Amazon Web Services is king
Nevertheless, by most accounts, Amazon Web Services dominates. In April, Forrester analyst James Staten told Bloomberg that AWS controls over 70% of the market, with Microsoft’s Azure at less than 20%.
Amazon.com, Inc. (NASDAQ:AMZN) accounts for AWS in its “other category” (the main categories being merchandise and media). The category as a whole took in roughly $800 million of revenue during Amazon’s last quarter.
But given that AWS is still a part of a much larger retail operation, interested investors might be better served waiting for a spin off. That’s inevitable, according to Oppenheimer’s Timothy Horan. Still, it remains mere speculation.
Analysts at Lazard Capital believe AWS is enough reason to buy the retailer; they upgraded the stock last week on the hope that AWS would help drive margin expansion.
Google Compute Engine is an emerging threat
As for Google Inc (NASDAQ:GOOG), the company remains an up and comer in the space, but given its extensive experience in cloud technology, it certainly shouldn’t be counted out.
Google’s Compute Engine was only made available to the public in May, so it will be some time before its success can be accurately gauged. However, Google was immediately aggressive in its pricing model, offering subhouring billing when billing by the hour had previously been standard.
The biggest advantage Google Inc (NASDAQ:GOOG) has in the space is its familiarity with cloud infrastructure. Arguably, the company’s entire business is built on the concept of cloud computing, and it has more servers than any other company.
Yet, from a financial standpoint, most seem to be ignoring GCE. It wasn’t discussed during the company’s earnings call last week, and SVP Nikesh Arora payed only token service to the company’s cloud infrastructure initiatives.
And perhaps that’s the source of Microsoft Corporation (NASDAQ:MSFT)’s biggest opportunity — while Google Inc (NASDAQ:GOOG) is focused on advertising, and Amazon.com, Inc. (NASDAQ:AMZN) is shipping goods, Microsoft could be the largest company dedicated chiefly to cloud infrastructure.
Investing in Microsoft
ValueAct’s vision for Microsoft is better than current management’s. Although Amazon and Google Inc (NASDAQ:GOOG) are formidable competitors in the cloud computing space, Microsoft Corporation (NASDAQ:MSFT) at least has a chance with Azure.
If ValueAct can affect real change, there’s reason to be bullish on the long-stagnant Windows-maker.
Yet, that’s assuming a lot. Even if ValueAct dedicated its entire portfolio to Microsoft stock, it would own less than 5% of the company. If Microsoft shrugs off ValueAct’s suggestions, and sticks to its stated goals of being a devices and services company, investors should be wary.
Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Inc. (NASDAQ:AMZN) and Google. The Motley Fool owns shares of Amazon.com, Google Inc (NASDAQ:GOOG), and Microsoft Corporation (NASDAQ:MSFT).
The article Can ValueAct Save Microsoft? originally appeared on Fool.com.
Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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