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Amazon's Cloudy Mystery

Stocks in this article: AMZN GOOG IBM MSFT

NEW YORK (TheStreet) --Amazon (AMZN) and Google (GOOG) once again demonstrated reticence about revealing the actual growth numbers of their cloud businesses in last Thursday's fourth-quarter announcements. This encourages skeptics to complain that reports purporting growth potential have been hyped up.

That said, it's unlikely that the true value of the two will ever be unlocked through a sale such as a spin-off for instance, meaning that the mystery surrounding their cloud numbers may never be revealed.

Speaking with TheStreet, Melanie Posey, the research vice president of IDC's hosting and managed network services programs, said the possibility is low for Amazon and Google to spin off their infrastructure services platforms because such a move would, of course, limit the extent to which they could drive the development of the technology; technology that has been so fundamental to the operation of their own core businesses.

Both Google and Amazon, unlike other cloud services providers, are the main tenants of their cloud products, running key, internal businesses on the exact same platform that they sell externally to commercial markets.

Profitability and margin expectations for Amazon Web Services (AWS) and Google Cloud Platform just can't be accounted for in the same way as other cloud services providers, Posey pointed out.

"For both of these companies, I'm not entirely sure it ever does become their core business," said Posey. "It's not their core business, so they have every reason in the world not to be open about it. And I don't think Amazon will become an explicit technology service provider to the broader market."

Amazon has been grouping its AWS revenues into the "other" sales category of its financial statements, where the smaller revenue generating items are lumped together. Google, which has been a bit late to the game, is thought to place cloud revenues into the "other" category as well.

Growth questions have arisen for both AWS and Google's cloud platform because they're not immersed in one of the fastest growing areas of the cloud: the hybrid cloud. There's little doubt that the cloud space remains big enough for both incumbent and emerging players to coexist, but reports of immense growth, particularly with AWS, have not always been supported by hard data. AWS is all public in its external cloud services.

"Growth is really in hybrid, connected with enterprise data solution," said Clifford Grossner, directing analyst of data center and cloud at Infonetics Research. "Amazon is a top cloud provider but you might not be using it. Google Compute Engine is more like a private cloud, pretty good adoption and will continue to see good rates," he said Friday. However, Google is not being cited by enterprises as their top choice for a cloud service provider.

Grossner recently surveyed 106 North American enterprises about their IT plans pertaining to the cloud. The poll indicated most enterprises were leaning towards using either using IBM (IBM) or Microsoft's (MSFT) cloud services, or were already using them. Both IBM and Microsoft are hybrid cloud providers.

43% of enterprises said that Microsoft is the top cloud provider, right ahead of IBM, which garnered 42% of the votes, according to the survey.

IBM, determined to push aggressively ahead in bolstering its ability to combine the security and reliability of private clouds with the economy and speed of the public cloud, struck a deal to sell its underperforming, low-end x86 server business to Lenovo on January 23 and unveiled in mid-January a $1.2 billion global cloud investment that will see to the launch of 15 new datacenters integrated with 13 SoftLayer and 12 existing IBM centers, totaling 40 datacenters. The global investment announcement combined with the company's $1 billion plus Watson Group announcement the preceding week.

IBM acquired cloud computing infrastructure provider SoftLayer last summer for about $2 billion.

-- Written by Andrea Tse in New York.

Follow @atwtse

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