One of the world’s largest retailers and a cloud services provider that has experienced rapid growth are combining forces to battle a common foe. Walmart (WMT, Financial) recently agreed to use Microsoft’s (MSFT, Financial) cloud services technology to streamline its business operations and develop purchasing and sales-data sharing capabilities with its third-party vendors.
Clearly, the partnership is mutually beneficial.
Since 2013, most of Microsoft’s rapid growth can be attributed to successfully implementing its business strategy of becoming a dominant player in the cloud services sector. In early April, Microsoft reported that its fiscal third-quarter profit rose 35% as revenue from Azure, its cloud business, surged 93%. Recently, the company announced that revenues for the 12 months ending June 30 increased 14% year-to-year.
Microsoft's entire strategic plans for its future growth rely entirely on expansion of its cloud services business.
Securing one of the world’s largest retailers as a customer is a feather in Microsoft’s cap in terms of promoting its cloud services offerings to other potential retailers. Walmart’s strategic database development and information sharing needs undoubtedly will enhance Microsoft’s operating revenue. Developing its cloud computing business is a do-or-die proposition for Microsoft. The addition of Walmart as a new customer enhances its reputation and helps establish its standing in the cloud services market.
In a recent interview with the Wall Street Journal, Microsoft CEO Satya Nadella confirmed that the rivalry with Amazon the companies share is “absolutely core” to its business strategy for growth.
Both companies’ principal competitor is Amazon (AMZN, Financial), and each undoubtedly enjoys poking a stick in the eye of the Goliath online retailer.
Using Microsoft’s proven cloud database capabilities gives Walmart numerous advantages in its quest to compete against the behemoth Amazon.
Walmart is seeking to replicate Amazon’s online retail strategic business plan, which has heavily relied on its massive database of customer information obtained and supported by its AWS unit to fine tune its customer offerings as well as to determine the optimal use of its resources of other parts of its business operations. These data warehousing capabilities have helped Amazon secure its coveted position as the largest online retailer in the world.
Walmart intends to use Microsoft’s artificial-intelligence and other virtual computing services to assist employees in better managing inventory by selecting appropriate items to put on its stores' shelves.
As Walmart seeks to enter the online retailing business, partnering with Microsoft is a prudent decision. Since the company has no home-grown cloud capabilities, forming a business relationship with Microsoft, which has an established and growing cloud business, is a prudent strategic business decision.
For Walmart, using Microsoft’s growing and established cloud computing services capabilities is the most cost-effective and expeditious manner to help it enter the online retailing business. Walmart will now have some of the same data sharing capabilities that Amazon has long since enjoyed and upon which it has capitalized or leveraged to establish its massive internet-only retail presence.
Microsoft has positioned itself well for dominating cloud services offerings for the retail market. Many retailers are reluctant, if not loath, to use Amazon’s AWS services as it simply provides them with a rope to hang themselves.
Amazon’s cloud unit services provide the bulk of its operating income and are responsible for its enviable operating profit. Amazon’s extensive and custom-tailored cloud computing services for many years were the only game in town.
Microsoft’s cloud capabilities, offered through its Azure platform, are second behind AWS in terms of market share and now offer a viable cloud-infrastructure alternative for many smaller to medium-sized retailers.
Now that Microsoft has devoted the resources to becoming a major competitor to Amazon’s cloud database services offerings, many smaller retailers are only too happy to jump ship and get onboard with Microsoft.
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