it isn’t simple to migrate completely off of your main cloud provider. So it’s not clear if Walmart, Target, and their partners are fully moving away from AWS or if the migration away is more of a warning to Amazon.

If AWS and Amazon’s retail strategy continue to negatively affect each other, it might be time to split off the different focuses to separate companies. While AWS is still the cloud computing giant, it can’t keep it up forever if Azure keeps siphoning off all retail and grocery clients.

It seems that “Wall Street has been pleading with Amazon to make sure a move for years, hungry for the boost Amazon shareholders would get from such a deal.” Estimates put AWS as a separate entity as a $160 billion business, which isn’t something to scoff at.

Even more, Brian Nowak from Morgan Stanley admitted to attendees at GeekWire’s Cloud Tech Summit that AWS might actually be worth $239 billion considering the growth of both cloud computing and AWS.

However, this wouldn’t be an easy split for Amazon. First of all, Amazon’s current market value assumes that the profitable AWS division will continue to stay a part of the larger company. Additionally, the revenue from Amazon helps AWS have the capital to invest in AI in infrastructure, bettering AWS.

In order to make the large investments, it seems as though the two sections need to continue to feed into each other, similar to how Google’s main business provides funds that help its cloud department grow. While a spinoff is certainly possible, it doesn’t seem like the most logical option at this point.

So, where does that leave Amazon and AWS cloud? It seems like they might have to play the waiting game to see if enough businesses choose to leave AWS cloud because of competition from Amazon, which includes not only retail and grocery, but also entertainment products such as movies, TV shows, and books.

Eventually, it could prove to be a cost-effective solution to split the units into separate companies, especially with Microsoft’s and Google’s gains on the market. While moving cloud providers is a difficult task, new technology is making it easier every day. AWS needs to be proactive with its offerings, or else it risks losing its dominant status in the cloud wars.

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