Amazon Web Services, the cloud technology arm of retail giant Amazon (AMZN, Financial), has been a huge success for the company. Its cloud operations are not only immensely profitable, acting as a counterbalance for the wafer-thin-margin retail segment but has also turned out to be a huge growth driver for the company.
Amazon Web Services has, so far, remained steadfastly focused on the Infrastructure as a Service (IaaS) part of the cloud industry. Amazon could have easily bought its way into the much larger Software as a Service portfolio but instead chose to remain a hardcore cloud computing infrastructure player.
It was a huge decision, but Amazon’s recent moves in Internet of Things (IoT) are clear indications that the company will be diving deep into the segment.
Amazon originally announced the launch of its IoT services during the Amazon:re invent conference held in 2015, but the IoT industry itself is in the early stages of its evolution cycle. The total IoT installed base was worth $15.41 billion in 2015 and is expected to double by 2020 and grow fivefold by 2025. On a comparative basis, this segment is much smaller than the Software as a Service segment, which is estimated to be worth in the order of hundreds of billions.
But the problem with the SaaS segment is that it is already a mature industry with a lot of technology players strongly entrenched in it. Cloud-based delivery systems have fundamentally changed the way we access our software applications, but that’s only a small hurdle to overcome for established software vendors. Salesforce (CRM, Financial), Microsoft (MSFT, Financial) and Oracle (ORCL, Financial) are headed for collision in that segment, and it was actually a wise choice by Amazon to not enter into an overcrowded market already filled with established players with long rosters of enterprise clients.
The IoT segment, on the other hand, is extremely small, and is predicted to grow multifold over the next several years. The growth of connected devices, ably supported by cloud compute power at the back end, has made IoT systems a reality. And that’s only been possible with the development of cloud infrastructure into a robust yet growing industry.
Amazon recently announced the launch of its IoT button Enterprise program, which asks businesses to start by placing a bulk order of the AWS IoT button. Amazon manufactures the buttons and takes care of the secure communication to AWS Cloud, and businesses can focus on designing and building their IoT solutions.
This move makes it clear that, instead of just providing the back end compute power for an IoT network, Amazon is also ready to move to the front end. This will allow companies to keep their focus on building the applications instead of taking a multivendor approach to build out and deploy their IoT operations.
“The AWS IoT Button is a programmable button based on the Amazon Dash Button hardware. This simple Wi-Fi device is easy to configure and designed for developers to get started with AWS IoT, AWS Lambda, Amazon DynamoDB, Amazon SNS and many other Amazon Web Services without writing device-specific code.” – Amazon
It is, of course, far too early to predict the level of success that Amazon will achieve since it’s only a small step in the IoT world. But it’s clearly the direction the company wants to take. It is not just going to be the back end platform provider for IoT solutions; it wants to create a comprehensive solution that includes manufacturing of IoT devices as well.
Disclosure: I have no positions in the stocks mentioned above and no intention to initiate positions in the next 72 hours.
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