Amazon Sees Sunshine in a Cloudy Play; Opportunity in Cloud Computing Is Big Enough for Both Google and

Amazon Sees Sunshine in a Cloudy Play

Opportunity in Cloud Computing Is Big Enough for Both Google and


Dec. 3, 2013 3:28 p.m. ET AMZN -1.95% investors shouldn’t sweat Google‘s GOOG -0.12% stepped-up efforts in cloud computing—yet. Google has formally launched its Compute Engine, a cloud-based service that effectively rents out to businesses large and small the Web search giant’s huge network infrastructure. This is similar to the efforts Amazon has made with its own Web-services business known as AWS.The enormous scale both companies have with their networks allows them to offer pay-as-you-go services to customers at cut-rate prices. Illustrating this point, Google chopped its Compute Engine pricing by 10% as it took the program out of beta testing.

Google already has a formidable cloud business; it reported more than 300,000 enterprise customers on its last earnings call. But that includes items such as corporate use of services such as Gmail.

Amazon’s AWS business is well ahead of the curve, both in terms of an established customer base and pricing. A recent study from RBC Capital found that Amazon has already cut prices on its so-called EC2 service—which competes directly with Google’s Compute Engine—by 26% in some areas during the year, while slashing prices on another tier of the service as much as 80%.

Colin Sebastian of Robert W. Baird estimates that Google’s cloud business is generating about $1 billion in annual revenue now, while AWS generates about $2 billion a year and is expanding at least 50% annually. Neither company discloses financial details about their cloud businesses.

Given Amazon’s high valuation of more than 150 times forward earnings, with Google at a far more modest 20 times, it is tempting to see price pressure from Google as a big negative for the fast-growing AWS business. But this business is still nascent with large growth opportunities; 451 Research predicts the so-called infrastructure-as-a-service market will more than double to $10.2 billion by 2016.

And it isn’t winner-take-all at this point. Customers can easily use cloud-based services from multiple providers without being exclusive. Gains made by Google won’t necessarily come at the expense of Amazon, though heavy competition may cap profit margins.

Amazon shares are priced to perfection, but even Google may have trouble knocking it off its cloud.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: