These days, we are reading a lot about Amazon’s falling stock prices due to lack of profits. What I find most interesting is how Amazon’s cloud is growing compared to Microsoft’s cloud. I also think these developments tell us something about upcoming changes in the mobile device market.

Investors are complaining that Amazon is not making enough money. They want profits. It’s not that Amazon’s profits really matter to investors. Investors are mostly concerned about what other investors are thinking. And many investors are thinking that many other investors think that profits are very important when it comes to betting on a company in the international casinos that some people call international markets (for reasons I don’t understand). So, they mostly bet on companies they think will make more profit in the future than other investors think is possible because they think, if they were thinking of something that the other investors didn’t think of, the company’s stock value will rise. And then they make a good profit in the casinos by betting on a company that is not profitable. It really is a funny game.

Amazon, or—more precisely—Jeff Bezos, never really cared about profits. All that matters for Bezos is growth. Since Bezos never made a secret of this, investors are confused. They believe that he can’t be serious about changing the gambling rules. Those investors believe that they know more than the other investors; they believe Bezos is only kidding and that one day Amazon will make a profit. So they bet on Amazon, which increases its casino value. Then comes the next earnings report, and the investors gamblers worry again that Bezos might indeed be serious—that is, that profits don’t really matter. The odds drop. This is nothing new so far.

However, this time, the casino bets on Amazon dropped more than usual, even though the numbers are the same as in previous years. Strong growth, no profits. I think the reason is that investors are looking more and more on Amazon's cloud businesses and that a new player entered the game. The new player is Nadella, holding Microsoft’s cards. Thus far, Amazon was able to dominate almost every market it entered. Now, something odd is happening. Even though Amazon entered the cloud market first, a new player has arrived and is growing faster than Amazon. Much faster. Even worse is that (from Amazon’s point of view) Microsoft is not only growing much faster but its cloud business is earning a lot of money. Yes, Microsoft now has a third cash cow—a $4.4 billion cash cow.

This must have shaken Bezos’s world view. How can they grow so fast and earn? Amazon’s cloud usage grew by 90 percent, but revenue grew only 38 percent. It appears that AWS growth was only made possible by massive price drops. Microsoft’s cloud revenue, on the other hand, grew by 147 percent.

When I wrote my blog post about Amazon’s cloud growth last year, I must admit that, even though I am a Microsoft fan boy, I didn’t believe that the Redmond software giant would be able to adapt to the new situation in the enterprise IT market fast enough. Microsoft is known for missing new developments. But then, after two or three approaches, they always catch up and sooner or later become the leader. I had my doubts this time. I mostly doubted that Ballmer was a match for Bezos. However, with Nadella, who certainly has a deep understanding of the cloud, things look different.

Of course, Microsoft has a significant advantage. Quite a few Windows shops exist out there, and Microsoft’s cloud is a natural choice for them. But more important is that, when it comes to running Windows and its ecosystem (Active Directory, Exchange, SharePoint, etc.) in the cloud, Amazon is technologically no match for Microsoft.

I somehow assumed that Bezos would notice that Amazon can’t only count on the web and mobile startups if it wants to continue to dominate the cloud market. The brick-and-mortar businesses still outnumber the online businesses, and most of those traditional businesses depend heavily on Microsoft technology. I wouldn’t rule out that Bezos saw this coming. Maybe he just couldn’t change the AWS culture, which is all about Linux, fast enough. Perhaps he couldn’t find enough good Windows experts. It’s hard to tell. One thing is for sure: he won’t be able to change this any time soon. Microsoft has the money, the Windows expertise, and the same hunger for growth as Amazon. Bezos prides himself on never looking at competitors and only at customers. I think this time he had better pay more attention to the rival residing in his own town.

Microsoft’s main problem is that it fights a two-front war. And things don’t look so good on the second front. The Nokia acquisition was probably the biggest mistake in the history of IT. It is no surprise that most of the Microsoft layoffs are former Nokia employees. Nevertheless, I believe even now that we can’t count Microsoft out in the mobile market. If Microsoft can beat such an aggressive and dominant player as Amazon in the cloud, it might also be able to catch up with mobile even though the numbers look really scary at the moment.

However, let’s not forget that the mobile and enterprise markets are quite different. Enterprises in the brick-and-mortar business move slowly and are reluctant to accept big changes, which makes Microsoft’s cloud growth rate even more surprising. In contrast, mobile device buyers quickly switch to a new platform. They buy gadgets, not operating systems. This is the reason Android could break the iOS dominance so easily. All that Microsoft needs to do now is dump Nokia as soon as possible and make Windows Phone significantly better than Android.

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If Microsoft succeeds in uniting Windows Phone and Windows as a platform, and developers can create apps easily that run on both operating systems, then Microsoft will have a significant advantage over Google. The advantage is comparable to the one Microsoft now has over Amazon in the cloud. Let’s call it the hybrid approach. If Microsoft then stops competing with handset makers, Samsung and company could become interested in Windows Phone. Imagine that the Galaxy S7 would run Windows Phone. The mobile market would be jumbled from one day to the next.

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