The Industry

How Microsoft Is Profiting From the Amazon Backlash

As Amazon encroaches on retailers’ turf, they’ve decided to take their cloud storage business elsewhere.

Microsoft and Walmart logos on one side, Amazon logo on the other.
Illustration by Slate

While we hear a lot about things like Amazon Prime Day or Amazon’s ventures into the world of cashier-less convenience stores, the internet juggernaut’s cash cow isn’t its retail endeavors—it’s the company’s cloud services business. Amazon Web Services raked in $1.6 billion in profit in the first quarter of this year, news that sent the company’s stock soaring to a market cap record of $450 billion. AWS is a popular cloud storage option for both individuals and businesses. In 2016, AWS had more than 1 million users. When AWS occasionally goes out, wide swaths of the internet feel the repercussions. During an AWS outage in March, broadly used services such as Twilio, Slack, and Atlassian temporarily went offline.

While many tech companies opt to rely on Amazon for their cloud storage needs, Amazon’s biggest competitors are taking a different route. Walmart, Amazon’s biggest retail rival, recently announced a partnership with Microsoft to use its cloud infrastructure to power a variety of machine learning–related algorithms that will help optimize employee time and make operations more efficient. The five-year deal is Walmart’s latest effort to bring the company into the 21st century and promises to help the company with tasks like sharing sales data with vendors, making better purchasing decisions, optimizing freezer performance, and helping employees choose which products get premium shelf placement.

Walmart has made a variety of moves in recent years to help it compete with Amazon in the U.S. and globally, so this new partnership isn’t surprising. What may be less expected, however, is the benefit this gives to Microsoft. As Microsoft’s Azure is the next biggest cloud-computing service provider besides Amazon, Microsoft is reaping the rewards of retailers who’d rather not give their money (and their data) to their biggest rival. (Amazon, of course, has an extensive data privacy policy in place outlining what kinds of data it collects from AWS users and the security and encryption protocols in place to keep customer data from being accessed by outside parties.)

Microsoft counts a number of retailers amongst its Azure customers: Honeywell (which sells smart home products that compete with Amazon’s Blink- and Ring-branded connected home security offerings) and Asos (an online fashion hub that Amazon Fashion is trying to take a bite out of) are two notable examples; others, such as Fabletics, HP, and Adobe, also rely on Azure for their cloud-processing needs. Last August, after Amazon’s acquisition of Whole Foods, reports suggested Target would move its digital business off of AWS—though Target says that it had already started that process earlier in the year.* Grocery chain Kroger made a similar decision in late 2017, dividing its cloud storage needs between Microsoft and Google.

And then there’s Walmart, which has gone so far as to require its vendors to not use AWS or risk Walmart dropping its business. The Wall Street Journal reported that a Walmart client approached data-warehousing service Snowflake Computing Inc. about handling its data—but would only strike a deal if Snowflake ran its services on Azure. Snowflake expedited its Azure offering and got the client’s business as a result.*

Amazon has been the leading cloud-computing platform since 2013, with Microsoft typically in second and Google in third. Microsoft’s cloud platform is quickly becoming a “viable cloud-infrastructure alternative for many,” an analyst for the market research firm Gartner told the Wall Street Journal. As those threatened by Amazon’s growth, or weary of a competitor handling their most sensitive data, have been jumping ship, Azure has been growing twice as fast as its competitor. In April, Microsoft actually topped Amazon in terms of cloud revenue for the first time—Microsoft earned $6 billion to Amazon’s $5.4 billion—marking a 93 percent increase over its revenue from the previous year. In its earnings announcement last week, Microsoft posted 23 percent gains on top of that. With Amazon’s next earnings report out July 26, we’ll find out whether Microsoft’s cloud services growth is actually making an impact on Amazon’s bottom line. Retailers like Walmart are surely hoping it will.

Correction, July 25, 2018: This post misstated that Snowflake expedited its Azure offering and got Walmart’s business as a result. It actually got a Walmart’s client’s business.

Correction, July 27, 2018: This article originally misstated that Target announced that it would move its digital business off of AWS in August 2017, after Amazon acquired Whole Foods. It began that process earlier in the year.