Salesforce (CRM, Financial) chose Amazon (AMZN, Financial) subsidiary Amazon Web Services (AWS) as its preferred public cloud service provider last year. The partnership makes a lot of sense for both companies because a strong working relationship between the world’s leading infrastructure-as-a-service (IaaS) provider and a top-three software-as-a-service (SaaS) provider will benefit them in many different ways. I expect this relationship to only get stronger from here.
AWS faces intense competition from Microsoft (MSFT, Financial), the second-largest IaaS provider, while Oracle (ORCL, Financial), the new entrant to race, has already set its sights on Amazon’s dominance in the segment. And let’s not forget Alphabet's Google (GOOG, Financial) (GOOGL, Financial), which has all the money and talent (but perhaps not the time) to become a strong player in the cloud infrastructure segment.
Microsoft and Oracle have a common enemy in Salesforce as both companies are pushing really hard into the enterprise software segment. In a recent cloud survey conducted by North Bridge and Wikibon called Future of Cloud Computing, it was found that SaaS is used by nearly seven out of 10 companies, with more than 50% saying they are looking for vendors to have the ability to integrate with other services.
As more and more companies move into the cloud, using SaaS products will get easier and easier for companies that are already using these products from Google, Microsoft or Oracle. Using these companies’ IaaS offerings becomes even easier because it reduces a lot of integration headaches. After all, why would any customer want to have four different vendors if one can do it all for them?
This is exactly where a deeper relationship between Salesforce and Amazon’s AWS makes a lot more sense. Amazon does not have a strong SaaS product line, while Salesforce does nothing but build these product lines. By working together, the two companies can create a combined value offering that can stand up to the growing competition from Microsoft and Oracle in the future.
Salesforce is only testing the waters with Amazon as they still want to build their own data centers. But the relationship can only get deeper and deeper from here as both companies naturally complement each other's services. There are huge benefits that both companies can enjoy by staying close.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
Start a free 7-day trial of Premium Membership to GuruFocus.
