We knew Salesforce and Amazon Web Services were getting cozy, ever since Salesforce’s recent earnings call when its chief executive, Marc Benioff, effusively praised Amazon’s cloud unit. Now we know just how cozy.
The public statements sent out by both companies say that Amazon (AMZN) Web Services is now officially Salesforce’s (CRM) “preferred public cloud infrastructure provider.”
That’s pretty fluffy. More newsworthy is that Salesforce will spend $400 million on AWS services over the next four years. That tidbit was found on Salesforce’s 10Q statement, although the name of the “third-party provider” was not mentioned. Sources close to both companies confirmed that the provider is AWS.
A public cloud or public cloud infrastructure a la AWS or Microsoft Azure is a massive set of computing, storage and networking resources that are rented out to customers who don’t want to expand or run their own data centers.
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The deal, agreed to last month calls for Salesforce to pay $70 million for AWS in fiscal 2017, $96 million the following year, then $108 million, and $126 million over the next two years.
This does not mean that Salesforce is moving all of its computing jobs off of its own data center infrastructure just yet.
One source said this is Salesforce “dipping its toe,” albeit a very large toe, in the public cloud. Salesforce’s current Heroku software development business acquired a few years back already runs entirely on Amazon infrastructure. The benefit of moving to Amazon could be more flexibility and the fact that Amazon runs data centers around the world, an important consideration given that many countries have strong data sovereignty laws that mandate that customer data be kept in the country of origin.
The deal with AWS is not necessarily indicate that Salesforce is ending its long dependency on Oracle databases and other software. Oracle software can run on corporate data centers but also can run on AWS. But Salesforce, as reported, is seriously weighing a move away from Oracle, as Fortune reported earlier this month.
Salesforce and Amazon get Awfully Chummy
From the Salesforce statement sent Wednesday afternoon:
For the first time, we’ll be able to deliver our core services—including Sales Cloud, Service Cloud, App Cloud, Community Cloud, Analytics Cloud and more—for our international infrastructure expansion. This will enable us to bring new infrastructure online more quickly and efficiently in select international markets.
The deal could prove a plus for both companies.
“It’s a big deal for AWS as it is the first time it snatches major enterprise software workload since it got Infor a few years ago,” said Holger Mueller, analyst with Constellation Research. Infor is a business software company that migrated to AWS a few years ago.
The move could help Salesforce cut capital spending and funnel that money into research and development. Mueller agreed that this is bad news for Oracle, which would no doubt would have loved to claim Salesforce as a big customer for its nascent public cloud. But Salesforce and Oracle compete tooth and nail in the business applications arena.
“It does not make sense for Salesforce to operate two cloud infrastructures,” Mueller noted. It’s likely this deal means “Salesforce will move off its own Oracle-based architecture.”
So this is big news for AWS which leads the market in public cloud infrastructure but faces growing competition from Microsoft (MSFT) and Google (GOOG) Cloud Platform.
Note: This story was updated at 6:12 p.m. EDT with analyst comment.
