On the heels of Amazon acquiring Whole Foods, making a much quicker entry to the groceries world than building out its own Amazon Go stores, The Wall Street Journal reported that Walmart has been signaling its technology suppliers not to use AWS, Amazon’s cloud services. The strategy on Walmart’s part is brilliant. According to Amazon’s 2016 annual report, AWS accounts for 9% of Amazon’s total revenue. However, it is making most of Amazon’s money: AWS accounts for 74% of Amazon’s total operating profit before tax. If we only consider the North America market, AWS accounts for 57% of Amazon’s operating profit before tax. This is incredible for only 9% of total revenue. More importantly, this is where it would hurt if Walmart strikes here.

For the companies of concern, Walmart’s technology suppliers, the question to consider is a priority decision between the cost to switch cloud service vendor versus the revenue loss or potential revenue loss from Walmart. The timing of Walmart’s demand is brilliant. If it waits until Amazon Fresh gains the majority of the market share, it would be too late.

Walmart and Amazon can fight the grocery fight until the cows go home. The grocery game is a thin margin game. How low (price) can you go? The winner from the grocery side is clearly the customers. Losers? Farmers. You can bet that Amazon and Walmart would put the price pressure on farmers. Whole Foods competes against Trader Joe’s and other specialty grocery stores for high-end customers. Therefore, we might see prices from Trader Joe’s go down as well. The winner or winners of this feud on the technology side are Microsoft and Google, who were late to the cloud game but would be very happy to take Amazon’s share.