Volkswagen (VW) has recently signed a deal with Microsoft to use their Azure cloud-based system. This gives them the portal to the highly sought after world of Software as a Service (SaaS).

“The Volkswagen Automotive cloud will be built from the ground up on top of Microsoft’s Azure cloud and IoT Edge platform as its technology foundation,” Microsoft representative said in a statement.

“We envision the automobile evolving into a central hub in the Internet of Things, enabling customers to take their world into their vehicles,” Heiko Huettel, chief of VW’s connected car division said.

One weakness of car manufacturers is that they aren’t effective at developing software interfaces. Now, through Microsoft, VW will have access to Power BI, a business analytics service where users can create reports/dashboards without the help of IT staff and database administrators, Bing mapping, Windows 10 UI expertise, Skype and Teams connectivity. This will help VW kill two birds with one stone: cars will be connected to the cloud and it provides the consumer-friendly interfaces and feedback needed to stay ahead of its competitors. With regards to its competitors, it is believed by many that Amazon will eventually enter into the automobile industry in some way (distributor, leaser, etc.). It would be a formidable competitor, due to its prominence in the cloud and AI field, despite its lack of expertise in engineering. This deal fortifies VW’s position in the automobile industry early in the game.

The deal will also be hugely beneficial for Microsoft. In the IT world, whoever dominates the cloud dominates the computing field. Amazon, with its successful Amazon Web Services platform, has pushed the IT company to the number one position. Microsoft, under Sathya Nadella’s (CEO) leadership, has taken the role of being the world’s second largest cloud provider due to the recently increased focus on the cloud. Now, the billion dollar deal to be the global cloud partner for the world’s largest automobile company by sales has made their competitors at Amazon, IBM and Google sit up and take notice. The cherry on the cake is that the deal has been signed right when VW is undergoing transformations to enter the SaaS world.

This partnership consolidates VW’s place in the automobile industry and also adds a ‘halo effect’ on Microsoft as the software giant searches for other global manufacturing partners.