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Can Microsoft’s Partnerships Fend Off Amazon?

January 18, 2019

Just because you got to the top first, doesn’t mean that you get to stay there. That’s what Microsoft (MSFT) is saying to Amazon (AMZN) when it comes to cloud services.

Amazon has capitalized on the long-term build-up and build-out of its Amazon Web Services (AWS) business. It was first rolled out for its series of content offerings, from ebooks to music and, of course, its Prime video programing platform.

It then opened AWS to individuals, companies and even governments far and wide to host, store and process data and other content, making it the largest cloud company in a rapidly expanding market.

But with billions of dollars in potential revenue out in the market, Amazon is quickly finding competition. This includes the likes of Alphabet’s Google (GOOGL), Adobe (ADBE), Rackspace (RAX) and even IBM (IBM), the old-timer trying to change its ways.

The company that is really threatening the crown of the cloud, however, is Microsoft. Its Azure cloud business unit has quickly become the number-two cloud company, and it may eventually topple Amazon for the top spot in the ether of the clouds.

The key is that Microsoft isn’t just offering access, storage and processing…its expertise is in adapting the cloud to specific commercial applications for a wider array of businesses. And this plan is being ramped up with a series of partnerships.

Recently, Microsoft announced a pact with Kroger (KR) to roll out an offering of online virtual shopping shelves for the company’s 2,780 stores. This would enable shoppers to more easily shop for, compare and select their groceries, and even have them delivered.

Microsoft’s investments in virtual reality, gaming and artificial intelligence (AI) are all being pulled in to make this project a success, not just for Kroger, but potentially for other grocers and retail companies.

Then there is the partnership announced with Walgreens Boots Alliance (WBA). This deal includes a collection of projects that incorporate health data and prescription drugs as well as in-store digital health centers. These digital health centers will offer devices for sale and potentially involve screenings for customers. In addition, this partnership also brings Microsoft’s 365 software to Walgreen’s 380,000 workers.

This is also important given Walgreens’ earlier partnership with Humana (HUM). That deal was made to help Walgreens and Humana compete with Aetna, although Aetna has since been acquired by Walgreens’ competitor, CVS Health (CVS).

Speaking of CVS, that company just announced a spat with Walmart (WMT) over a dispute with its pharmaceutical benefit management (PBM), providing a potential gain for Walgreens. But it is interesting to note that, separately, Walgreens already has a co-op with Verily Life Sciences, which is part of Alphabet’s Google division. So just because these companies have a partnership agreement doesn’t mean that they have to be monogamous.

Microsoft has also been partnering with health care providers, including medical and hospital companies, to solve one of the more vexing of problems of data entry by doctors and practitioners as well as data management.

Additionally, Microsoft just announced today that it is expanding further into AI and the Internet of Things (IOT) via a partnership with the local Chinese government authority in the Pudong New Area and Shanghai Zhangjiang Group, which is a high-tech zone developer.

This will be Microsoft’s largest AI development center. It will not only work to propel its capability with its existing products and partnerships but also open it up to domestic Chinese companies that operate outside of some of the rules restricting the export of US-sourced technology.

And if these partnership headlines aren’t chock-full enough, Microsoft also just announced another initiative called xCloud. The project is being dubbed the “Netflix” (NFLX) of gaming and will bring gaming to nearly any connected handheld device or tablet. Microsoft already has a wealth of a game catalog from its Xbox division, and it could open it up to other gaming companies and new partnerships in the future.

All of this shows the aggressive moves the company is making to ramp up its capabilities beyond the basics of cloud computing and offer a real challenge to Amazon.

Microsoft is already a successful dividend-paying technology company that is the poster-child for recurring income—and its stream of new and pending partnerships will only aid in bolstering revenue to support higher dividends.