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Wal-Mart and Amazon take their war to the cloud

Wal-Mart and Amazon are natural rivals — one, the brick-and-mortar behemoth, the other an e-commerce goliath. Amazon made short work of most physical book stores and has been making serious inroads to many, many other retail categories over the years. Given how many retail categories Wal-Mart plays in, every advance Amazon makes could conceivably come at Wal-Mart’s expense. This rivalry has intensified recently, elevating to a veritable cloud war over each company’s respective technology stack.

Years ago, Amazon recognized the growth industry rentable, on-demand cloud computing and storage would become. Instead of every company having to set up their own data centers and servers, they could simply rent it from a massive provider far cheaper and more efficiently — Amazon cornered this market with its AWS (Amazon Web Services) offering. To date, IT professionals use AWS to the tune of 57%, compared to Microsoft’s 34% (coming by way of its Azure offering), with Google and IBM filling in the gaps at 15% and 8%, respectively (it adds up to more than 100% because IT pros often use multiple cloud services).

AWS is a huge profit center for Amazon. In the first quarter, “AWS posted $890 million in operating income, accounting for 89% of overall operating income, even as AWS’s $3.66 billion in net sales accounted for just 10% of the company’s total” according to Fox Business. Its retail operation, while massive, operates on razor-thin margins, whereas AWS churns off consistent profits for its parent company.

Determined to not hand its rival any victories unnecessarily, Wal-Mart has ramped up its hostility to Amazon’s cloud offerings, going so far as to deny business to vendors and tech partners who operate on AWS, according to the same Fox Business article:

“Wal-Mart Stores Inc. (WMT) is telling some technology companies that if they want its business, they can’t run applications for the retailer on Amazon.com Inc.’s (AMZN) leading cloud-computing service, Amazon Web Services, several tech companies say.” 

In an anecdote describing how Wal-Mart can exert its influence on potential partners, the Fox Business article lays out how Wal-Mart’s preference for Azure-based cloud services change how vendors and vendor-support companies build their technology stacks out:

Snowflake Computing Inc., a data-warehousing service, was approached by a Wal-Mart client about handling its business from the retailer, Chief Executive Bob Muglia said. The catch: Snowflake had to run those services on Azure.

“They influence their vendors, which has influence on us,” Mr. Muglia said of Wal-Mart.

The San Mateo, Calif., company had been developing an Azure offering, and “Wal-Mart has expedited our work,” said Mr. Muglia, a former senior Microsoft executive. Snowflake won the business from Wal-Mart’s client.

Because Microsoft is rather exclusively a technology and software company, retailers probably don’t feel the need to shield themselves from the company or its influence in the same way retailers seem to loathe Amazon and its suite of technology offerings. While this practice could be seen as bullying vendors (which is precisely how an Amazon spokeswoman described the practice to Fox Business), the end result is a net win for Microsoft. And, for many retailers, any loss for Amazon is a gain for the retail industry as a whole. And, in keeping with that trend, other retailers are seeking to put the screws to Amazon similarly:

Other large retailers also have requested, as Wal-Mart did, that service providers move away from AWS, according to technology vendors that work with retailers.

Retailers “are all very particular, and some are more particular than others,” said Kevin Howard, CEO of Adroit Worldwide Media Inc., a retail-technology provider that works with sensitive data including automated inventory tracking and provides pricing-content management. “There are retailers that have specifically requested that we sit on Azure,” he said, declining to name them.

This could spell some trouble for Amazon’s AWS in the future. While they’ve stayed dominant in the space at that 57% figure, Azure made up huge ground year-over-year, going from 20% of IT professionals using it last year to 34% this year (with AWS staying flat). While this isn’t exactly a nascent market, it’s still ripe for both competition and upheaval. Given the breadth of markets and industries Amazon competes within, we could see a quickening preference to prevent Amazon from any easy wins on any front, further speeding Azure’s ascendancy  in the cloud computing space. While that’s great news for Microsoft, it could be quite bothersome to Amazon moving forward. Amazon certainly has upended the retail market, but it seems like retailers are determined to fight back in whatever ways they can.


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Jeff Francis

Jeff Francis is a veteran entrepreneur and founder of Dallas-based digital product studio ENO8. Jeff founded ENO8 to empower companies of all sizes to design, develop and deliver innovative, impactful digital products. With more than 18 years working with early-stage startups, Jeff has a passion for creating and growing new businesses from the ground up, and has honed a unique ability to assist companies with aligning their technology product initiatives with real business outcomes.

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