Banks may be out of favor with stock investors, but they're of keen interest to tech companies for one simple reason: Financial institutions and other big companies hold the future of cloud computing in their hands.
Amazon has been making the rounds to big banks including Goldman Sachs, Citigroup and JPMorgan Chase to pitch them on using its cloud-computing service, Amazon Web Services, according to a Wall Street Journal report. The hard sell to banks makes sense as 10-year-old AWS enters the next and trickiest stage of life. The road to cloud computing's future goes straight through Wall Street, and it won't be easy to navigate.
AWS is ubiquitous at young technology companies -- indeed, it would be hard to imagine Silicon Valley without AWS -- but big companies have been a much tougher nut for Amazon and other cloud-computing companies to crack.
Corporations are old school. Companies and governments spend about $2 trillion a year on computer equipment, software and technology services to stitch it all together and keep it up to snuff. Nearly every dollar is spent on computing plumbing that companies control and operate themselves.
About 2 percent to 5 percent of computing work in the largest companies is outsourced to centralized computing backbones like AWS, Deutsche Bank analyst Karl Keirstead has estimated. That counts activities like maintaining corporate versions of Gmail, keeping client records on Salesforce.com and storing data on Amazon's computer servers.
The tricky question is how big can that percentage grow and over what period? It's not an exaggeration to say the outcome will shape the technology world. It also will dictate the future of Amazon, whose market value is increasingly tied to the health of AWS. If Amazon, Microsoft, Salesforce and other tech companies leading the cloud-computing charge can't win a larger share of corporate tech budgets, cloud computing will never be as big as its backers hope.
Banks, then, are the great hope of cloud computing's next phase. For one, banks spend oodles of money on technology. Research firm IDC last year said Wal-Mart spent more than any company in the world on technology. Bank of America, Citigroup, AT&T, JPMorgan and two other banks were also among the top 10 tech spenders. Executives at Goldman Sachs have said roughly one quarter of the firm's employees are in technology.
Financial services also tends to set trends for the corporate world. That's why tech startups trip over themselves to sell their products to financial services firms. Goldman and Morgan Stanley even host mass pitch sessions -- think of it as suit-meets-hoodie speed-dating -- to hear from young tech companies that want to sell to banks. It's no surprise that AWS wants bragging rights as a bank technology provider, too.
While banks are an alluring target, they're also hard to sell on cloud computing. Understandably, banks are incredibly cautious about their security and about ensuring any new technology doesn't breach the thicket of global financial regulations. Banks also want to leverage their in-house tech prowess to give them an edge over rivals, and they are reluctant to outsource tech duties to Amazon or anyone else.
And the rhythms of corporate technology aren't in AWS's DNA. Nor are they in the DNA of Google, which has also pledged a renewed focus on selling technology to big companies. Selling technology to big companies requires endless meetings with the corporate executives responsible for technology budgets. It also requires compromises -- but not too many. Box CEO Aaron Levie has said the demands of big corporations can threaten to ruin a technology product.
Amazon CEO Jeff Bezos has repeatedly said AWS could eventually have bigger sales than Amazon’s online commerce operation. If Amazon doesn't get the tricky but essential grunt work of selling to stodgy banks right, Bezos's cloud ambitions may never materialize.
Similar motivation is behind AWS's initiative to sell computing services to the CIA and other federal government agencies. Like banks, the U.S. government spends gobs of money on technology and acts as a Good Housekeeping seal of approval for the safety of young technology.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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