• Lyft recently filed their IPO prospectus, drawing attention to the 2019 Public Offering Class, which includes their rival, Uber
• Lyft uses the cloud to support their ride-sharing platform and has gone all-in with AWS
• The Cloud is growing increasingly important in determining the success of the companies that use it
• Companies that offer cloud hosting services are growing quickly
• Amazon is dominant in the cloud space, but Microsoft is catching up

Going Public: The 2019 IPO Class

Lyft filed for an IPO on March 1st, with a valuation ranging between $20 and $25 billion. With a mission to “improve people’s lives with the world’s best transportation”, the company wrote a $911M loss against $2.1B in revenue for 2018. However, they have more than doubled their revenue from their 2017 metric, so if they continue on that growth trajectory, their financials should look more promising.

Lyft operates in an interesting market, with both the company and their rival Uber acting as disruptors in the traditional transportation market. According to the company’s prospectus, consumers spend $1.2T on transportation each year, with the average annual spend for individual consumers around ~$9,500. They claim that “Transporation-as-a-Service” (TaaS) will be the next step in society’s evolution.

People are choosing to forgoe their own vehicle in favor for a ride-sharing service, with expectations that car ownership will decline 80% over the next ten years, dropping from 247M in 2020 to 44M in 2030. Transportation as a service is expected to grow as a share of the overall transportation market, with almost complete dominance by 2030.

So what does Lyft’s IPO have to do with Amazon (NASDAQ:AMZN)? TaaS relies on the cloud for operations. “Smart Commute” is becoming a segment of the transportation industry, with companies focused on car-sharing, last mile mobility, autonomous transport, etc. The opportunities are endless, but there are caveats for the growth of each of these startups, such as the reliance on data centers, which is often through cloud providers. In Lyft’s case, they have entered an “all-in” agreement with AWS for the next three years.

Smart Commute: Driven by the AWS Contract

Lyft is obligated to spend ~300M on AWS between January 2019 and December 2021, according to their prospectus. That represents approximately $0.14 per ride, assuming ~60M riders per month, and $8.3M spent per month on AWS.

The AWS bill and the subsequent three-year contract is quite hefty, and there’s some controversy on whether Lyft and other companies that use AWS would be better off simply opening up their own data centers.

But AWS has economies of scale that simply could not be replicated by a company like Lyft. It makes more sense for Lyft to utilize Amazon’s infrastructure and product know-how rather than attempt to produce the product themselves. On the flip side, this exposure gives cloud providers, like Amazon, a “stake” in each of the companies that use their services, especially as the market and reliance on the technology continues to grow.

The Cloud Industry: Undeniable Growth

This article discusses Amazon’s dominance in the IaaS segment of the cloud space, but there are still opportunities in PaaS and SaaS. The total Public Cloud Market is expected to grow tremendously in the coming years, with 17.3% growth in 2019, with IaaS the fastest growing segment of the three markets, expected to increased 27.6% to a total market value of $40B. SaaS is still the largest market, expected to reach a value of $85B in 2019, according to Gartner forecasts.

The below graphic details the difference between the three services offered. IaaS is the most flexible model, giving companies the opportunity to purchase based on expected consumption, and is highly scalable. Examples are AWS, Azure, and Google Cloud Platform. PaaS allows for developers to build out customized applications, providing “a platform for software creation”. Examples would be Heroku and Google App Engine. SaaS is a delivery of information through the web platforms, examples being Dropbox and Salesforce.

The Dominance of Amazon: Can’t Escape the Cloud

The key companies that are going public this year are Uber, which is a company that offers essentially the same services as Lyft; Airbnb, which operates as a Uber for homes, and Pinterest, a photo-sharing site. Palantir, Slack, and Postmates are also eyeing the IPO market for 2019.One commonality among the 2019 IPO class? They’re all using AWS.

Amazon offers a significant amount of resources to startups, including startup events, office space called “lofts”, and AWS Activate. Activate has built out fiverr, Coinbase, Peloton, Glossier, and Flexport. This is an excellent business strategy, as Amazon is helping to build these companies from the ground-up, and most likely creating cloud customers for life.

