There’s no doubt that Amazon (NASDAQ:AMZN) is a destructive force when it enters a new sector. After all, “your margin is my opportunity.” Just the thought of AMZN changing healthcare hit many of the sector’s stocks incredibly hard. So, when Amazon sets its sights on a new technology or industry, it’s time to pay attention. And this time, AMZN is getting ready to change a potentially game-changing sector. We’re talking about new Amazon blockchain services.
No, the retailer isn’t ready to start accepting bitcoin for purchases. But what is doing could even more important to advancing blockchain and use of digital ledgers. And it comes courtesy of its successful AWS division.
Amazon Gets Blockchain Fever
You can debate all day on whether digital currencies like bitcoin, ethereum or dogecoin have any actual value or will ever achieve their goals of being used as “money” at your local coffee shop. But what you can’t argue about is the development of blockchain and its growing importance. The basics are that the technology allows for peer-to-peer transactions without the use of an intermediary. Blockchain provides a public distributed ledger of these transactions and cryptography to encode the ledger. As more transactions move down the ledger, the encryption grows.
Digital currencies like bitcoin use blockchain for their transactions. However, the idea is that blockchain could be used for a variety of other industries. From traditional banking and insurance to even food production and medicine, blockchain can be implemented for many back-office processes. For example, Walmart (NYSE:WMT) adopted a program using blockchain for food safety with its pork suppliers after a major recall. Meanwhile, Starbucks (NASDAQ:SBUX) recently started a program using blockchain with its coffee suppliers to improve pricing.
So, the potential for blockchain to help transform businesses is there. That’s why old tech companies such as IBM (NYSE:IBM) are looking seriously at the tech. The problem for IBM and others is that Amazon has decided that blockchain is worthy of investment.
To that end, AMZN just announced that it will offer two Amazon Blockchain services through AWS: Amazon Quantum Ledger Database and Amazon Managed Blockchain. The managed blockchain product will allow users to create and manage scalable blockchain networks using the popular open source frameworks Hyperledger Fabric and Ethereum. Incidentally, Hyperledger is what IBM uses for its blockchain operations. The idea is that the new Amazon blockchain product allows end users to set up and manage a scalable blockchain network with just a few clicks of mouse and lines of code.
After you’ve built that blockchain network, Amazon’s other new service will allow you to dig into that data. Amazon’s Quantum Ledger Database will allow customers to replicate a copy of their Amazon blockchain network activity and dig into data to analyze it and see the transactions in the digital ledger.
Amazon Blockchain Products Will Be Huge
For Amazon — and AMZN investors — this is all pretty exciting news. And it could send plenty of additional revenues and cash flowing its way.
AWS is already a monster in cloud computing and web hosting. A number of large firms have chosen to use AWS for its various services. Names like AbbVie (NASDAQ:ABBV), Netflix (NASDAQ:NFLX) and Airbnb are just some of the firms using AWS services. Tacking on the small and mid-sized enterprises and Amazon boasts more than 1,000,000 active users on its AWS service. According to the company, the Amazon blockchain product launches were designed at the request of existing customers in the “mortgages, health-care records, supply chain tracking and vehicle history records” spaces.
The beauty lies within AWS’s simplicity and scalability. If Amazon can demonstrate that a smaller firm can benefit from Amazon blockchain as a service (BasS) and the cost is right, it’ll be able to get additional revenues per client. The same could be said for the big fish on its platform.
And since customers are already “locked” into AWS, Amazon will be the go-to name when clients want to explore blockchain. They’re not going to call up IBM to develop a ledger if AWS makes it very easy for a firm to add-on services in the platform as needed. Often these services can be had with various levels of hand-holding by Amazon. The same is true with the new Amazon blockchain operations.
Still In The Early Innings For Amazon And Blockchain
Now, it’s still very early in the Amazon blockchain process. But given the huge success of AWS and Amazon’s ability to get customers to add on services, blockchain has the potential to be big for AMZN. Over the long haul, as more companies begin using these digital ledgers to track transactions, it could be another mega-sized source of revenues at AMZN. Last year alone, revenues at AWS jumped more than 43% to $17.5 billion. Blockchain could be another big leap forward.
Moreover, given the success of the AWS system, it’s a major shot across the bow of firms like IBM and Microsoft (NASDAQ:MSFT) who are currently leading the blockchain game. They could see their leadership positions slip as Amazon’s new products build steam with its customers.
All in all, it’s another example of why Amazon is so dangerous when it comes into your sector and why AMZN stock is a great long-term buy.
Disclosure: At the time of writing, Aaron Levitt was long ABBV stock.