Amazon Will Have The Advantage On Government Orders For The Cloud

Includes: AMZN, GOOG
by: Dana Blankenhorn

Amazon (NASDAQ:AMZN) looks set to become the next Netflix (NASDAQ:NFLX), the next stock bears will pound the table to sink.

On the surface it's hard not to see their point. The company currently sports a PE of over 113, after reporting lower earnings for its third quarter. That report sent shares off a cliff, but it's since recovered about half that loss.

It's easy to see Amazon bulls as mere “fanbois” enamored of its speedy delivery and its cloud infrastructure. The miss is blamed on heavy investment, mainly in the new line of Kindles, but also on the company's cloud infrastructure.

That infrastructure is something most people still don't understand. The idea has always been that by squeezing processing and storage together more closely you can do more with less. Jobs don't “live” on one server, but can run on any spare hardware. And that hardware doesn't have to be expensive, either. It can be a collection of parts assembled on-the-spot.

In doing this Amazon was following the path of Google (NASDAQ:GOOG) and it's a powerful trend. Clouds can cut the industry's carbon footprint in half and save big money.

But what Amazon did before Google was to focus on monetizing its cloud. When both companies approach the federal government today, looking for orders, Amazon will have the advantage because it has run many different programs on its EC2 infrastructure while Google, for the most part, has limited its AppEngine to programing languages Google endorses.

Most important, Amazon runs its own store on EC2, which means a massive database, a huge logistics system, and transaction processing. It is all the infrastructure anyone needs to do any sort of business. And this has given Amazon such an advantage over nearly all retailing rivals (save perhaps Wal-Mart (NYSE:WMT)) that it's now willing to dump its opposition to charging sales tax, even making that a profit center.

So you have a fully-monetized cloud infrastructure, a logistics system that can compete head-to-head with brick-and-mortar, plus Kindle systems that are trusted by consumers who are expected to now put their browsing histories on it.

So please, bears, paw at Amazon. Strike it hard. Give it all you got.

I'm looking for an entry point.

Disclosure: I am long GOOG.