As Cloud Chief Takes Over Microsoft, Rivalry With Amazon Jumps

Apps & Software

Published: January 31, 2014 6:42 am

The head of Microsoft Corp.’s (NASDAQ: MSFT) cloud businesses, Satya Nadella, most likely will become CEO of the aging software company, which will make it Amazon.com Inc.’s (NASDAQ: AMZN) primary rival. The battle ground will not be e-commerce, but rather which firm will control the cloud. Amazon Web Services controls the sector now. With Nadella in charge, the cloud moves front and center in the tech wars.

Buried in Amazon’s quarter earnings release, which disappointed investors because of its shrinking margins, was data on its cloud operations, which rose above $1 billion. Next year, the business should reach $7 billion or $8 billion, not terribly large by big tech standards. Amazon CEO Jeff Bezos believes, however, that Web services eventually will become the company’s largest source of revenue.

Microsoft’s plans for the cloud are slightly different from Amazon’s, but they are likely to clash violently in the future. As the company describes it:

Nadella and his team deliver the “Cloud OS”, Microsoft’s next generation backend platform. Designed for modern application needs, the Cloud OS is a rich, consistent platform that spans public, private and service provider clouds. The Cloud OS platform also not only powers all of Microsoft’s Internet scale cloud services (including O365, Bing, SkyDrive, Xbox Live, Skype and Dynamics) but also fuels global enterprises around the world to meet their most challenging and mission-critical computing needs.

But the goals of Amazon Web Services are relatively the same:

Cloud Computing helps you reduce your overall IT costs in multiple ways. Our massive economies of scale and efficiency improvements allow us to continually lower prices, and our multiple pricing models allow you to optimize costs for both variable and stable workloads. Additionally, Cloud Computing drives down up-front and on-going IT labor costs and gives you access to a highly distributed, full-featured platform at a fraction of the cost of traditional infrastructure.

While individuals use the cloud to store movies and files, the real battle over it will be for market share among businesses, enterprises and governments. They are the ones that can spend more on Amazon than Amazon gets from e-commerce today.

The race for the top of the cloud has become crowded, because the possibilities for revenue are practically endless. Google Inc. (NASDAQ: GOOG) numbers itself as one of the competitors. So do International Business Machines Corp. (NYSE: IBM) and Oracle Corp. (NASDAQ: ORCL), which have operations and products dedicated to cloud computing. Beneath these in size are dozens and dozens of more companies.

If Nadella has one competitor, it is not any of the challengers of Windows or game consoles. It is Jeff Bezos, who is already well along as leader of the movement into the cloud.

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