As Cloud Chief Takes Over Microsoft, Rivalry With Amazon Jumps

By Douglas A. McIntyre Published Jan 31, 6:42AM EST

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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.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.