As Amazon (AMZN) - Get Report moves into brick-and-mortar retail with the purchase of Whole Foods, it only makes sense for Target (TGT) - Get Report , Walmart (WMT) - Get Report and other big retailers to seek other partners in the cloud, rather than help fund a large rival.
Target is reportedly following Walmart's lead and plans to shift business away from Amazon Web Services. A mass exit of retailers from AWS would benefit competitors such as Microsoft's (MSFT) - Get Report Azure and Alphabet's (GOOGL) - Get Report Google Cloud Platform. Amazon's cloud business is so vast that it could withstand the losses, however. Microsoft, Google and other major cloud players each have their own potential conflicts that could eventually cost them business.
While Target would not comment directly on Amazon Web Services, the company said it uses multiple cloud service providers. "Early this year we evaluated providers, as we regularly do, and determined there were options that would better fit our business," a spokesman said. "We decided to implement changes and have been in the process of doing so since."
Likewise, Amazon declined to comment. While the digital commerce giant may have friction with Walmart and Target, Amazon Web Services still has retail clients such as Brooks Brothers Group Inc., GameStop Corp. (GME) - Get Report and Nordstrom Inc. (JWN) - Get Report Retail brands including Lululemon Athletica Inc. (LULU) - Get Report , Nike Inc. (NKE) - Get Report and Under Armour Inc. (UA) - Get Report also use AWS.
"While AWS remains the 800-lb gorilla in the public cloud market, we believe the ambitions of its parent company may start to have a more significant impact on AWS' ability to move into certain vertical markets," Evercore ISI analyst Kirk Materne wrote in a report on Sunday. "Couple this with the increasing momentum behind hybrid cloud architectures and we believe that Azure remains well-positioned to gain market share over the next few years as it will be considered a safe partner and Azure's technology capabilities are essentially on par with AWS in many areas now (if not ahead in some)."
While losing a large account is unquestionably bad, John Dinsdale of Synergy Research Group said in an email that the defections of Wal-Mart and Target would be "blips" rather than "major events" for Amazon.
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"AWS now has such a scale and a breadth of client base that a customer defection like this barely makes a ripple," Dinsdale said, noting that Amazon Web Services has reach in a "a multitude of industry verticals and the public sector."
Amazon Web Services had 41% of the global market for public cloud services at the end of the second quarter, according to Synergy Research Group. Microsoft was second with 13%, Google Cloud Platform had 7% and IBM Corp. (IBM) - Get Report 5%. Alibaba Group Holding Ltd (BABA) - Get Report and Oracle Corp. (ORCL) - Get Report are also players.
While retailers may be averse to dealing with Amazon, all of the big cloud providers face similar issues. "One of the key dynamics of the cloud market is that the leading operators have grown into the cloud from very different starting-off points, and the bulk of their revenues still come from other activities," Dinsdale wrote. So for example, Like Amazon, Alibaba has huge e-commerce operations. Microsoft and Oracle are software giants, Google dominates search and IBM has focused on IT services. "They are all going to face some oddball competitive situations in specific industry areas," Dinsdale said.
Walmart reportedly has ambitions to offer its own cloud service, Business Insider reported, and will use Nvidia Corp. (NVDA) - Get Report technology to power its cloud network. Wal-Mart would not comment on its plans, but has acknowledged in the past that paying a competitor for cloud services creates issues. The company said back in June that it would prefer that its technology vendors do not use AWS, but said it does not prohibit its technology partners from using Amazon's cloud.
Building a cloud service to rival Amazon would be a major challenge, Gerald Granovsky of Moody's Investors Service suggested.
"If Google and Apple are also-rans in the corporate cloud business, then Walmart is not even a consideration," Granovsky said.
While it is unlikely that Walmart could develop a leading cloud service, it might be able to win over some its technology vendors. "The only realistic chance they have is to provide capacity for the suppliers to be even more integrated in the overall Walmart supply chain by residing on the same IT platform," Granovsky added. "But I don't see why any other company would choose a Walmart cloud offering."