Amazon’s Cloud will surpass Oracle as 2nd Largest Enterprise Software Provider
Amazon Web Services has helped has taken over as its parent company's cash cow and helped Amazon to become better known as a technology company than the e-commerce platform it was during its IPO in 2006. AWS generated $2.26 billion in operating income in the third quarter, 71% of total operating income, while it generated $9 billion in revenue, 13% of Amazon’s total revenue in the quarter. At the end of the third quarter Amazon had $27.4 billion in customer contracts, primarily for AWS, longer than one year for services that had not been delivered.
In 12 to 15 months analyst say Amazon’s cloud business will beat Oracle as 2nd-largest enterprise software provider. It would be deep into 2021 before it has a chance at challenging Microsoft, the largest.
“AWS is growing to $45 billion, maybe $50 billion in revenue next year. Oracle is doing $41 billion,” Kulkarni, who has a buy rating on Amazon stock, told CNBC in an interview on Tuesday. Analysts polled by FactSet currently see $45.76 billion in AWS revenue in the 2020 fiscal year, while the Refinitiv consensus for Oracle’s 2021 fiscal year, which ends in May 2021, is $41.12 billion.
Oracle has always relied on its relational database to recruit large enterprises that have to store massive amounts of data, and Amazon itself had been a huge customer. However, in 2014 AWS began competing more seriously in relational databases, with the launch of the Aurora service. Earlier this month Amazon said it had turned off the last Oracle database it had used for its consumer business.
In 2016 Oracle introduced second-generation cloud infrastructure in an effort to challenge AWS. The competition was concerning enough to Oracle that founder Larry Ellison criticized it in a 2017 meeting with analysts, saying, “Amazon has no expertise in database. Amazon runs their entire operation on Oracle.”
AWS has major customers including Apple, Capital One and Lyft, and Amazon can expect more AWS revenue to come in over the next few years.
Meanwhile, the company continues to challenge Walmart in commerce, and Facebook and Google in advertising, and FedEx and UPS in logistics, Kulkarni said.
“When a company like Amazon has scale across verticals, there is a scenario they could become No. 1 in all those verticals,” he said.