Amazon has a list of case studies for AWS on their website, and everyone from the UK Ministry of Justice to the White House Historical Association. Unilever, Adobe, Comcast, Dow Jones are using their product. Netflix adopted the product back in 2009, and moved all of its IT operations to AWS by 2015. The dominance of AWS in the cloud space cannot be denied, but the competition is growing quickly.

AWS offers 140 different services. As of December 2018, the most popular being their Simple Storage Service and Elastic Cloud Computing (EC2). The advantage is that companies that use these services can “trade capital expense for variable expense” or basically pay as they go for the data services, rather than investing in extremely expensive data centers. On the low end, data centers cost around $40M to construct, not to mention the support, maintenance, power, security, fiber, and heating/cooling costs. It’s a much better investment for smaller companies, and some bigger ones, to simply “lease” their cloud space from Amazon, or one of their competitors.

Amazon has achieved economies of scale, which results in lower prices for their customers. It allows for flexible capacity, with customers benefiting from the speed and agility of the service. AWS has also had time to build out a significant international network, which supports their growth goals. But other cloud providers are trying their best to catch up.

Microsoft Azure + Google Cloud: Room to Grow

Microsoft Azure is a big competitor for Amazon in the space. A key advantage that they have is that most companies already use Microsoft Office software, so it’s a logical step to also implement their cloud platform, especially because it comes with some pretty significant discounts for current Microsoft users. They also offer a hybrid cloud, which is a way for companies to connect their existing data centers to Azure.

The third biggest competitor in the space is Google’s Google Cloud Platform (GCP). Google recently hired Thomas Kurian, a former Oracle (NYSE:ORCL) executive, to become the CEO of Google Cloud. With plans to “accelerate the growth even faster than we have to date,” the company is poising themselves for big opportunities across various industries. However, GCP has fewer features and services and aren’t as enterprise focused, especially compared to Microsoft. But because they offer a strong focus on machine learning and AI, Google could quickly make the cloud space even more competitive.

In their Magic Quadrant, Gartner has ranked AWS first in their analysis of leaders in Infrastructure as a Service (IaaS). Microsoft is close behind. The third player in the space, Google Cloud Platform (GCP), is situated in the Leaders segment. GCP has fewer features and services, and aren’t as enterprise focused, especially compared to Microsoft. However, because they offer a strong focus on machine learning and AI, Google could quickly make the cloud space even more competitive.

International Reach

Looking geographically, AWS is located in more than 190 countries and growing. Notably, more than 80% of companies on the German stock exchange use AWS services. AWS is in 61 availability zones across 20 regions, with plans to add 12 more zones and 4 more regions. Azure is in 54 regions, which each host 2-3 data centers. They do not directly list out the number of Availability Zones they have, but based on regions and data center counts, I am estimating they have 135 zones. Google Cloud Platform is in 18 regions across 55 zones.

Adoption Rates of Cloud Platforms

Amazon has enough market share in the US right now to cover for their lack of growth overseas, controlling 61% of the public cloud market. However, the competition is fierce, as Azure adoption is now 52%, up from 45% in 2018. Google is at 19%. Notably, the next four top providers, including IBM (NYSE:IBM) and Alibaba (NYSE:BABA), have experienced significant increases in their adoption rates, growing at an average rate of 57.5% year-over-year.Outside of the top 3, VMware Cloud has grown by 4%, with 29% of users showing interest. VMware Cloud on AWS is a joint offering between AWS and VMware (NYSE:VMW), where Amazon allows VMware to run on its AWS infrastructure. This allowed companies that already were built out on VMware to move workloads onto AWS and simplify the overall cloud process.

The graphic below details the number of respondents who are currently using, experimenting, or planning to use each of the services, which can be used as a proxy of future growth for each of the services. 36% of users are experimenting and planning to use Google Cloud, which might be a signal for GCP’s growth in the space. 25% of users are doing the same with Azure, and 23% with AWS.

Outside of the top 3, VMware Cloud has grown by 4%, with 29% of users showing interest. VMware Cloud on AWS is a joint offering between AWS and VMware (NYSE:VMW), where Amazon allows VMware to run on its AWS infrastructure. This allowed companies that already were built out on VMware to move workloads onto AWS and simplify the overall cloud process.

This gives both companies decent market exposure to the public cloud, which AWS dominates, and private cloud markets, which is where VMware began. VMware Cloud on AWS has only been available for two years, so it will be interesting to see how it evolves over time. Alibaba will be an important force to watch as well, considering the scalability that they have in China.

