Amazon's Server Crash Raises Reliability Questions Surrounding the Cloud

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Amazon ( AMZN ) scrambled to get servers back up and running last week after several crashed unexpectedly bringing down a handful of well known websites. While its cloud computing business accounts for less than 3% of our $181 estimated stock value for Amazon , this incident could partially impair Amazon's reputation as a could service provider and serve as a setback in the perceived reliability of cloud computing services. The company competes with eBay ( EBAY ) in the online retail market and Google ( GOOG ), Microsoft ( MSFT ) and Salesforce.com ( CRM ) in the cloud services market.

Our price estimate of $181 is inline with the current market price.

Cloud vs. On-Premise Computing at a Glance

  1. On-premise software is the traditional enterprise software model, which requires each customer to install, configure, manage and maintain the software on their in-house hardware.
  2. Cloud-based (on-demand) software is delivered remotely over the Internet on an as-needed basis with little or no implementation services required and without the need to install and manage third-party software in-house.

Cloud Computing Gains Momentum

Cloud computing has gained popularity over the last few years due to lower total cost of ownership and cost-effective benefits for customers, and the speed and ease of implementation. Salesforce.com is a pure cloud computing player and provides customer relationship management ( CRM ) services online. Due to the momentum shown by the cloud computing market, Salesforce.com has gained share in the CRM market in the past, with non-pure cloud players like SAP (SAP) showing slower growth in this market.

See our full analysis and $116 price estimate for Salesforce.com

..But Risks Present

This brings us back to our initial view that the recent crash of Amazon servers could give some customers pause in deciding to roll out cloud based services or move their servers to the cloud from costly in-house solutions. Amazon is an industry leader, and if it has these kinds of mishaps, then surely any cloud players is susceptible to a similar crash.

In the near-term, Amazon may actually benefit as existing customers using cloud based solutions, such as cloud based servers, as these customers may look to add additional servers to mirror the existing ones to ensure that a similar crash will not down their systems. While this might provide some solace to Amazon, this occurrence could taint the perceived reliability of cloud based and offsite services.

See our full analysis for Amazon.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AMZN , CRM , EBAY , GOOG , MSFT

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