At the risk of stating the obvious, in the digital era it pays to be big. Like really big.
Amazon's (AMZN - Get Report) AWS, the biggest cloud computing firm by sales, and Volkswagen, the largest vehicle maker by units, announced recently they were working together to build a standardized, industrial cloud for factories, supply chains and systems software.
Not to be outdone, Microsoft (MSFT - Get Report) , the biggest computer software company, Adobe (ADBE - Get Report) and SAP (SAP - Get Report) finally revealed the details of their Open Data Initiative, a plan that would make it easier for their software networks to exchange data.
These are huge deals, and the implications are even bigger.
While most of the world is arguing about data, privacy and the influence of big technology companies, the players have already moved on. They're building alliances to freely exchange information, and construct the commerce platforms of the future.
This is important stuff. The future of big business is software related. The powers that be are ignoring politicos (and Tim Cook) and divvying up the spoils, in real time, right now.
The Microsoft news is fascinating because, at least in theory, the players are fierce competitors. They are all fighting for the same large enterprise clients. Allowing data to flow freely between their previously siloed software platforms seems to diminish what makes them special.
That's one way to look at it. Another is the view that the potential pile of money is going to be so large, it makes sense to work now on interoperability. In the end, making sure clients have the ability to swap their data across different software services is going to be a feature, not a bug.
Managers at Unilever, the giant Anglo-Dutch branded goods company, have been vociferous supporters of ODI. At Adobe Summit, IT managers are demonstrating how they would bring together information from their consumer, products and resources software applications to reduce plastic packaging.
The AWS and Volkswagen story has a similar ring. The companies are building a giant industrial network based on standard software protocols. In the beginning, Volkswagen's 122 worldwide plants will reap the benefits. But the prospect of connected factories and supply chains should appeal to the entire sector.
Gartner, a global IT research and analytics firm, predicts public cloud services will grow to $206.2 billion in 2019, up 17.3% year over year. The fastest growing part of the market is cloud infrastructure, which is predicted to reach $39.5 billion, up 27.5%.
These are big numbers, and to be honest, there are very few credible players. They share one thing in common: Scale. The biggest players are getting bigger, and now they are working together.
The opportunity for investors is huge. It's why longer-term investors should forget the naysayers. They should look past all of the talk about data privacy and monopolies. These are distractions only. The total addressable market for cloud services and infrastructure is growing fast. Enterprises are moving to the cloud. Data is not a bad word. It's the future of commerce, and it will be free flowing and actionable.
Investors who cotton to this idea should buy Microsoft and Amazon.com into every major decline. They are among the best positioned to win from the cloud revolution.
To learn more about Jon Markman's recommendations at the crossroads of culture and technology, check out his daily investment newsletter Strategic Advantage. To learn about Markman's practical research in the short-term timing of market indexes and commodities, check out his daily newsletter Invariant Futures.
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