Amazon Web Services To Host All Core Salesforce Products

Amazon.com, Inc. (NASDAQ:AMZN) and Salesforce.com, Inc. (NYSE:CRM) have strengthened their ties with a deal per which the latter will move a host of its services to Amazon Web Services (AWS). Salesforce will now use AWS across all of its core products, namely, Sales Cloud, Service Cloud, and App Cloud for parts of its international services.

Other Salesforce services which already run on AWS infrastructure are Heroku, Marketing Cloud Social Studio, SalesforceIQ, and the recently announced Salesforce IoTCloud.

Salesforce is the latest to join the long list of AWS users that include big names like Netflix (NASDAQ:NFLX), Expedia (NASDAQ:EXPE) and Adobe Systems (NASDAQ:ADBE).

Until now, Salesforce runs the majority of its workload in its own data centers, except for its app development platform Heroku and parts of its new Internet of Things Cloud service. With this move, it is clear that Salesforce is planning a shift from data centers to cloud, at least partially. The deal will help Salesforce to successfully expand international infrastructure.

The Win Deal

This is a big win for Amazon, which also recently helped Netflix move to cloud. While Amazon remains the largest online retailer with significant growth prospects, all the excitement in recent times has been about AWS.

Amazon’s cloud infrastructure business, while making a single-digit contribution to revenues, generates nearly half its profit. Note that Salesforce’s flagship CRM offering competes with Microsoft’s Dynamics CRM. Microsoft ranks second in the IaaS segment, so Amazon (the market leader) is the best company that Salesforce could have gone to.

Cloud Opportunities

Cloud technology is being increasingly adopted by businesses to innovate and drive growth. Gartner predicts that around $677.0 billion may be spent on cloud services between 2013 and 2016.

Further, according to Centaur Partners, SaaS and cloud-based business applications are likely to grow from $13.5 billion in 2013 to $32.8 billion in 2016, reflecting a compounded annual growth rate (CAGR) of 19.5%. Moreover, Computerworld forecasts that 42% of IT decision makers are planning to increase spending on cloud computing in 2015.

Amazon, with its solid portfolio and growing partnerships, should be able to tap this opportunity.

Bottom Line

Seattle, WA-based Amazon.com, Inc. is one of the largest online retailers, with extensive operations in North America and expanding operations across the globe. The e-commerce giant has emerged as a key player in the cloud computing space with its AWS, well ahead of Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) .

Revenues from the AWS segment have been growing strongly. In the recently reported first quarter of 2016, AWS revenues were $2.57 billion, taking the revenue runrate to over $10.2 billion. Even more encouraging is the fact that AWS generates much stronger margins than the traditional retail business, which should help the company's profitability, going forward.

Currently, Amazon has a Zacks Rank #3 (Hold).

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