Is Amazon Winning the Race to Zero and Taking Shareholders With Them?
We hear often of what is being called the “race to zero” which is the battle among public cloud providers to drive prices as low as possible to draw customers into their platform. Amazon Web Services holds the lion’s share of the overall market with Google and Microsoft making reasonable gains into the Amazon dominance.
High Income, High Expense. Profits pending?
The very interesting thing about Amazon is that they famously post net losses despite incredible earnings. Their AWS business has long been the driver behind these incredible earnings, but with a price to earnings (P/E) ratio in the 800s, it is challenging sometimes to see whether they could withstand a long term attack by Azure and Google Compute.
John Engates of Rackspace has famously said that they have chosen to move to what he calls the Dawn of the Managed Cloud which we wrote about here. This choice to avoid the race to zero has Rackspace at a seemingly more safe P/E ratio in the 50s. While overall market capitalization of Rackspace is significantly lower, I believe that this strategy will prove to be a good one in the long term.
We see the big earnings for Amazon, but the shareholders may suffer unless the company takes the tactic to slow on capital re-investment in order to provide shareholder gains. At any rate, the cloud wars have only just begun.
You can read a great article on the story here at Mashable.