In the cloud wars, Microsoft has been able to win big business from retailers, largely because companies like Walmart, Kroger, Gap and Target are opting not to write big checks to rival Amazon.
The more Amazon grows, the more that calculation could start working its way into other industries — like automotive.
In a recent interview with CNBC, Volkswagen's Heiko Hüttel, who runs the company's connected car division, said the carmaker chose Microsoft Azure late last year for its "Automotive Cloud" project after considering Amazon Web Services.
Hüttel said he's not worried about Amazon building competitive cars, but suggested that there are other things the company is doing in connectivity that could seep into Volkswagen's market. Amazon was recently seen hauling cargo with self-driving truck technology from start-up Embark.
"If I take a look at all the competitors out there, you see they have capabilities in disrupting you at the customer interface," Hüttel said. "Then you have to carefully choose who is really getting down into the car, where you open up a lot of data to these people, and then you have to carefully choose with whom you are doing business."
Microsoft likes to tout the merits of its cloud technology, but the company is fully aware that taking on AWS, which has a commanding lead in the cloud infrastructure market, isn't just about offering the best services. Under CEO Satya Nadella, Microsoft is taking a much different tactic from the days when it was viewed as a potentially risky partner.
"We're not going to turn around and compete with our customers," said Julia White, corporate vice president at Microsoft, at a Goldman Sachs tech conference in San Francisco last month.
For Volkwagen, the decision to go with Microsoft came after a six-month evaluation. The company has been using AWS for some of its applications, including the We Park app for digitally handling parking meter payments. Hüttel said applications on AWS will be ported over to Azure, and Volkswagen plans to build new services on Microsoft's cloud in areas like predictive maintenance, charging and personalization.
The Amazon and Microsoft clouds are basically equivalent when it comes to technological capability, Hüttel said, but Microsoft's track record in software was a big reason why it was able to win over Volkswagen, which is increasingly a software-based company. A Volkswagen spokesperson said the company has used Microsoft products like Windows and Office for a long time.
Hüttel said Microsoft is prepared to help Volkswagen in its transition.
"Obviously Microsoft had the better answers to that, although the answers from Amazon were not that bad," he said.
Working with other automakers
Microsoft has plenty of experience in the auto industry, beyond Volkswagen. The company has highlighted Aston Martin, Honda, Mazda and the Renault-Nissan Alliance as Azure customers, and Nadella said in a 2016 interview with the Wall Street Journal that Daimler, BMW, Ford and Toyota are "significant customers of ours."
"I'm very thrilled about all the car companies using Azure today," Satya Nadella said in the interview.
Microsoft doesn't break out Azure revenue, but analysts at Morgan Stanley estimate that it accounted for almost 10 percent of sales in the latest quarter. Jay Vleeschhouwer, an analyst at Griffin Securities, predicts revenue of $16 billion in 2019, which would represent 12.6 percent of total sales at Microsoft. That would make it less than half the size of AWS, which will grow to $35 billion this year, according to analysts surveyed by FactSet.
"At some point, perhaps the car cockpit could be a new battleground," said Vleeschhouwer, who has a "buy" rating on Microsoft and doesn't cover Amazon. He envisions voice assistants in the car — "'Alexa, take me home,' that kind of thing."
While Volkswagen is pushing workloads to Microsoft, AWS has a sizable auto business of its own, with BMW, Audi and the Toyota Research Institute all listed as customers. And a Volkswagen employee spoke about the company's use of Amazon's cloud at the AWS re:Invent conference in Las Vegas in November.
In an emailed statement, an AWS spokesperson said that in addition to traditional car companies, Lyft, Uber, Grab and Ola are all customers.
"Interest in AWS from the auto industry is significantly accelerating on top of a strong base," the spokesperson said, adding that customers "get the most functionality, innovation, agility, security, performance, and ecosystem options of any other infrastructure provider‎."
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