The Private Cloud

VMware’s vSphere option leads the way in the private cloud sphere, with their vCloud Director in third place. Azure Stack and AWS Outpost are the private cloud options from Microsoft and Amazon, respectively. AWS Outpost was released at the end of 2018, so it could be a great growth opportunity for Amazon, and it will be important to see how it evolves over the next year.

Azure Stack, which was released in 2017, had the largest growth, growing 5% into 2019. AWS had good adoption metrics considering they are brand new, at 12%, and with 30% of respondents showing strong interest for future use.

Azure Stack had the largest growth, growing 5% into 2019. AWS had good adoption metrics considering they are brand new, at 12%, and with 30% of respondents showing strong interest for future use.

The Hybrid Cloud

The best of both worlds, the hybrid cloud is a combination of public and private clouds. This platform allows for greater privacy and flexibility for organizations. Amazon recently released the AWS Outpost, as described above, which can be fully integrated with the public cloud to become hybrid. There’s a VMware-centric version and a version that’s completely inside of AWS. It acts as a “little mini-AWS cloud.”

Amazon has double exposure here, through VMware and AWS Outpost. Outpost is completely integrated with AWS public cloud, and allows the company to serve on-premise data centers, which is a big move for Amazon. They still have exposure to VMware too, with users having the capability to run the entire VMware stack on AWS.

VMware Cloud on AWS is a seamlessly integrated hybrid cloud service that serves the needs of our customers across cloud migration, data center extension, disaster recovery and next-generation applications. Since we launched in August 2017, this service is available globally across 10 AWS Regions and multiple Availability Zones.

Outpost is an extension of the AWS cloud, with access to the same hardware and software as the latter. It’s also fully managed by AWS. This alleviates the management burden that Azure has placed on customers, as customers “have to buy and manage their own Azure stack hardware.” For comparison, “AWS will install and manage the hardware for customers.”

Amazon had to step up their hybrid cloud game in response to Microsoft Azure’s stack, which is sold by Cisco (NASDAQ:CSCO), Dell EMC, HP Enterprise (NYSE:HPE), and Lenovo (OTCPK:LNVGY). Google is getting ready to push out it’s GKE On Premises Solution, which gives customers the option to implement the GCP in their own data centers. Considering Amazon’s dominance in the field, and their previous aversion to private cloud, their hybrid cloud will help keep AWS relevant, and help it retain market share.

Comparing the Competitors: Azure vs. GCP vs. AWS

The Cloud industry is constantly shifting, but Amazon commands a large portion of the market. The threat of new entrants is relatively low in the space due to high barriers of entry through large capital requirements and customer loyalty to one of the three main brands. The threat of substitutes could be considered high, especially with the growth of Microsoft and Google Cloud Platform, and negotiable switching costs in that space. For that reason as well, rivalry among competitors is high.

Supplier power is relatively low, as the company leans more on its constantly growing partnership network and building out their own tech infrastructure rather than directly on suppliers. Buyer power is moderate low, as Amazon tends to lock customers into deals, similar as how they did with Lyft.

The cloud industry has a lot of little players in it, as detailed in the prior analysis. The below map only takes into account the main three. Amazon arguably has the largest offering line of various products and services, but still is working on building out their global network. Azure has presence in a lot of different regions, but doesn’t have the breadth of product that AWS can maintain. Google Cloud Platform is located in many countries, but they are still working on building out the services that the platform can provide.

Conclusion: If You Want a Share of Lyft, Buy Some AMZN Instead

A reporter for Gizmodo wrote an article about how she attempted to remove the Big 5 from her life, adopting a Nokia phone (pre-Microsoft purchase), ProtonMail, and other services separate from the main technology services. Read her story here, but the big takeaway is how difficult it is to truly separate yourself from Big Tech. The below chart details the number of times that Amazon, Facebook, Google, Microsoft and Applie attempted to interact with her. Amazon was the clear “winner”, further highlighting the ubiquity of the company.

To see the rest of my analysis, check out my Seeking Alpha profile!

Disclaimer: These views are not investment advice, and should not be interpreted as such. These views are my own, and do not represent my employer. Trading has risk. Big risk. Make sure that you can balance your risk/reward, and trade small, and trade often.