Score one for Microsoft (MSFT) Azure in its battle for big, industrial cloud customers. Maersk (AMKBY), the world’s largest shipping company, says it will use Azure cloud services to fuel its IT modernization efforts.
Such projects typically are called “digital transformation,” a fancy term for automating and updating manual or otherwise inefficient processes.
Microsoft is battling Amazon Web Services, the leader in public cloud computing, for big-name customers. Public clouds like Azure and AWS are huge pools of computers, storage, and networking for business customers to rent if they do not want to build more of their own data centers.
In this deal, Azure will be Maersk’s “preferred cloud” going forward, Ibrahim Gokcen, Maersk’s chief digital officer told Fortune in an interview. That means it will be the technology Maersk uses to develop its own software and supply chain management technology. That’s a type of software system that is supposed to ensure that material, money, and data gets shared as needed so products can be built and shipped from manufacturer to wholesaler to retailer to customer with minimal waste.
This is all part of the firm’s push to integrate its transport and logistics units as it spins out its energy business, as disclosed in September.
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So, why Microsoft?
“We needed to work with companies with proven track records in digital transformation, and that had worked with large industrial companies like us. In that landscape, Microsoft was the best option,” said Gokcen.
Maersk’s energy unit has used Azure’s largest competitor, Amazon Web Services, before. But that is part of the business that is being spun out. Aside from the shipping line, Maersk is the fourth largest operator of container terminals and it provides supply chain management, freight forwarding, and refrigeration services. Those businesses together bring in just over $32 billion in annual revenue and employ nearly 72,000 people, according to the company.
Neither Gokcen nor Microsoft would disclose how much the latest cloud deal is worth, only saying that it is a substantial multi-year agreement.
Under the pact, Maersk will use not just Azure’s basic computing and storage, but also its higher-level Internet of Things services to lower supply chain management costs and boost reliability and quality of service, said Judson Althoff, executive vice president of Microsoft’s worldwide commercial business organization. The idea is that the containers and their contents would be connected, so they can be tracked and monitored.
“A tracking system that follows them, from when they are loaded through the last mile of delivery, means customers can visualize the flow of goods,”said Althoff.
Today, lots of product gets lost in transit for a variety of reasons, Althoff said. “If you’re shipping 100,000 Barbie dolls, for example, the industry average is that only 80,000 show up at the destination, and God knows where they went. Some may have fallen off the ship, others may have been delivered to another port city and sat there and maybe got stolen,” he added.
Cloud-based tracking can alleviate those problems, but it can also make way for higher-level services, such as the monitoring of humidity and temperature in containers to help protect their contents.
Maersk now fields a mix of on-premises and cloud technology. And while it moved a couple of its data centers into Azure last year, it will keep some applications and data running on internal servers as well. In this sense, Microsoft is thought to serve as a “hybrid” solution, while AWS is focused on putting nearly all data and applications into a shared public cloud.
The fact that AWS parent company Amazon (AMZN) is also getting into freight delivery via drones, trucks, and even ships, was not lost on Maersk, either. Just as many retailers like Walmart are loath to use a service provided by Amazon, which competes with them on a daily basis, freight companies may also hesitate, seeing Amazon as a threat. One exception so far has been Matson, a Honolulu-based shipping company that inked a big cloud contract with AWS last year.
In another part of its modernization effort, Maersk is using blockchain technology it built with IBM (IBM) to help manage cargo on the tech giant’s cloud infrastructure. Blockchain is the distributed ledger technology which promises to replace tedious and not-very-secure manual accounting and data sharing processes that can slow down transactions.
Watch for all these cloud providers to keep battling it out, both for older companies needing to modernize and for tech companies that don’t want to build more data centers.It is still early into this massive technology transition.