Microsoft in the Crosshairs of Amazon's Whole Foods Deal

While Amazon's surprise deal last week to acquire Whole Foods for $13.7 billion is poised to upend the entire grocery and retail industry, as well as how suppliers distribute their goods, it also could impact which cloud services providers large retailers, distributors and goods suppliers use. Microsoft is in the middle of a battle that has already emerged in wake of last week's deal, where rivals are concerned about issues related to supply chain visibility and loath to enrich a fierce competitor attacking their margins.

Whole Foods, which has 462 high-end grocery stores throughout North America and Europe, is already a large Microsoft Azure customer. Meanwhile, Amazon's most formidable rival in the retail industry, Wal-Mart, which has a storied history of using its IT purchasing clout to its advantage, is among several large retailers that have told IT providers that if they want Wal-Mart's business, they can't use solutions dependent on AWS, according to a report in the Wall Street Journal this week.

Wal-Mart, which keeps the bulk of its data on premises, does use Azure and other providers when running some cloud-based services and acknowledged that there are cases when it pushes for alternatives to AWS, according to the report. Amazon reportedly responded that such conditions amount to bullying and are bad for business.

Wal-Mart reportedly did approach cloud service provider Snowflake Computing at one point. However, CEO Bob Muglia said that Snowflake's data warehousing service currently only runs in AWS, though in an interview with Muglia late last year, he hadn't ruled out Azure and other clouds in the future, if there's a business case to do so. At the time, it didn't appear to be a priority.

Ironically, Muglia is a former longtime Microsoft executive and president of the company's server and tools business, and was on the team that launched Azure back in 2010. Even more ironic is a previous Whole Foods and Azure commitment, according to a November case study published on Microsoft's Web site. In the midst of a five-year plan to move all of its infrastructure and software to a SaaS model running in Microsoft Azure, Whole Foods has already deployed Microsoft's Enterprise Mobility and Security (EMS) service. Whole Foods has also migrated 91,000 employees from Active Directory running on premises to Azure AD Premium, which gives all of them single sign-on access to 30 SaaS applications.

It goes without saying that should the deal go through, the role of Azure at Whole Foods will surely diminish. Microsoft has the most to lose should the deal go through, though IBM and Oracle have formidable retail clientele as well, many of which are using their emerging cloud offerings. Nevertheless, AWS and Microsoft Azure are considered to have by far the largest cloud infrastructure service portfolios, datacenter footprint and industry leadership, according to Gartner's latest annual Magic Quadrant Report.

For its part, Microsoft has invested significantly in targeting solutions for retailers, distributors and consumer goods suppliers. Microsoft has its Retail Experience facility in Redmond, Wash., which I saw two years ago. The facility offers partners and customers who visit a glimpse of the broad advances and investments Microsoft has made in offering retailers and wholesalers new capabilities, showcasing what the company is working on in areas such as automation, IoT, machine learning and new ways of managing payments.

The deal to acquire Whole Foods, by far the largest Amazon has ever made, brings new questions to what retail experiences will look like in the coming years. Though not surprising, the move shows that Amazon CEO Jeff Bezos is willing to spend whatever he feels is necessary to win. And it's possible Amazon could find itself having to raise its bid. Whole Foods shares have traded slightly above the agreed-upon price of the all-cash deal on belief, or speculation, that a rival suitor might top Amazon's price.

Depending on Amazon's determination to pull off the deal at any price, the reality is that the giant online retailer now it has its sights on bricks and mortar distribution in a big way (it is already experimenting with several bookstores), which could bring a new wave of business disruption.

While it's impossible to predict how this will play out and what moves will follow, I think it's a reasonable bet that Microsoft won't try to one-up Amazon and acquire a retailer such as Wal-Mart. Certainly, let's hope not.

Posted by Jeffrey Schwartz on 06/23/2017 at 2:02 PM