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- Amazon Web Services currently has the biggest market share in the cloud industry, but analysts say it could look for more ways to grow through an acquisition in markets like cybersecurity or artificial intelligence.
- AWS has become even more important to Amazon’s overall business, as fears of a recession swirl, analysts say: The future of the online retail industry is unclear, but cloud demand is only increasing.
- Plus, the current turbulence on the stock market is pushing down public company valuations, potentially making it more appealing for AWS to make cloud acquisitions.
- Business Insider compiled a list below of 10 potential AWS acquisition targets, according to analysts — including names like Twilio, Zoom, and even Oracle.
- Visit Business Insider’s homepage for more stories.
The coronavirus pandemic has led to fears of a recession, in turn causing Silicon Valley VCs pull back on making big deals, even as tech startups begin to lay off employees as revenue dries up.
Still, some in tech — like Amazon Web Services, the online retailer’s massively profitable cloud business — are poised to make it through just fine. Even as the coronavirus pandemic leads to uncertainty in Amazon’s retail business as demand surges and Amazon prioritizes the shipment of essential goods, analysts have praised AWS as “recession-proof” because companies like Netflix and Zoom rely on the platform to power their own apps and services.
That relatively stable position, combined with turbulence on the stock market that’s driving down public-company valuations, might mean that AWS takes the opportunity to make some big cloud acquisitions, says Jeb Su, principal analyst and vice president at Atherton Technology Research. If AWS can’t develop a certain type of technology in-house, it will look to partner with, or even acquire, other companies, he says.
“They’re very opportunistic,” Su told Business Insider. “This time it’s not going to be different…Amazon can move very quickly, especially when the price is not even right, when it’s slow.”
AWS isn’t typically as acquisitive as Microsoft or Google. Microsoft spent more than $9 billion during its last fiscal year on acquisitions. Google Cloud, meanwhile, is explicitly looking to acquisitions to catch up to AWS and Microsoft in the cloud space.
Still, in general, AWS takes a “practical and opportunistic” approach to its M&A strategy, Su says. Most likely, AWS will look at technologies and services to help both its cloud and its core retail business become more efficient, such as in robotics, AI, logistics, and cybersecurity, he says.
Su also says that AWS could acquire cloud apps since it hasn’t yet made a dent in the space the way its rivals Microsoft and Google Cloud has. He says AWS could look into collaboration apps like Zoom and Slack, but it’s unlikely to actually acquire those giant companies. Likewise, Maribel Lopez, founder and principal analyst of Lopez Research, says AWS tends to buy more “small obscure tech.”
Indeed, if AWS “decides to get on the M&A bandwagon,” it could adopt the same approach as Apple, Microsoft or Cisco, which is to make “a flurry or really interesting small acquisitions,” says Futurum Research analyst Daniel Newman.
Even though right now company valuations are dropping amid the coronavirus pandemic, Su says AWS would still acquire a company only if it’s worth it.
“I don’t believe AWSwill acquire a company because it’s in trouble,” Su said. “They will acquire a company because it makes sense in their strategy and makes sense in the technology stack.”
Here are the 10 companies AWS could consider buying to boosts its cloud business, according to analysts:
AWS and the cybersecurity company FireEye already have a partnership to provide security capabilities for the cloud. Under this partnership, FireEye provides security services hosted from AWS and technology to detect cloud threats. Its current market cap is $2 billion.
Since it already has an existing partnership with AWS, it’s more likely to be in the radar of Amazon’s top management, says Jeb Su, principal analyst and vice president at Atherton Technology Research.
Su says that FireEye is “amongst the leaders in cybersecurity and will complement Amazon’s offering which has little to no offering in that fast-growing market while bringing significant IP to help protect AWS.”
Zendesk builds customer relationship management software to help companies with support, sales, and customer engagement. This software giant’s current market cap is $6.5 billion.
“With Zendesk it helps them move into one of the more critical application software categories around customer support,” Alex Zukin, software equity research analyst at RBC Capital Markets, told Business Insider.
Aurora Labs builds what it calls “self-healing software” for vehicle manufacturers. In other words, when automotive companies build software for cars, Aurora Labs’ products help them with detecting issues, fixing them, and updating them. It’s raised about $11 million so far, according to Pitchbook.
Maribel Lopez, founder and principal analyst of Lopez Research, says that AWS could acquire companies in AI security, as well as companies that fix bugs in AI software. Aurora Labs is one such example, she says.
“As part of the AWS portfolio, this would be a set of tools that really helps developers,” Lopez told Business Insider. “Also the company isn’t overfunded, so it’s still affordable.”
