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Why Facebook should take on Amazon, Microsoft in the cloud in 2020

Facebook (FB) heads into 2020 facing multiple investigations and big questions over the future of its core advertising business.

That’s why one analyst says it’s time for the Silicon Valley giant to pivot toward a new source of revenue that could make a lot of money with little government oversight: the cloud.

“It makes a lot of sense,” John Freeman of CFRA said on Yahoo Finance’s “The First Trade.” “Certainly, they have a number of things that they could offer the enterprise that is distinct, in terms of data analytics, and of course, listening to the two billion Facebook members and WhatsApp members and Instagram members, and gleaning that information.”

“I think that would be very valuable to enterprise customers,” Freeman said.

Right now, Amazon (AMZN) is the market leader in enterprise cloud computing, with some 40% market share according to Synergy Research. Microsoft (MSFT), Google (GOOGL) and Alibaba (BABA) are the other big players, making up another 35% of the space. 

The cloud is a huge revenue generator, too. Amazon’s AWS generated $9 billion in the third quarter, up 35% year over year. Microsoft’s Azure saw 59% revenue growth that same quarter.

Freeman says that leaves plenty of room for a company with already established server capacity to muscle its way in.

“The thing that Facebook has that they share with Google that they share with Microsoft [and] with Amazon is scale,” Freeman said. “They operate data centers in a cloud infrastructure that's orders of magnitude larger than any of the other enterprises that they would be offering those services to in the Fortune 500.”

Facebook CEO Mark Zuckerberg testifies before a House Financial Services Committee hearing on Capitol Hill in Washington, Wednesday, Oct. 23, 2019, on Facebook's impact on the financial services and housing sectors. (AP Photo/Andrew Harnik)

In October, Facebook CEO Mark Zuckerberg questioned the high cost of cloud computing in connection with medical research.

“In our bio board meetings, one of the things we talk about is the cost of the compute [running data through the cloud], and our AWS bill, for example, is one of the specific points. Let's call up Jeff and talk about this,” Zuckerberg said in October in a live chat with researchers from the Chan Zuckerberg Biohub. The Facebook CEO and his wife, Priscilla Chan, have committed $600 million as part of a collaboration between Stanford University, U.C. Berkeley and UCSF, to map the human body with the goal of better understanding disease pathways.

“It's interesting, the bottleneck for progress, in medical research at this point, a lot of the cost for it, is on compute and the data side and not strictly on the wet labs or how long it takes to turn around experiments," Zuckerberg said. 

But with the government so closely watching everything Facebook does, would regulators let the company move into this new business? Freeman thinks so.

“They would be the fourth entrant, at zero percent share,” Freeman said. “So It's not like they're using their monopoly power to go in and crush some smaller players. They're going up against Amazon, Google and Microsoft.”

“So I think the cloud is a good sort of safe bet for them,” Freeman said.

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