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Amazon Fear Is Driving Retailers to Microsoft's Cloud

Danny Vena, The Motley Fool

Microsoft (NASDAQ: MSFT) has just signed a three-year agreement with supermarket chain Albertsons that will make Microsoft's Azure its preferred cloud-computing platform, according to a report by CNBC. One of the considerations mentioned by the grocer for choosing Azure over rival Amazon (NASDAQ: AMZN) is that Microsoft isn't a competitor.

This is another high-profile win for Microsoft. Privately held Albertsons is the parent company of its namesake supermarkets, as well as Safeway, Vons, and more than a dozen others. The company is the second-largest grocery chain in the U.S., behind leader Kroger (NYSE: KR)

Albertsons joins a growing list of recent large cloud wins by Microsoft, as retailers and supermarket chains seek refuge in the system of a company that isn't actively competing for their customers.

Mother and children walking through a supermarket pushing a shopping cart.

Supermarkets and other retailers are turning to Microsoft in their common battle against Amazon. Image source: Getty Images.

A growing threat

Amazon's increasing expansion into the grocery business was among the reasons cited by Albertson's for the move to "modernize its infrastructure and in-store experiences," according to the report. Azure was the clear choice due to its track record with large enterprises, big retailers, and the technical capabilities of its cloud.

This could have a trickle-down effect as well, since Albertsons prefers that its cloud software partners run on systems other than Amazon Web Services (AWS), though it isn't a requirement.

Standing against a common foe

Albertsons is the latest entry in a growing list of grocery stores and other retailers that have joined forces with Microsoft recently as they fortify themselves to compete with Amazon. The retail heft of this list illustrates companies aren't content to cede these sales and are fighting back against Amazon.

Earlier this month, Walgreens Boots Alliance (NASDAQ: WBA) signed a massive seven-year deal with Microsoft, which will result in the majority of its information technology infrastructure moving to Azure. The agreement will also include the rollout of Microsoft 365 cloud-based software, including Office 365 and Windows 10, to the company's 380,000 employees. There are also plans to pilot 12 digital health corners, locations within certain stores dedicated to the merchandising and sales of healthcare-related hardware and devices. 

Kroger also recently inked a pact with Microsoft to develop digital know-how that would underpin a futuristic grocery store. The companies will collaborate on a number of cutting-edge technologies for two pilot stores in Monroe, Ohio, and Redmond, Washington. The supermarkets will employ shelves that use digital displays that will include prices and promotions as well as nutritional and dietary information. In combination with Kroger's app, customers will be guided through the store and notified when they approach an item on their shopping list. A more convenient shopping experience for customers might keep them coming to grocery stores and help keep Amazon at bay. 

Kroger CEO Rodney McMullen (left) and Microsoft CEO Satya Nadella (right) standing in front of a grocery shelf.

Kroger CEO Rodney McMullen (left) and Microsoft CEO Satya Nadella (right).

One of the biggest deals, of course, was the one signed with the world's largest retailer, Walmart (NYSE: WMT). The five-year pact signed in mid-2018 expanded an existing relationship between the two designed to "accelerate Walmart's digital transformation." As part of that deal, Walmart would be moving a significant portion of its two digital domains, walmart.com and samsclub.com, to Microsoft Azure. The company also became Walmart's preferred strategic cloud provider, providing a broad range of tools such as machine learning, artificial intelligence, and data platform solutions that would be used both internally and for customer-facing initiatives.

Protecting their turf

Each of the companies cited above has a vested interest in the fight with Amazon, and all are increasingly wary of empowering their rival by paying for its services.

Microsoft competes head to head with Amazon Web Services, the company's cloud-computing solution, and currently runs a distance second but is closing the gap. Meanwhile, Amazon's increasing focus on groceries and its recent interest in pharmacy operations and the healthcare market show why these retailers are rightfully concerned about increasing competition from the e-commerce giant. It also illustrates that retailers are accelerating their digital transformation to better equip them to take on the internet powerhouse.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool owns shares of Microsoft. The Motley Fool has a disclosure policy.