Political pressure and competition with prospective customers could force Amazon to spin off its multibillion-dollar cloud business, analyst says (AMZN, MSFT)
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- Oppenheimer in a research note Monday told investors Amazon could be forced to spin out multibillion-dollar cloud business Amazon Web Services.
- The warning comes just after Amazon started the process to challenge the Pentagon’s recent decision to award a $10 billion cloud contract to competitor Microsoft.
- Amazon believes there was “unmistakable bias” in the selection process — likely a reference to reported interference by President Donald Trump, who has publicly feuded with Amazon CEO and Washington Post owner Jeff Bezos.
- Oppenheimer’s reasons for a potential split include antitrust scrutiny and potential conflicts with customers.
- AWS CEO Andy Jassy has repeatedly said over the years that he doesn’t see any advantages to such a split. And, as experts recently told Business Insider, Amazon doesn’t often make decisions based on political pressure.
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Amazon could be forced to spin off its market-leading cloud computing business Amazon Web Services into a separate company, Oppenheimer wrote in a research note Monday.
The warning comes just after Amazon started the process to challenge the Pentagon’s recent decision to award the $10 billion JEDI cloud contract to competitior Microsoft. An Amazon spokesperson in a statement to Business Insider cited “unmistakable bias” in the decision — likely a reference to reported interference by President Donald Trump, who has publicly feuded with Amazon CEO and Washington Post owner Jeff Bezos.
Oppenheimer didn’t list the Pentagon decision among reasons Amazon could be forced to spin out AWS, but said that generally the company could be forced to split with its cloud business because of antitrust scrutiny and potential conflicts with customers.
“Channel conflicts with Amazon.com (retail, logistics, healthcare, grocery) could also pressure sales to larger customers, and we believe AMZN will face increased regulatory pressures, which could eventually force AWS to split with AMZN,” said in the note.
Splitting off AWS would mean losing a major boon to operating income for Amazon, but analysts and experts believe it may be necessary for AWS to secure customers, especially as its biggest rival starts to gain traction.
The idea Amazon should spin off AWS is nothing new – it’s cropped up many times over the years. First, the calls came from analysts and investors believed the growing cloud computing business would be worth more on its own.
Now, the conversation is centered around calls from politicians including presidential candidate Sen. Elizabeth Warren (D-MA) to break up Big Tech, and the business case for making such a split, which hinges on the notion that some customers are reluctant to sign on with Amazon’s cloud because they compete with the company.
Just for one example, it might be harder for AWS to sign up new cloud customers in the logistics industry, given that Amazon itself is increasingly a contender in that same sector, the thinking goes.
AWS CEO Andy Jassy has repeatedly said over the years that he doesn’t see any advantages and, as experts recently told Business Insider, Amazon doesn’t often make decisions based on political pressure.
But it’s unclear how the dispute over the Pentagon contract might affect that outlook.
Jassy reportedly told employees Trump’s “disdain” for Amazon affected the cloud division’s chances to land that contract.
“If you do any thorough, apples-to-apples, objective comparison of AWS versus Microsoft, you don’t come out deciding that they’re comparable platforms,” he said, according to a report from the Federal Times, which said it obtained a video of the meeting. “Most of our customers will tell us that we’re about 24 months ahead of Microsoft in functionality and maturity.”
Practically, experts say splitting off AWS wouldn’t be all that difficult. Overall, AWS largely operates independently. While AWS answers to Amazon CEO Jeff Bezos, it has its own CEO and chief financial officer. The biggest challenge in such a split could be creating an operating agreement for Amazon to continue using AWS services, given that Amazon.com itself is hosted on the cloud business.