Amazon And Microsoft In The Cloud: How They're Different

| About: Amazon.com, Inc. (AMZN)
This article is now exclusive for PRO subscribers.

Summary

Amazon is building tools like NICE that make its infrastructure more attractive.

Supposed rivals like Microsoft are in a different business, selling software.

Apple wants to sell services and is well behind.

Having shaken off rivals like Hewlett Packard Enterprise (NYSE:HPE) and, now, Verizon (NYSE:VZ), Amazon.Com (NASDAQ:AMZN) is facing the challenge of adding cloud software to its infrastructure stack.

(Please don't tell me AT&T (NYSE:T) is a threat - no one told them when to run, they missed the starting gun.)

This does not mean, as some analysts are saying, that it's advantage Microsoft (NASDAQ:MSFT). Microsoft and Amazon are really in different businesses. Microsoft sells Software as a Service or SaaS and Amazon sells bare-bones infrastructure.

Despite claiming more cloud revenue than Amazon, Microsoft does not have nearly as large a cloud footprint. It merely defines applications as cloud because that's where they're served, while Amazon Web Services only defines income from renting its capacity as cloud. It's the difference between offering furnished apartments and warehouse space.

What Amazon is doing is building features on its infrastructure that customers can use to get more value from its infrastructure, to build out their own platforms, software applications and services. Here is a NICE example -- Italian software that can optimize a company's use of the cloud and tools for using that capacity on mobile devices.

Acquisitions like this fit between infrastructure and what was formally called Platforms as a Service -infrastructure with tools for writing applications. Amazon has actually been on this track for a year now, buying companies like Elemental Technologies, AppThwack, CluterK, 2lemetry and Annapurna, tools for managing cloud workloads as opposed to building applications. (Microsoft, as noted, delivers complete applications.)

It's Microsoft, not Amazon, which needs to worry about the possible entry of Apple (NASDAQ:AAPL) in this space. Apple has the cash to invest the $1 billion/quarter needed for entry, but its main aim is to defend its enterprise turf, where partner IBM (NYSE:IBM) is faltering due to a lack of investment capital, and its consumer turf from Facebook (NASDAQ:FB), which bit the bullet on cloud investment years ago and is now reaping the benefits.

The key takeaway is that you should no longer see one "cloud" market. Cloud is like a layer-cake, and there are any things you can sell from it. You can sell services, like Facebook. You can sell software, like Microsoft. You can sell platforms, like VMware (NYSE:VMW) and Red Hat (NYSE:RHT). Or you can sell the bare bones infrastructure and build tools allowing your clients to get the most out of that resource. The only challenger to Amazon in that game is Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), and they remain very much in Amazon's rearview mirror.

People are finding niches in the cloud, and whole industries like software are moving into it, but when it comes to selling cloud itself there's only one name to know, and that's Amazon.

Disclosure: I am/we are long AMZN, AAPL, MSFT, GOOGL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.