Here's What Amazon is Doing With Its New VMware Cloud Partnership

By Markets

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Last week (NASDAQ: AMZN) and VMware (NYSE: VMW) announced their partnership to bring VMware's cloud services to Amazon Web Services (AWS), under the name VMware Cloud on AWS. The partnership had been expected for a little while, but the announcement marks a significant step ahead for both companies -- and it could be a boon to AWS' corporate cloud prospects.

The new relationship brings VMware's cloud infrastructure software to Amazon's public cloud service, creating a hybrid cloud offering that allows customers to use both their own data center hardware and AWS at the same time.

VMware's vice president of products and cloud platforms,Mark Lohmeye, said in a companyblog postabout the new offering,

"It will be operated, managed and sold by VMware as an on-demand, elastically scalable service and customers will be able to leverage AWS services such as developer tools, analytics, databases, and more."

The partnership helps VMware offer its customers a public cloud solution that is both sold and managed by the company (meaning it won't give up control of customer relationships). The move is a good thing for VMware because it allows the company to offer additional services to customers.

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The upside for Amazon is that the company can potentially expand its corporate customer reach even more by supplying them with the public cloud they need without those companies having to give up their in-house data centers.

AWS CEO Andy Jassy said in a statement:

"Most enterprises are already virtualized using VMware, and now with VMware Cloud on AWS, for the first time, it will be easy for customers to operate a consistent and seamless hybrid IT environment using their existing VMware tools on AWS, and without having to purchase custom hardware, rewrite their applications, or modify their operating model."

Basically, Amazon is trying to remove any excuse big companies have to avoid moving some of their data to its cloud. By partnering with VMware, Amazon offers enterprise clients the best of both worlds -- use their data centers for some things, but offload the rest to AWS.

The new deal could also be a blow to International Business Machines (NYSE: IBM), which just began its own hybrid-cloud partnership with VMware back in February. VMware says it's simply offering its customers a choice of public cloud players, but with AWS's ever-expanding cloud dominance it's hard to believe that IBM won't eventually be hurt by this new partnership.

Playing the cloud services long game

Amazon earned $2.9 billion from AWS in Q2 2016, up 58% year-over-year. Research from Forrester estimates that AWS will bring in $12 billion in revenue this year -- which is more than half of the revenue for the entire public cloud market. It's worth mentioning that AWS is also Amazon's most profitable business as well.

Investors looking to benefit from the cloud market would be wise to give AWS a look. IDC expects spending on the public cloud to grow at a compound annual growth rate (CAGR) of 19.4% from 2015 to 2019, and reach a market size of $141 billion by that time. The new VMware partnership, which will be out of beta sometime in mid-2017, should help Amazon grab a larger slice of the corporate market, which will serve to further solidify the company's already dominant cloud position.

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Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends The Motley Fool recommends VMware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.