Amazon Creating Global Cloud Service With Iridium –, Inc. (NASDAQ:AMZN)

Amazon Web Service (AWS) was created in 2006 by Amazon (AMZN) as a cloud computing platform that anyone can buy a subscription for. AWS can be accessed from anywhere with internet connection, allowing for a subscriber to have a virtual computer with them, so long as there is an internet connection. Iridium (IRDM) is a satellite communications company that is currently creating the only satellite constellation, Iridium Next, that will cover the entire world; Iridium Next’s final launch is scheduled for some time in November. Iridium was recently announced as a new partner of AWS and is now a member of the Amazon Partner Network (APN); the service that Iridium will offer as an APN, beginning in 2019, will be called CloudConnect. Through Iridium’s new constellation, Amazon will be able to provide their AWS anywhere on the planet through the Internet of Things (IoT). This partnership will lead to greater overall success and growth for both companies.

What is the Service

Amazon allows for a large coverage area for AWS by creating many areas across the globe that provide connection for their service. These areas are mostly used for government and corporate applications, which is what the Iridium partnership will be focusing on as well. Consumers won’t be using the Iridium partnership with AWS because Iridium will be focused more on providing connection to places that typically wouldn’t have it. For example, if a company were providing a service that tracks trucks, Iridium would be the best partner for them because they have total global coverage. Currently, Without Amazon adding Iridium to their APN, this company would have to rely on cellular coverage which is far less reliable with a much smaller range. In an interview with CNBC, Iridium CEO Matt Desch explained that currently “with terrestrial networks today it’s still only 10 percent or 20 percent” of the entire world that has access to internet connection; Iridium will be “covering the whole planet.” To access Iridium’s AWS partnership, users will need to purchase and Iridium IoT modem with the AWS subscription, once activated, the data from their device will be immediately transferred to their AWS cloud database. The need to buy a modem for an IoT device isn’t unique to Iridium and is needed for all IoT devices to connect to their provider.

Source: Centreon (Coverage map of AWS)

Source: Spaceflight101 (Every area within a green circle will be covered by Iridium Next, note that there is no area not within a green circle. This graphic was also provided to Spaceflight 101 by a collaboration of NASA and Iridium)

Currently, many companies will use AWS as a way to run diagnostics, or collect data on equipment remotely. This means that instead of being required to send engineers out to run the diagnostics, all of the information is available whenever they need it to be. Tim Last, vice president and general manager of the IoT Line of Business at Iridium, stated that the number of Iridium customers using cloud services as the basis of their IT infrastructure was increasing, and they wanted a method for delivering cloud-based workloads to Iridium devices. Through the AWS partnership, customers will be enabled to do exactly this.

The service that Iridium is providing will be attractive to businesses who need data in remote locations, or places around the globe. Iridium was recently announced as a partner with The Ocean Cleanup. Iridium will be supplying data, images and video for The Ocean Cleanup as their sole satellite communications provider. Each area that The Ocean Cleanup is focusing on will be able to send all of the necessary data to the headquarters, even during storms. AWS will most likely be utilized in this instance as well as a way for the data to be stored and be easily accessible. Desch has stated that he expects this service to originally be used for agricultural equipment, as well as cargo ships. However, he expects that this will eventually be able to be used in smaller objects, “such as drones.” The partnership between AWS and Iridium will allow for companies to create this seamless integration with their products and hardware.

Iridium’s Benefit

Amazon is currently the leading provider of Cloud Infrastructure Services (CIS), having more than double the market share as any other single company with its AWS. This large market share will allow for Iridium to make full use out of this partnership because it will lead to them reaching the most customers possible. Desch iterated to CNBC that Iridium will be “the first and only satellite provider now connected to” AWS, marking the importance of this partnership. This gives them the exclusive benefit of being able to provide the most coverage out of any of the other APNs.

Desch believes that this partnership could lead to incredible growth for their IoT network, stating that “easily this could expand to tens of millions of devices.” Currently, Iridium has about 600,000 devices subscribed to their service through the IoT. Desch also discussed the challenges of creating an efficient cloud network, explaining that it can take years to figure out how to create a seamless cloud service; by using AWS, Iridium doesn’t need to create their own cloud service.

