Amazon Acquires IDE Provider Cloud9, Here’s How It Will Help

Amazon (NASDAQ:AMZN) has acquiredSan Francisco based-startup Cloud9 for an undisclosed amount. The acquisition is likely to help the company add more developer tools to its Amazon Web Services (AWS) offerings. Cloud9 offers a cloud-based integrated development environment (IDE) for developers to collaborate, and already counts Salesforce, SoundCloud, Heroku and Mozilla as its customers. ^[1]

AWS is Amazon’s most profitable division, contributing over 50% of its profits. Amazon’s increasing focus on constantly improving and expanding its AWS business stems from the fact that it contributes about 56% of the company’s profits and has a considerably higher EBITDA margin than Amazon’s e-commerce business. In 2015, AWS had an EBITDA margin of 30% compared to its company-wide EBITDA margin of just 9%.

Another likely factor driving Amazon’s efforts to make its cloud offering more comprehensive is the increasing competition in this space. Although Amazon is the leader in the global cloud infrastructure services market, with a share of over 31%, other major players such as Microsoft, IBM (NYSE:IBM) and Google (NASDAQ:GOOGL) are slowly gaining share by growing at an impressive pace. In Q4 2015, the overall cloud infrastructure services market grew at 52% year-over-year (y-o-y), with Microsoft and Google both growing at well over 100% over the prior year quarter. IBM’s growth was in line with the overall market, resulting in 93% combined sales growth for Microsoft, IBM and Google compared to 63% sales growth for Amazon Web Services (AWS). This further declined to 57% y-o-y growth in the first quarter this year.

Although AWS is still growing faster than the overall cloud infrastructure market, it will be important for Amazon to continue attracting all kinds of customers – small startups, SMEs and big companies. For this, it will need to constantly evolve and expand its product offerings and enhance their agility and customization capabilities, which seems to be a reason behind the Cloud9 acquisition.

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1. Great News!, Cloud9 Blog, July 14 2016 [↩]