Although Aurora Labs is targeted at vehicle manufacturers, she says that if AWS were to acquire it, its technology would not just be used for cars. Instead, she says it could be “expanded as a platform play,” meaning that AWS could use its AI technology for other parts of its business — its own growing logistics robot fleet, for example.
HackerOne builds a platform that helps companies set up a bug bounty program. In other words, this platform allows hackers to legally hack into a company to find bugs and get rewarded for spotting problems in cash.
Just September, HackerOne announced it closed a $36.4 million round. Currently, it’s valued at $331.4 million.
AWS is already a HackerOne customer, which means Amazon’s top management is likely already aware about the company, Su says.
Su says that HackerOne is “amongst the leaders in cybersecurity and will complement Amazon’s offering which has little to no offering in that fast-growing market while bringing significant IP to help protect AWS.”
Twilio builds tools that help developers with building communications apps that can call, email, or send texts to others. For example, Lyft, Uber, and Instacart all use Twilio to power the calling feature in their apps. Currently, Twilio’s market cap is $11.3 billion.
“With Twilio it expands them into the communication software landscape,” RBC’s Zukin said.
Nomagic builds robots, as well as cloud and AI software used to control them. Its products are used to automate warehouses. For example, its AI software can analyze the position, shape, and characteristics of each item. In February, it announced it closed a seed round of $8.6 million.
Just last year, Amazon bought the warehouse robotics startup Canvas Technology. Still, Lopez says AWS may be interested in more companies with similar technology. Acquiring Nomagic could be a win for Amazon’s retail business, while simultaneously boosting AWS’s appeal to developers building their own AI software.
“While Amazon already bought a warehouse automation company last year, it may be interested in Nomagic for its talent and possibly the actual robot arm,” Lopez said.
CrowdStrike and AWS have partnered to provide endpoint protection for AWS. In other words, it can protect devices on the cloud from cybersecurity threats. It also allows users to monitor these threats. CrowdStrike just went public last July, and its current market cap is $12.3 billion.
Since they already have a partnership, Su says this could make CrowdStrike a potential target as Amazon’s top management already know about it.
Su says that CrowdStrike is “amongst the leaders in cybersecurity and will complement Amazon’s offering which has little to no offering in that fast-growing market while bringing significant IP to help protect AWS.”
Amazon could buy Zoom to get in on the flood of customers flocking to videoconferencing and chat apps amid the coronavirus crisis, Futurum Research analyst Daniel Newman said. Zoom is valued on the public markets at some $35 billion at the time of writing.
Amazon has its own online meeting, video conferencing, and chat app called Chime.
While Chime’s market share is unclear, it certainly doesn’t have as much name recognition as Zoom or Slack and doesn’t seem to be used as often, at least anecdotally.
“I cannot recall attending a Chime meeting that wasn’t related to or hosted by Amazon,” Futurum Research analyst Daniel Newman said.
Acquiring a company like Zoom would help Amazon add millions of users – specifically, the 200 million daily active users that Zoom recently disclosed.
Likewise, Slack could be a potential acquisition target for Amazon to expand its collaboration tools, Newman said. Slack is currently valued at some $13 billion.
While Amazon is generally considered a leader in cloud infrastructure, software also matters in the cloud wars.
Su, the Atherton Technology Research analyst, believes that one reason Microsoft won the $10 billion Pentagon cloud computing contract, JEDI, was because of its strength in its office applications, in addition to its cloud. (Amazon is challenging the decision, alleging political intervention — and the Pentagon recently said it “wishes to reconsider” the decision in response to Amazon’s lawsuit).
Su said Amazon Web Services is likely considering acquisitions that would allow it to offer collaboration applications like Zoom or Slack – but it’s unlikely to buy the companies outright.
Amazon Web Services was first to the cloud market, but Trefis analysts say the benefits of its lead are waning as it fights off challengers including Microsoft Azure and Google Cloud.
Amazon, according to the firm, should buy Oracle. While Amazon has had some success in competing with Oracle in the database market, acquiring the company would give it a larger customer base and a far more mature set of products.
Oracle’s partnership with Microsoft also presents a risk to Amazon, and an acquisition could sort that out.
The acquisition seems unlikely because the price Amazon would have to pay a lot for Oracle. Trefis last last year estimated the deal would set Amazon back $300 billion; about double the database giant’s current market cap. Another potential hurdle to the deal, according to Trefis, is that AWS CEO Andy Jassy and Oracle cofounder Larry Ellison have publicly traded barbs and may not be crazy about working together.