Analysis: Cloud-based services - Who is leading the race?

Apple and Amazon: they are two of the world’s biggest retailers, yet they are now competing in another race entirely. Alongside Google, they are battling to become the world’s largest provider of cloud-based services.

In terms of financial clout, it doesn’t appear an evenly pitched battle. In its most recent full financial year (to 30 September, 2011), Apple posted net income of $25.9bn (£16bn), on revenues of $633.4bn (£389.9bn). By contrast, in Amazon’s most recent financial year (to 31 December 2011) it post a comparatively paltry net income of $631m (£388.5m), on revenues of $48.1bn (£29.6bn). At the time of writing, the market capitalisations of the two companies stood at $633.4bn (£389.9bn) for Apple and $110.3bn (£679m) for Amazon.

But this is not a fight that will be won on financials alone – and Amazon’s track record of innovation is undeniable. It runs the largest ecommerce site in the world, enjoying a comfortable lead over any other rival.

Its ereader, Kindle, is the most popular device of its kind in the world and the retailer sells more ebooks than any other company, despite the best efforts of other booksellers and publishing houses to enter the market. Amazon revealed last month that for every 100 printed books sold on its UK site, 114 ebooks are purchased.

Pay-as-you-go server capacity

Above all, Amazon is already an established cloud services pioneer. Launched in 2006, Amazon Web Services is a collection of services that together provide companies of all sizes with a computing platform ‘in the cloud’ that can be increased or decreased in size, according to a company’s needs. This collection has grown quickly over the past six years, beyond the core Elastic Compute Cloud (EC2) service, which offers server capacity on a pay-as-you-go basis, to include storage capacity and content delivery networks.

It’s not possible to pinpoint exactly how much revenue Amazon Web Services takes each quarter. The company reports revenues in three categories – media, electronics and general merchandise, and ‘other’. It is in this third category, ‘other’, where Amazon Web Services revenues are reported, along with what is calls “miscellaneous marketing and promotional activities, our co-branded credit card agreements and other seller sites”.

Still, revenues in this category came to more than $1bn (£615m) in the first half of 2012, prompting speculation among financial analysts that, even if Amazon Web Services accounts for just 75% of that ‘other’ category, it could easily be a $1.5bn (£923m) a year business by the end of 2012. Earlier this year, analysts at investment bank Morgan Stanley estimated $1.19bn (£733m) in revenue in 2011.

Amazon on the warpath

Either way, it’s safe to assume that Amazon is already a billion-dollar cloud business. And the company’s latest move in cloud services is a clear challenge to Apple.

This summer, Amazon made a number of announcements regarding its year-old Cloud Player digital music service, a would-be rival to Apple’s iTunes. First, in mid-June, there was the unveiling of a free Cloud Player app for Apple iPhone and iPod Touch, so that users can stream or download music stored in their Amazon cloud account to their Apple devices. Customers are granted five gigabytes of storage on Cloud Player for free. Those who need more must upgrade to a paid option, which starts at $20 for 20GB, but music purchased from Amazon doesn’t count towards a user’s storage quota.

Previously, Cloud Player was only available for Android devices. “Customers tell us that they want access to all of their music, wherever they are, and on all the devices they use,” said Steve Boom, vice-president of digital music at Amazon, at the time of the launch. “By bringing Cloud Player to iPhone and iPod Touch, we now have the most widely compatible cloud playback solution available, giving our customers the ability to buy once and enjoy music anywhere.”

Just six weeks later Amazon struck again; this time it announced ‘scan and match’ technology for Cloud Player, which clearly will go head-to-head with Apple’s iTunes Match service.

What this means is that when a customer signs up for Cloud Player, Amazon will scan the song libraries sitting on their computers in Windows Media Player, for instance, or on iTunes. Where it finds ‘matches’ – a song on the user’s computer that is already available among the 20 million songs in the Cloud Player library – they will be instantly made available to that user in Cloud Player, without them having to upload the song. That includes those songs previously ripped from CDs, or purchased from iTunes.

Such blatant attacks represent a clear challenge to Apple’s iCloud, launched in October 2011, which incorporates an ‘iTunes in the cloud’ service, as well as cloud services for storing documents, photographs, contacts and calendars.

The idea behind iCloud is that a user with multiple devices – an iPhone, an iPad and a desktop Mac or PC – can rely on all their personal content being synchronised in the cloud and pushed out consistently to their different devices.

That means that a user might open up the browser on their iPhone and see a document they were reading on their iPad earlier that day and email it to a colleague, whose contact details will be instantly available from that iPhone – or any other of the user’s devices.

In terms of consumer service, Amazon’s Cloud Player and Cloud Drive have a head start over Apple iCloud of just a few months. Meanwhile, a host of other providers are targeting consumers: they include other digital music services, from Spotify to We7, purchased by Tesco in June 2012, and other cloud-based storage services, such as Google Drive,

Microsoft SkyDrive and Dropbox. It is shaping up to be a battle too close to call.