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How Safe Is Amazon's Position in Cloud Computing?

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The cloud underpins the Internet like Atlas holding up the sky. However, recent outages have caused Atlas to shrug. Amazon's (Nasdaq: AMZN  ) Elastic Compute Cloud is going through some growing pains, causing headaches for some of the popular start-ups that are using its cloud resources.

Amazon's EC2 is among the most talked about cloud resource in the current computing world. So what might it mean for Amazon when, in the cutthroat world of cloud computing, its own resources hit a snag? How should investors react across the industry in general?

Here's the story
One of the more recent notable problems occurred at Amazon's Northern Virginia data center where a network glitch took down the EC2 that is used by sites including Reddit, Quora, and Foursquare. The crash might force a lot of these potential stars of the Internet to reconsider what has been a cheaper and superior offering to getting operations running. Or will they?

Since its inception in 2006, Elastic Compute Cloud has done well and added some impressive clients to its roster, such as Netflix. Fortunately, Netflix was not affected by the snag, but will Amazon give way to the other big players of the cloud computing world? Here is the lowdown.

An introduction to the cloud
What makes Amazon hot stuff in cloud computing are some of the facilities it provides. Most talked about among these is its database Web service SimpleDB and content delivery service CloudFront. Amazon stands strong in the cloud-computing world because of the head start it has had. Starting in 2006, it has accumulated some of the best know-how in the business. And in a novel front-running industry like this, that first-mover status counts for a lot.

It's a jungle out there
Lurking right behind Amazon are many similarly well-resourced providers. For starters, there's Google (Nasdaq: GOOG  ) . As the game heats up, Google, which has been taking the cake in several sectors of the computing industry, won't remain far behind if Amazon continues to experience missteps like the ones seen in recent months.

The enterprise version of Google's App engine came to the market in April 2008 from Microsoft's stables. The Azure Cloud allows the use of an operating system and developer environment over the Internet. In fact, a recent tie-up between Mr. Softyand Toyota (NYSE: TM  ) put Azure inside cars as well. Business support services like SharePoint, Exchange, and Live Meeting are Microsoft's trump cards in this arena.

Apple (Nasdaq: AAPL  ) appears to have finally entered the cloud-computing fray with its recent announcement of iCloud.

With every major tech player staking a claim to the cloud, making a play for a unique niche appears to be a no-brainer. If Amazon falls behind because of technical problems, biggies like Google App Engine or Microsoft Azure would fill that vacuum. Let me assure you, there is no dearth of competition in the current cloud-computing universe.

The other pots of gold
Apart from the companies I mentioned earlier, here are two good-looking options to bank on the cloud-computing business -- AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) . Cloud computing requires advanced technology. In order to bring a strong market presence, one needs to have the entire infrastructure in place before entering the game. AT&T and Verizon, being telecom majors, already have their data centers and communication devices up and running.

Pund-IT analyst Charles King says, "Building publicly accessible cloud infrastructure is not inexpensive or uncomplicated. The service providers already have those infrastructures in place -- the data center assets, connectivity, and billing."

In fact, AT&T's cloud service is going big. The company has joined hands with Ford (NYSE: F  ) in March to connect the electric Focus to a wireless service for remotely viewing and controlling car settings.

Summing up the Foolish options
So the math is simple. With several popular start-ups such as Foursquare and Quora affected by a recent EC2 outage and reports of several other technical snags, Amazon might take a hit in new signups. Although the cloud business is only a small fraction of its total business, crashes like this one hurt Amazon's reputation.

The cloud being big on Amazon's horizon, margins could bear the brunt. Your money is safe with most of the big names I mentioned here. But if you want to explore options, a new cloud-computing major like AT&T might just be your next big bet.

Arunava De does not own shares of the companies mentioned in the article. The Motley Fool owns shares of Microsoft, Ford Motor, Apple, and Google. Motley Fool newsletter services have recommended buying shares of Microsoft,, AT&T, Ford Motor, Apple, and Google. Motley Fool newsletter services have recommended creating a diagonal call position in Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 06, 2011, at 6:34 PM, rfaramir wrote:

    "The cloud underpins the Internet like Atlas holding up the sky." So, since he doesn't, really, it doesn't either?

    "Elastic Compute Cloud is going through some growing pains" That's better than contracting pains, no?

    "AT&T and Verizon, being telecom majors, already have their data centers and communication devices up and running." Cloud computing is reducing computers to practically all service, almost no hardware. How then can you see two of the worst service organizations that consumers have to deal with surviving?

    At least you mentioned Apple, so it was in there somewhere. When it comes to a new technology, getting it right is more important than getting there first. See MP3 players (iPod) and smartphones (iPhone) and tablets (iPad) and floppy-less USB-only computers (iMac) and UNIX for regular users (MacOS X) and GUI for the masses (MacOS 1). None of these were totally original with Apple (FireWire was), each was best of class and a huge hit. iCloud may be next.

    (Long AAPL, no position in other companies, liked Atas Shrugged: Part One)

  • Report this Comment On June 15, 2011, at 12:40 AM, thorw wrote:

    If you're going to compare and review tech, then you're going to have to actually review it.

    Azure, like Amazon, has their availability dashboard open and public and have more issues that Amazon.

    Apple's iCloud (beta) is leveraging both Azure & Amazon.

    If anyone is technical enough to be purchasing public IaaS clouds, then they will certainly take into account these points you've missed.

    Lastly, very rarely does the best tech win, rather the best marketing usually wins out. This article attests to that point.

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