Amazon.com, Inc. (AMZN), Microsoft Corporation (MSFT): The Clash in the Cloud – A Profitable Opportunity?

What is the cloud? Cloud computing could be best described as delivering computing, storage, and applications as a service over the Internet. It means that a company basically outsources its computer infrastructure to another party but can still access all its functionality through a smartphone, tablet, or PC. The main benefit of cloud computing is cost savings. These savings, which can be significant, are making the cloud increasingly attractive to large corporations and government agencies looking to cut expense.

The heart of the cloud is the platform, the setup and services available from the cloud provider. As more large companies become interested in the cloud, tech giants are increasingly pushing to get their platform considered. This burgeoning competition between industry leaders could significantly alter the economics of cloud computing and even total corporate tech spending, which may offer alert investors profitable opportunities.

Amazon.com, Inc. (NASDAQ:AMZN)’s cloud success

Amazon.com, Inc. (NASDAQ:AMZN) has quietly become a leader in cloud computing. The company’s offering, called AWS, was started to simply absorb excess capacity on its computing infrastructure but is now a popular platform choice. In 2012, AWS generated an estimated $2.0 billion in revenue, up from a $1.0 billion in 2011, and is expanding at around $200 to $300 million a quarter.

Still a small part of Amazon.com, Inc. (NASDAQ:AMZN)’s total business, AWS has significant room to grow. Though the platform is most popular with tech startups and smaller firms, it’s looking to become more attractive to the large enterprise market. For instance, AWS recently launched a large-scale data warehouse service at an extremely competitive price. Amazon.com, Inc. (NASDAQ:AMZN) also noted that SAP Business Suite software, very popular with businesses, has been certified to run on the platform. But Amazon.com, Inc. (NASDAQ:AMZN)’s low cost selling point is its major advantage. AWS has lowered prices 31 times since it launched in 2006, including 7 price reductions so far in 2013, and it probably isn’t done. By leveraging its scale, Amazon.com, Inc. (NASDAQ:AMZN) can continue to hobble competitors with lower and lower pricing.

Tech giants want to catch up

Some tech giants have awoken to Amazon.com, Inc. (NASDAQ:AMZN)’s lead. Microsoft Corporation (NASDAQ:MSFT) understands the cloud represents a significant threat to its traditional business of selling software installed on individual machines. As a result, the company aims to compete directly with AWS for a meaningful place in the business.

Microsoft Corporation (NASDAQ:MSFT) first offered its platform called Windows Azure a few years ago. Azure focused on large corporate clients and offered to rent applications like databases and servers for broadcasting video. These big enterprise customers are now starting to consider fully embracing the cloud.