Amazon.com (NASDAQ:AMZN) may be No. 1 in the overall market for cloud infrastructure services, but there's one sector that wary of using Amazon Web Services (AWS): retailers. Instead, those businesses prefer to use Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) subsidiary Google as the top provider, followed by Microsoft (NASDAQ:MSFT) and its Azure platform. AWS ranks third in the market.
Here's what investors need to know about cloud platforms serving the retail sector.
Retailers don't want to use Amazon to compete against Amazon
Google Cloud has emerged as the dominant cloud provider for retailers thanks to a vertically aligned strategy, according to market researcher Canalys. The search juggernaut has been aggressively hiring and inking partnerships with prominent systems integrators to boost its presence in the retail market.
Electronics retailer Best Buy announced earlier this month that it was expanding its relationship with Google Cloud as part of a multiyear agreement, for example. Other prominent retail customers include Costco, Target, and Home Depot, among others. Many smaller companies are now accelerating their digital transformations due to the impacts of COVID-19, which has spurred demand for e-commerce solutions.
Behind the top three vendors are Alibaba (NYSE:BABA) in No. 4 and IBM ranking fifth. Alibaba Cloud is performing well in China but rising geopolitical tensions between the Middle Kingdom and the U.S. are making it tough for the Chinese e-commerce giant to gain traction in certain markets.
Canalys' latest research from its Cloud Channels Analysis service shows that @GoogleCloud ranks as the number one cloud service provider to the retail sector, outpacing overall market leader @AWS and second-placed Microsoft @Azure.— Canalys (@Canalys) August 17, 2020
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"Retailers need proof that their cloud service provider can support them not just by growing, but also by driving platform innovation," Canalys analyst Blake Murray said in a statement. "A provider that has specialized support teams and an ecosystem of partners innovating on its behalf gives customers confidence in the relationship."
As one might expect, retailers aren't very keen on using AWS because Amazon is also one of their biggest competitors in retail. Merchants have long feared that Amazon inappropriately leverages its access to seller data to inform its own product development decisions, and those fears were somewhat validated earlier this year. Those alleged transgressions, which are technically against Amazon's policies, are now part of a sweeping congressional antitrust investigation. "Due to this competitive aspect, many major retailers have opted to work with other cloud service providers," Murray noted.
In other words, many retailers are looking for a cloud infrastructure provider that can help them compete against Amazon, making AWS a poor choice. "Now more than ever, retailers need a digital strategy to win in an omnichannel world, especially with Amazon's online dominance," said Canalys director Alex Smith.