Salesforce.com is expanding its usage of Amazon Web Services (AWS) as its public cloud infrastructure solution, in a deal that will cost Salesforce as much as $400 million over a four-year span, according to The Wall Street Journal. By leveraging AWS, Salesforce aims to expand its infrastructure internationally.
The financial success of AWS alleviates much of the pressure on Amazon’s retailing operations to demonstrate profitability, and provides additional resources for the company’s testing of new retail technologies and processes.
Salesforce already uses AWS for some of its services, such as Heroku, Marketing Cloud Social Studio, SalesforceIQ and the Salesforce IoT Cloud. But this is the first time its key applications will be housed on another provider’s computers.
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The transaction will be a gigantic haul for Amazon, which rode cloud services to its most profitable quarter ever in Q1 2016. AWS generated $2.6 billion in revenue for the retailer in the quarter and has reeled in $8.9 billion over the last four quarters. Given the pace of sales growth, it’s not out of the realm of possibility that these services could account for $10 billion in revenue in 2016.
Web Services’ Success Contrasts With Retail’s Financial Performance
Perhaps even more significantly for the company’s long term outlook, AWS generated 67% of the company’s operating income in Q1. In contrast, Amazon’s retailing operations give it enormous market share but so far have not generated significant profits for the company.
While the Salesforce-Amazon combination itself might not have a direct effect on how retail players do business — even as merchants use both services to host their cloud operations — the move illustrates that Amazon now has more wiggle room to support its own retail initiatives and take more risks.
With Amazon set to broaden its logistics network by building three new fulfillment centers in 2016, and expanding its AmazonFresh grocery delivery service to Boston and the UK, the e-Commerce giant can certainly afford to explore new horizons, something Amazon has always excelled at even when the company has not made a profit. For example, with Amazon’s shipping costs per quarter now climbing north of $3 billion, the retailer has incentive to increase investments into fulfillment methods that are more cost-controlled.
Retailers in recent years have done everything in their power to compete with Amazon, whether through the offering of more convenient omnichannel fulfillment processes, more individualized in-store experiences or top-notch, personalized customer service. However, none of them have a technology arm based on providing cloud hosting services to businesses in multiple fields. As long as Amazon continues to make a significant portion of its profit on its Web Services solution, the retailer will continue to set the agenda for the retail industry, forcing competitors to constantly stay on the defensive or to seek out their own business niches.
