Amazon.com, Inc. (AMZN), the company that began in the ’90s as an online bookseller and morphed into an e-commerce giant, streaming video service, device-maker and many other things, is trying its hand at yet another business: Big Data. The project will be called Amazon Space Needle.
While Amazon’s ability to dominate e-commerce and create innovative new technologies such as the e-reader drove companies like Borders, Circuit City and, more recently, Radio Shack to bankruptcy, perhaps its most surprising and glowing success has been that of Amazon Web Services, its cloud computing arm.
Wall Street has started to catch on to the success of AWS, too, and when AWS revenue jumped 81% in the most recent quarter, AMZN stock went on a tear. Composing less than 8% of the company’s total revenue, AWS accounted for 36.4% of Amazon’s operating profits.
Those outsized margins allow Amazon to take risks it otherwise couldn’t afford. And AMZN wants more of them. According to the Wall Street Journal, the company will unveil a business intelligence/Big Data service dubbed Amazon Space Needle later this week, aimed at helping corporate clients analyze the large swaths of data they come across.
That’s probably bad news for Qlik Technologies Inc (QLIK), Tableau Software Inc (DATA) and Splunk Inc (SPLK), which are all pure-play vendors in the area. That said, Amazon Space Needle could also be the saving grace of these companies. Here’s why:
Amazon Space Needle Aims for the Heavens
In the WSJ exclusive report on the Amazon Space Needle project, one analyst estimates that the business intelligence market will be worth $143 billion … by next year.
In one sense, AMZN has the advantage over companies like QLIK, DATA and SPLK. After all, Amazon Web Services has built an awfully reputable name for itself, and has tons of corporate clients. Per the WSJ:
“Many companies already store proprietary data on AWS, which counts Netflix Inc. (NFLX), Airbnb Inc., Nike Inc. (NKE) and Pfizer Inc. (PFE) among its clients.”
By establishing itself as a place where businesses can not only store, but analyze data, the Amazon Space Needle/Web Services combo offers the convenience and practicality that Qlik, Tableau and Splunk cannot.
However, the latter three companies have all established themselves in the analytics market, whereas Amazon has not. FBR analyst Daniel Ives remarks:
“The scalability and scope of current leading offerings from vendors such as Tableau have set a high bar in the market, with many enterprises already looking to pure-play analytics vendors for this enterprise-wide market, greenfield opportunity.”
Here’s where it gets interesting. Ives and FBR ultimately believe that:
“…the company will have to make a larger acquisition (e.g., Qlik, Tableau, Splunk) in this space to become a formidable player on the higher end of the enterprise market, which, in our opinion, represents the golden opportunity in the big data land grab.”
With Tableau as the only one in the trio that turned a GAAP profit in its last fiscal year, these companies might very well welcome an acquisition and a chance to be a part of the Amazon Space Needle.
Or Amazon could crush them all. When we get more details later this week and begin to see some early adoption metrics we’ll have a better idea about which outcome is more likely.
AMZN stock is up 2% Monday on the news.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