One of the main concerns around Iridium after building this new constellation was whether or not they were going to be able to market it. However, this concern is starting to disappear as Iridium gets more and more deals around the use of the Iridium Next constellation. This recent partnership is just the latest example of this, Iridium is gaining popularity due to its Iridium Next constellation and it doesn’t appear to be slowing down. Iridium has been adding partners at a rapid pace, some less high-profile than others, but nonetheless, Iridium is making itself known.

Source: Synergy Research

Amazon’s Benefit

Amazon may be coming out of this deal even better off than Iridium is. Amazon recently posted job offers for engineers with satellite experience, but has removed them after the news of this partnership broke. AWS was very likely planning on creating their own satellite IoT service. This likely would have cost Amazon a lot of money, as Iridium’s constellation cost them $3 billion. In order to create a constellation like Iridium had, Amazon would have likely been forced to spend more than this due to hiring costs, R&D costs, and most likely the cost of renting out a new facility for the development of the satellites. By partnering with Iridium, Amazon has avoided all of these extra costs and is able to provide a significantly upgraded version of their AWS.

The new coverage that AWS offers through this Iridium partnership will be attractive to many potential clients who could use a cloud service, but none of them previously covered the areas or range they needed. This could lead to a very large increase in their AWS subscription numbers, as Desch’s previously predicted “tens of millions” would be almost all AWS subscribers. This growth is massive, and although Desch didn’t provide a timeline for the “tens of millions,” as of 2015, the last time Amazon gave an update on the amount of AWS users, Amazon had just passed one million users. However, at the time, IBM was still ahead of Amazon in CIS market share, but Amazon now has over triple the market share IBM has, meaning that the one million is much larger now. By taking the $7.3 billion of revenue AWS was at by the end of the second quarter of 2015, and multiplying that by the compound growth of every quarter since then, I have found that AWS has grown by about 234.3%; meaning that AWS has reached over 2 million users. Even though the number has increased, even adding another one million users would represent huge growth for Amazon. All of these new users coming for Iridium’s service would be using IoT applications, which are only one aspect of AWS.

Investor Advantage

Both companies have incredible growth potential as a result of this. Iridium has many projects lined up for them in the future that will reward investors with high returns and profits. Amazon is also still growing every year, with lots of major acquisitions and partnerships. This deal in particular is very big for both companies, and provides unique benefits for each. This news is most likely known to everyone following the Iridium stock, but not necessarily Amazon. Because Iridium is still not very widely known, not many Amazon investors would think to read up on a partnership that most likely appears very small to them, especially when compared to other Amazon partnerships. This new asset is hidden from most of the market, as it has not yet realized its potential. For Iridium, this partnership will provide them with a much larger potential customer base, resulting in their subsequent growth. As Iridium nears the completion of Iridium Next, many other businesses and companies are beginning to realize the potential of what they can provide, and interest in their services is growing.

By providing this completely unique product, Amazon and Iridium should be able to increase their subscribers for each respective service. CloudConnect, with the support of the AWS network, will be a great appeal to many government and commercial sectors. Many companies can’t operate on a cloud service because of the location of their assets, or the requirements of their business. With Iridium being added as an APN, now there is no place in the world that isn’t able to be connected to a cloud service. So, since Amazon and Iridium are the two providing this, they will take in huge profits. As of now, no other company can provide a service like this, so the only way for these companies to be able to utilize this service is through CloudConnect. The government also already has built a relationship with Amazon and Iridium, so it is very possible that the government may give a contract to both companies in order to supply this service for their many assets. This contract could support anything from tracking planes or boats, to running remote diagnostics.

Overall, both companies are poised to benefit a great deal from this partnership in terms of both growth and profits. Investing in either company now should yield high returns because of this partnership and many others that both companies continue to create. Even though Iridium is around their all-time high, investing now could generate huge profits as a shareholder in just a couple of years. This is because of the dramatic increase in IoT subscriptions that Iridium will receive as a result of this as well as the completion of Iridium Next and other partnerships.

Disclosure: I am/we are long IRDM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I/We have no position in AMZN, and no plans to initiate any positions within the next 72 hours.

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