Retailers Avoiding AWS: Overreaction or Reasonable Choice?

Before Amazon began selling books in 1994, readers typically frequented their local Barnes & Noble stores. More than two decades later, Barnes & Noble is struggling with sales and presence in large bookstores. Ironically, Amazon Books stores are popping up across the country with surprising frequency.

Amazon has evolved from an online bookseller to a retailer that sells almost everything: cassava flour, Ohio State fan socks, and even pharmaceuticals through its acquisition of PillPack earlier this year. Retailers competing with Amazon in e-commerce must upgrade their technology and fully leverage cloud services. But for some retailers, one cloud provider is deliberately excluded from consideration.

These retailers, bucking industry norms, ignore the most mainstream cloud service provider and openly express their resistance to Amazon Web Services (AWS) in the name of competition.

Microsoft and Google's "Rescue"

The main alternatives to Amazon's cloud are Microsoft Azure and Google Cloud Platform. Ed Anderson, Distinguished VP Analyst at Gartner, told CIO Dive in an email that retailers "know AWS generates higher operating margins than Amazon's e-commerce business, and they worry those profits could be used against them," whether through data sharing or profit generation.

Anderson noted that although Amazon's two major businesses operate independently, "AWS needs to do more" to help potential customers understand this; otherwise, it could lose more potential retail customers to the second- and third-ranked cloud providers.

Microsoft is unabashedly leveraging the concerns of Amazon's competitors to its advantage. Microsoft has consistently emphasized that it is purely a technology company. In this way, Microsoft can position itself as a cloud provider with no retail conflicts of interest or competition. Mark Sami, Vice President of Microsoft and Cloud Solutions at SPR, told CIO Dive this is a "clear attack on Amazon."

Shelley Bransten, Corporate Vice President of Worldwide Retail and Consumer Goods at Microsoft, said in an email statement to CIO Dive: "At Microsoft, we believe our customers' data belongs to our customers, their employees, and the customers themselves, and we will never use customer data for any Microsoft commercial purpose. Who wants to subsidize their own competitor? Retailers need a technology partner, not someone who sells to them on one hand while competing with them on the other." Over time, Sami expects retailers "with any association to AWS" to proactively move to new cloud providers, even though AWS is a comprehensive platform that scales to organizations of all sizes.

Notably, the top three cloud providers all offer similar solutions to retailers and other customers. Features may differ among AWS, Microsoft, and Google. Azure helps Microsoft stand out with 54 available international regions and 72 major certifications and compliance claims, surpassing any competitor.

Nevertheless, AWS still hosts retailers like Under Armour and grocery delivery competitors like Instacart, which recognize AWS's technical infrastructure as a robust and agile leader in the cloud market. Choosing a cloud provider always depends on perceptions of the vendor. Greg Francis, Managing Director at Access Partnership, told CIO Dive in an email: "What all cloud providers are doing is balancing the regulatory environment by building trust in the cloud, typically without deliberately emphasizing their own product lines."

Who has a "beef" with Amazon?

Over the past two decades, Amazon has caused massive disruption to the retail and technology industries. The company has proven itself an unparalleled pioneer in e-commerce and cloud computing. Retailers often confuse AWS with Amazon's e-commerce business, even though AWS has never shown signs of treating retail industry customers differently from other customers. But Anderson said retailers often view AWS as the "cloud of a competitor."

The aversion to AWS is not limited to traditional brick-and-mortar retailers. AWS has already scared off online grocery services, grocers, and food distributors, and the healthcare industry and streaming services have also joined the ranks of AWS skeptics. Whole Foods, known as "America's healthiest grocery store," has its own food distribution network. But after Amazon acquired Whole Foods last year, some potential suppliers began hesitating to continue using the grocer. Before being acquired by Amazon, Whole Foods used Azure, but the grocer declined to disclose its current cloud provider.

There have been reports that Walmart asked suppliers to abandon AWS. In a September interview, Walmart CIO Clay Johnson told CIO Dive those reports were untrue. But Sami said that because "Walmart is the only one with the strength" to persuade suppliers, it is understandable that suppliers willingly "yield to" Walmart's demands. Walmart's retail Darwinism is reflected in its five-year cloud agreement with Microsoft and its acquisition of Jet.com.

With more than 11,000 stores worldwide, Walmart is a major player in retail. Although the company still holds significant influence and strength, Amazon's entry has brought a new competitive landscape. Sami said: "I don't think Amazon has reached the point where it can crush Walmart," but retailers do not take AWS lightly.

Who is "blacklisting" AWS?

Although AWS hosts one of the biggest names in retail today—Amazon's e-commerce—other retail customers are finding it increasingly difficult to sign on. Microsoft's and Google's public clouds host some of the most well-known brands in retail. However, at least one of Google's retailers, Lush Cosmetics, also sells its products on Amazon. Anderson noted that retailers "know AWS generates higher operating margins than Amazon's e-commerce, and they worry those profits could be used against them."

But one example of a direct Amazon competitor is Netflix. Amazon's Prime Video business competes with Netflix's streaming service, but despite the competition, Netflix still chooses to use AWS comprehensively. AWS customers, regardless of industry, expect the number-one cloud provider to handle their cloud needs as efficiently as it handles Amazon's e-commerce demands.

Anderson said: "Personally, I think most of these concerns are unfounded, but 'perceptions are real and do seem to influence which cloud provider retailers choose to work with.'" Amazon is involved in numerous industries and continues to expand its innovation capabilities. Losing a few retailers to other cloud providers is hardly enough to hinder its growth. But if more companies choose alternative solutions out of concern for competitive retaliation, this could evolve into a brand crisis that Amazon has to address.

Enterprises and retailers are both committed to the cloud and the value it can bring to their businesses. Francis said: "Different providers focus on different markets, and the global effect is driving overall industry adoption of the cloud, which reduces the need for fierce battles."