The Next Big Thing for Amazon.com, Inc. (AMZN): Productivity Software

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Amazon.com, Inc. (NASDAQ:AMZN) has taken on some unexpected targets lately. None more ambitious — and unforeseen — than sticking its Alexa personal assistant in the Amazon Echo smart speaker.

The Next Big Thing for Amazon.com, Inc. (AMZN): Productivity Software

Source: Amazon

That move has paid off with a big lead in the race to become the hub of the smart home, despite AMZN’s complete lack of smartphone presence.

Per a report in The Information, Amazon is readying another bold move. If sources are correct, AMZN is preparing to take on Microsoft Corporation’s (NASDAQ:MSFT) Microsoft Office and Alphabet Inc.’s (NASDAQ:GOOGL) Google G Suite with its own cloud-based productivity suite.

Report: Amazon.com Is Working on a Productivity Suite

The Information broke the news that Amazon.com is working on its own productivity suite to take on Microsoft and Google. The website says AMZN’s Amazon Web Services — AWS — unit has told some of its “large corporate customers” of its plans to offer a new suite of productivity apps that will compete against the two dominant players.

Microsoft Office has always been considered a cash cow for the company. The productivity suite quickly became the industry standard, the applications of choice for enterprise, schools and home PC users. To make its software seem more affordable, to break free of the boom bust cycle between major versions of Microsoft Office, and to address the growing threat of Google’s free Google Apps suite, five years ago, the company began pushing Office 365.

This subscription version of Microsoft Office brought recurring monthly revenue and other advantages. Microsoft expanded into Office apps for mobile devices like Apple Inc.’s (NASDAQ:AAPL) iPad and began to sell online storage for Office 365 users, with OneDrive.

Google Apps/G Suite

Google wasn’t sitting still, though, refining Google Apps into G Suite, a full-on competitor to Office 365, with paid monthly subscription plans and online storage options. The company has also leveraged Google Apps and its lightweight Chrome OS into Chromebooks — ultra-low-cost laptops that have been giving Microsoft fits, especially in the education market.

That education market is where the potential for disruption is really playing out. With its free Google Apps and low-cost Chromebooks, Google upended the education market. By the end of 2015, more than half of all device in U.S. classrooms were Chromebooks. This has repercussions beyond the classroom, as those students turn into young professionals who are more comfortable with Google’s productivity software than with Microsoft Office.

I’ve seen the effect first hand. My kids do everything at school using G Suite, despite Microsoft offering free Office 365 subscriptions to students and computer labs full of Windows PCs. They ignore Microsoft Office and Apple’s Pages/Numbers on our home computers, and instead log onto G Suite for doing homework.

If Google could quickly make waves in one of Microsoft’s key strongholds, why couldn’t Amazon.com march in and disrupt both companies?

Why Amazon Would Take On Microsoft Office

This is a key question. Taking on the Google and Apple in the smart home with the Amazon Echo made sense because the smart speaker was a Trojan horse. It offers a growing number of “Skills” that let it control other smart devices by voice command, or interact with online services.

That ropes consumers into buying it. But Alexa is a voice-activated path to effortlessly order products directly from Amazon.com, and gives an incentive to buy other Amazon products and services like Amazon Music Unlimited and Amazon Fire TV.

Where’s the win for AMZN in offering productivity software, other than to tweak Microsoft and Google?

For the answer, look to AWS. Amazon Web Services dominates the market for cloud infrastructure and the profit from this division is a big driver of Amazon’s overall growth. Amazon already has the servers in place and it has several of the components needed for a productivity suite, including its WorkDocs and WorkMail apps and the recently announced Amazon Chime video conferencing software. Stitch these together with a few additional components and Amazon could have its Microsoft Office and Google G Suite competitor.

Google charges $5 to $10 per month for G Suite, while Microsoft Office 365 has several tiered options starting at $5.99 per month.

AMZN could charge a competitive rate for its new offering, adding more subscription-based revenue to its bottom line while taking advantage of its existing cloud muscle. The base monthly fee could be supplemented by charging for additional online storage for enterprise customers — something it has plenty of.

Productivity software could also become another free perk of Prime membership. Prime members that start using Amazon’s productivity software could put pressure on their employers to invest in a subscription, in an effect like Google’s approach that sees students graduate and look to their employers to provide G Suite access.

AMZN isn’t commenting and The Information’s sources say all of this is still in the early stages, but the move makes sense. Amazon has been aggressively expanding beyond its role as an online retailer, AWS has the infrastructure needed to support the initiative, the company has been creeping into enterprise software with apps like WorkMail, and Google proved that the Microsoft Office behemoth isn’t invulnerable. A productivity software suite from Amazon.com could well be the company’s next big thing.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015.


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/the-next-big-thing-for-amazon-productivity-software/.

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