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Instant Analysis: Amazon.com Inc.'s AWS Buys Cloud9

By Leo Sun – Jul 15, 2016 at 3:02PM

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Amazon’s latest cloud purchase widens AWS’s moat against rival cloud platforms.

Amazon's (AMZN -0.77%) cloud platform, AWS (Amazon Web Services), recently bought a small start-up called Cloud9. The company, which is based in Amsterdam and San Francisco, and has fewer than 50 employees, provides an "integrated development environment," which serves as an all-in-one package to enable developers to build, test, debug, and execute their own software. The terms of the deal were not disclosed.

Image source: Pixabay.

Why Cloud9 matters

Cloud9's clients already include customer relationship management giant Salesforce (CRM 0.73%), Slack rival Atlassian, and music service Soundcloud. Salesforce notably made AWS its "preferred" public cloud platform partner in late May, in a deal worth about $400 million over the next four years.

In January, Cloud9 stated that it would allow its customers to integrate apps into Alphabet's (GOOG -1.24%) (GOOGL -1.02%) Google cloud computing platform. It's unclear how Amazon's acquisition will impact those plans, since Google and AWS are fierce rivals in the cloud platform market.

Earlier this year, Spotify moved much of the technology behind its streaming service from AWS to the Google Cloud Platform, while Apple (AAPL -1.96%) did the same for some of its iCloud services. Therefore, it wouldn't be surprising if AWS nixes Cloud9's Google integration plans to keep its customers corralled within its own ecosystem.

Does this matter for AWS?

AWS is already the largest cloud platform in the world, with a run rate of around $10 billion. Its closest rival, Microsoft's (MSFT -0.04%) Azure, had an estimated run rate of just $1.6 billion last October, according to Forrester Research.

The acquisition of Cloud9 definitely won't move the needle for AWS on its own, but similar purchases will enable it to bundle more services into the platform and widen its moat against rivals like Azure. Investors should remember that AWS is now Amazon's most profitable business -- it accounted for over half of the online retail giant's operating income last quarter despite bringing in just 9% of its revenue.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Leo Sun owns shares of Amazon.com. The Motley Fool owns shares of and recommends GOOG, GOOGL, AMZN, AAPL, and CRM. The Motley Fool owns shares of MSFT and has the following options: long January 2018 $90 calls on AAPL and short January 2018 $95 calls on AAPL.

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.

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