Now Microsoft passes trillion dollars as the cloud rivals oil for value

Microsoft briefly enjoyed a market valuation in excess of a trillion dollars on April 25th, becoming only the third company in history to pass that level. It’s success, along with much of the success enjoyed by Amazon, is down to the way business is being transformed.

Article updated: 29 April 2019 10:00am Author: Michael Baxter

Some might say a trillion dollars is up in the clouds. They are not necessarily being positive. Up in the clouds like dreams, like a cut off from reality, pragmatic analysis gone in a puff of vapour. I would agree in one sense. Microsoft’s valuation is indeed up in the clouds, but in a quite different way, and actually, it is not so much the clouds where the valuation resides, but in the cloud.

Let me explain. A couple of years ago, The Economist ran a piece of editorial suggesting that data is the new oil. It has become a hackneyed claim, I seem to hear the comparison between oil and data more often than I hear about Brexit, these days. And yes, there is a lot of hype, and hysteria — err, I mean when talking about data. Yet the parallel is apt. Purists go to great pain to explain why data is different. It is renewable they say, it is more complex than oil they say. Others say it is not so much the new oil, as the new asbestos. But they play with words. Metaphors are rarely precise, data really is the new oil.

When PwC projects that AI and data will contribute $20 trillion to the global economy in 2030, I don’t think it exaggerates.

It’s the era of the knowledge economy, what companies know about their customers, the production process, purchasing and workforce is what makes them unique. And data is what feeds this knowledge.

We are also in a period when companies come and go faster than ever before. The makeup of the S&P 500 is changing at a pace that has no precedent. In such times, companies know they must either disrupt, or have an answer to the forces of disruption.

That is why the word agile has crept into corporate speak, companies need to be able to react and change at a pace that was once impossible.

Data is the resource, AI — or machine learning — is the means, but all of this requires a vital ingredient: the ability to access sophisticated computer power, software and storage when required, without having to pay vast sums up-front.

That is what the cloud offers. It turns computing power and software into variable costs, they can be turned up and down when required.

There is another benefit of the cloud: Cyber. The cloud is emerging as the safest place to store data, because the cloud players, the likes of Amazon, Microsoft and Google, as well as SalesForce, etcetera, are investing billions in cyber security. Few companies can match these firms in cyber security investment.

That is why Microsoft is currently the biggest company in the world. That is why, in its latest results, Amazon revealed that Amazon Web Services enjoyed a 41 per cent increase in sales to $7.7 billion in the three months to March. Unfortunately, it does not stipulate the contribution AWS made to its profits — a record net profit of $3.56 billion. I suspect AWS contributed more profit than online retail. Indeed, for Amazon, AWS and thus its cloud business, is providing the funding to enable it to takeover global retail.

We are in the era of the fourth industrial revolution. Unlike the first 15 years of this century, the big bucks from technology is coming from business to business as opposed to business to consumer. Even Apple’s biggest long term opportunity emerges from health data — turning data generated by its consumers using its technology into information that can help healthcare providers save lives.

That is why Microsoft is currently number one, why Amazon is number two, Apple number three and Alphabet number four in the league of the world’s largest companies.

PS

I was quite horrified by comments by Jack Ma, founder of Alibaba, supporting what he calls 996 working culture — 9am to 9pm, six days a week. It is a great irony, while fears percolate that technology will destroy jobs, a tech titan argues in favour of a 72 hour working week.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

See what else we have to say