This Reveals What Is Likely Next for Amazon.com Stock
It’s no secret that merchants have been wary of Amazon.com, Inc. (NASDAQ:AMZN) for a long time now. The e-commerce giant has continued its encroachment on the traditional position of physical stores and it has made early investors in Amazon.com stock very rich.
Book publishers, for example, are growing especially worried as Amazon.com’s business clout and the small size of books has allowed the online juggernaut to become the world’s biggest vendor of both printed books and e-books.
But aside from its traditional business model of selling items online, Amazon has spent the better part of a decade focusing its attention on a lesser-known aspect of its market strategy. The online retailer has dove into the world of cloud computing and it’s not an exaggeration to say that the ripple effects could be huge for the AMZN stock price.
Amazon.com Stock Could Soar on Cloud Revolution
As an increasing number of objects in our daily lives become connected to others through the Internet, companies across all business sectors have scrambled to realign their long-term strategies to conform to this trend. Products and business models have to be optimized in order to ride the cloud computing wave rather than swim against it.
Amazon.com’s first venture into the cloud computing market began in 2006; today, more than a million businesses use cloud services, with total revenue of $7.3 billion. (Source: “Amazon Jumps Into Internet Of Things Frenzy With New Cloud Platform For Devices Like Cars,” Forbes, October 8, 2015.) The way in which Amazon Web Services (AWS) work is that they allow various devices—from automobiles to smartphones to solar panels—to process, store, analyze, and act upon the large amounts of data cranked out by objects connected to the Internet. The business and revenue-generating potential of this data has not been lost on companies, but it was Amazon that took the lead in this market.
AWS has focused its efforts on offering companies computer services over the Internet. However, the road has been bumpy and Amazon is beginning to understand the earlier plights of personal computer trailblazers such as Microsoft Corporation.
And several questions loom large in this equation, causing no small amount of worry among potential customers: Will Amazon.com be actively looking for ways to lock users into its technological “ecosystem?” Will it be working to bring down any third-party developers that attempt to create value-added niche services for AWS?
Amazon.com has now effectively left former cloud giants, such as Google and Microsoft, in the dust, with many market research firms now considering AWS to be the dominant player in the cloud computing market. In fact, Amazon now has more than 10 times the physical infrastructure and cloud computing capacity of its next 14 competitors combined. (Source: “Amazon’s Cloud to Rain On IBM, Cisco,” Barrons, October 13, 2015.)
You read that right.
But before you think this is another one of those projects by a large corporation that is bleeding money in an effort to make future profits, think again. In contrast to quite a few of Amazon.com’s ventures, which have operated at a deficit or only managed to balance out thin profit margins, AWS is an absolute golden goose for Amazon.com stock.
But don’t take my word for it; the numbers speak for themselves. In the second quarter of 2015, AWS sales soared by 81% to $1.8 billion and operating revenue rose five-fold to $391 million. (Source: “Now Amazon is going after Microsoft and IBM with new service,” Business Insider, October 7, 2015.)
It’s no secret that the tech sector is cutthroat, wherein usually only the strongest and most resilient companies survive. This has led to quite a few uncomfortable situations in which dominant market players skirt the edge of monopolistic practices, the most notable examples of which are Google for search engines and Microsoft for PC operating systems.
Now, the market segment for cloud computing may still be in relative infancy and AWS certainly has a long, hard road ahead of it before it can become the Google of cloud-based services. However, this does not dissuade some critics from pointing out that its early market dominance may lend it the sort of power that tends to lead companies down the monopoly road.
If recent moves by Amazon.com are any indication, this is only the beginning for its cloud computing endeavors. AWS recently announced Amazon “QuickSight,” a service businesses utilize for analyzing big data sets. This thrusts the company deep into an existing marketplace and the competition is sure to be fierce.
Analysts report that this latest strategic move is what industry experts refer to as Amazon.com “moving up in the stack,” meaning that it is moving from simple core computer functions to sophisticated analytical tools and applications. When you combine this with the company’s solid infrastructure base, you start to get a clearer understanding of just why it has been so successful thus far.
The key strategy here must be for Amazon.com to avoid the somewhat disastrous policies of Microsoft in its earlier days, where the software giant’s market cloud was used to leverage its products over competitors. This touched off a Federal antitrust case, and wide accusations over Microsoft’s elimination of rival web browser Netscape Navigator through its deliberate sabotage of Windows platforms.
The Bottom Line on Amazon.com Stock
Amazon management has been quick to point out that the fundamental nature of cloud computing does not allow for monopolistic business practices, so this is not a major concern. What the company does want to focus on is partnering with smaller developers to provide value-added services in smaller cloud niches that customers want to see expanded.
It’s this sort of organic and forward-thinking strategy that is likely to provide the bedrock for solid growth over at Amazon.com and strong future uplift to the AMZN stock price.