Amazon Web Services (AWS)
Amazon.com, Inc. (NASDAQ:AMZN) has increased its investment in its network, bandwidth, and storage businesses to create the division Amazon Web Services. Analysts estimate that since this segment’s launch in 2005 it has been a primary driver of growth. It is a dominate player in cloud computing with a 35% market share of the $1.2 billion spent in Q4 2012.
Going forward, Amazon will compete increasingly with Microsoft and Google in this area as they try to establish larger footholds in cloud computing. Google has its “Drive,” which allows users to store 5GB free and 20GB for $4 per month. Apple has a cloud service that can be accessed through its various devices and has a similar pricing structure. For the iCloud, users don’t pay for data under 5GB and pay $20 per year for up to 10GB. Microsoft in particular is actively working to expand its presence in the cloud market.
Cloud services are still a small portion of sales for these tech giants, but it has become more important as consumers require an increasing amount of storage while wanting smaller computing devices. As smartphones and tablets are the new norm for media consumption, cloud services offer a way to store large files, such as HD videos.
Key theme – Grow Sales, Margins will Follow
All of the growth drivers Amazon.com, Inc. (NASDAQ:AMZN) has implemented seem to negatively impact margins, at least in the short run. Management is focused on growing sales, and margins will come into focus at a later date. The track record of continued growth and maintaining a growth strategy has historically worked for the company and shareholders. Amazon’s stock is up over 230% over the past five years, versus 130% for Apple and 46% for Google Inc (NASDAQ:GOOG).
Conclusion
For competitors like Google Inc (NASDAQ:GOOG) and Apple, the purchase of Goodreads does not appear very significant at the moment. It is a small tuck-in acquisition that makes sense for Amazon because of its eBook business. While Google Play is in this market, this acquisition is of relatively small importance. It only matters if Amazon can increase the user base and leverage the social network traffic into sales.
Amazon’s strategy is to invest for the long-term, not get left behind, and to participate in high growth markets. Microsoft has struggled to push into higher growth markets and its stock has suffered as a result. Amazon.com, Inc. (NASDAQ:AMZN) is making the right moves for its future, and it has been the better stock so far this year. Microsoft is of interest because it has underperformed and if it can see success into the smart phone, tablet and/or cloud market, it could outperform its peers in the second half of the year.
The article Amazon Is Positioning Itself Well For The Long Term originally appeared on Fool.com and is written by Mike Thiessen.
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