From Barron's Technology Trader, April 1:
Jeff Bezos is already the second-richest person in the world, behind Bill Gates. Amazon Web Services could help vault him to No. 1.
As shares of Amazon.com soared to new highs last week, the world took note once again of the amazing self-made fortune of its founder, Jeffrey Preston Bezos, who holds a sixth of its stock—a stake worth an astounding $72 billion.
Using a not entirely transparent formula, Bloomberg reporters declared on Wednesday that Bezos is now the second-richest person in the world, topping Warren Buffett, and just $10 billion shy of Microsoft (ticker: MSFT) co-founder Bill Gates.
The shares continued to hit new highs the rest of the week, the latest one being Friday’s top of $890.35. Another 14% gain in Amazon’s share price, and Gates could well lose his crown.
BUT BEZOS’S WEALTH from Amazon (AMZN) is a mere footnote to the enormous changes wrought by his company. As this column has noted numerous times in recent years, Amazon seems to control the destiny of commerce. One analyst wrote last week that the company is simply “devouring” the traditional retail industry. There have been 1,200 store closings in the U.S. since June, noted Cantor Fitzgerald analyst Youssef Squali, who recommends Amazon stock. As Macy’s (M), Target (TGT), and other big retailers shut down locations, he estimates there are billions of dollars more in retail sales for Amazon to pick up.
But more profound even than rewriting retail is the company’s all-out move into cloud computing. Amazon Web Services, known as AWS, is changing the entire landscape of technology.
Computing tasks of corporations are increasingly migrating to the cloud, and most people believe Amazon has the largest piece of that business. Alphabet’s (GOOGL) Google is considered a distant second, though it’s difficult to say definitively because the financials of other cloud vendors are, well, cloudy.
With the cloud, a company’s computing tasks are run by uploading files to Amazon’s computers and “renting” computing by the hour. That obviates the need for the company itself to own and maintain its own facilities, eliminating a ton of upfront costs.
Others are known only to die-hard tech investors, such as Twilio (TWLO), which provides communications services for privately held ride-sharing service Uber Technologies; Veeva Systems (VEEV), which sells half a billion dollars’ worth of software annually to life-sciences companies; Okta (OKTA), a recently listed company that provides tools to verify the identity of employees logging into a company’s network; Atlassian (TEAM), which runs software for corporate IT staffs; and MuleSoft (MULE), a start-up that helps companies string together the myriad of software applications they have lying around.
These are all, to a greater or lesser degree, Amazon’s flock. Some are even quasi-apostles, spreading the Amazon gospel. Twilio’s chief executive, Jeff Lawson, a month ago told an audience at a trade show that he learned some of the most important lessons of business by working for Bezos in the early days of AWS.
What they have in common is that they don’t have to spend heavily on data centers to build their businesses, as did previous generations of technology start-ups, including Microsoft and Oracle (ORCL). Instead, they developed software code tuned for Amazon’s computers, and then uploaded that code to the cloud. They are part of the new wave of cloud companies created entirely within the confines of the ecosystem of online computing, especially the one built by Bezos.
WHAT ARE THE IMPLICATIONS of all this? One is that Amazon will increasingly attract customers like Snap and Twilio, reinforcing the value of its cloud-computing empire.
As AllianceBernstein technology analyst Pierre Ferragu, who has used Amazon’s AWS on many occasions, points out, few companies, once they have tasted what Bezos has to offer, will go back to the old ways. “You could learn how to do what Amazon does,” he says. “It would take a few years, but eventually you could build that capability yourself.”But “you are never going to get greater economics than Amazon,” says Ferragu, because the company is able to spread the cost of AWS across all its cloud customers. Hence, there’s very little economic or strategic advantage, says Ferragu, for most people building tech companies to do anything other than hand over their credit cards to AWS. Consequently, he says, “Amazon and Google have won the cloud war.”
The result is a kind of natural duopoly between Amazon and Google. They compete against each other, and together they’re big enough to keep others out. “It’s very stable,” says Ferragu of their hold on the market.
...MOREWHAT IS LESS CLEAR...