Today Amazon.com, Inc. (NASDAQ:AMZN) is battling tech companies of all shapes and sizes. Amazon has been a rapid growth stock whose roots started in a battle with eBay Inc (NASDAQ:EBAY) for e-commerce dominance. In its next battle, Amazon came out with all guns firing when the Kindle Fire went up against Apple Inc. (NASDAQ:AAPL)’s iPad. The e-tail giant is now taking on old-guard tech company, International Business Machines Corp. (NYSE:IBM). And this battle is being taken to the cloud.
Amazon’s beginnings
Amazon.com, Inc. (NASDAQ:AMZN) got its start by becoming a marketplace where it could sell products directly to consumers, or have an Amazon affiliate pay to use its network to reach customers. This differs slightly from eBay Inc (NASDAQ:EBAY)’s method. eBay hosts auctions and buy-it-now sales, where consumers can either bid on an item, or pay a pre-determined price. It takes a small percentage of each sale but is just the facilitator of the sales, not a direct seller. Both e-tailers were responsible for starting the e-commerce revolution.
Auction houses
eBay Inc (NASDAQ:EBAY) is different from Amazon.com, Inc. (NASDAQ:AMZN) in one very prominent way. eBay has two very different segments to the company: the auction house website; and the payment processor, PayPal. eBay purchased PayPal in 2002 for $1.5 billion
PayPal has been teaming up with Discover Financial Services (NYSE:DFS) to bring the person-to-person payment system to the offline marketplace. PayPal users will be able to use their mobile device to send money via a phone number and identification number to the roughly 2 million stores that currently accept Discover cards. This could be a boon for the PayPal division within eBay.
One serious risk to PayPal is the mobile company Square. Square sells a device that turns any smartphone and email address into a credit card-accepting cash register. Square could pose a problem to PayPay and other more established card companies. Square is getting traction in local mom-and-pop stores that are able to pay a flat 2.75% of each sale to Square and not have to worry about the fixed costs associated with large transaction networks.
Amazon’s next battle
Amazon.com, Inc. (NASDAQ:AMZN) and International Business Machines Corp. (NYSE:IBM) are both tech behemoths that are squaring off in the battle over cloud services. Both Amazon and Big Blue are battling over what could amount to a $600 million multi-year contract with the Department of Defense. When it comes to contracts this size, neither one wants to lose.
International Business Machines Corp. (NYSE:IBM) has seen its revenue stagnate over the past few quarters due to slower tech spending on its server segments. IBM is looking to the flexibility of cloud storage and corporate applications. The juicy margins in this software section have allowed IBM to grow its earnings while maintaining anemic revenue growth. Unfortunately for IBM, those same juicy margins have attracted some large competitors like Amazon.com, Inc. (NASDAQ:AMZN).
International Business Machines Corp. (NYSE:IBM) has laid out a five-year road map to double its earnings to $20 per share by 2015 from 2010. This involves cost cutting, share repurchases, and a shift to higher-margin products. IBM recently acquired cloud computing company SoftLayer. These small bolt-on acquisitions are almost instantly accretive to IBM, as it can use its global distribution and sales networks to cross-sell the new product portfolios.
These tech companies will have to keep re-shaping and re-developing themselves, as International Business Machines Corp. (NYSE:IBM) has done for over 100 years. I don’t doubt that the M&A activity in the cloud-computing space is going to be heating up over the next few years.
