Higher Clouds: Learning From Amazon’s AWS Strategy


Last month, Amazon had a conference in New York to show off its latest web services. At the Amazon Web Services (AWS) Conference a number of very experienced executives presented some exceptionally impressive technology.  Still, as they day wore on I kept thinking, “Why does Amazon want to compete with Google and Microsoft for Cloud service’s clients?” After all, while Amazon is the biggest internet retailer in America, there’s not exactly an obvious path from that to ruling the market in Internet services. What’s the deal… and why should we care? The reason for caring, I think, is that whatever made Amazon decide to become a Cloud services provider will lead other companies to follow the same path.

When you look at the big Cloud service providers today, three’s not a lot of surprises. Microsoft and Oracle are Cloud providers because they are big technology leaders who are invested in many areas of technology; for them the Cloud is just a slightly new paradigm for charging for their services. Salesforce, AOL and Rackspace are usually on the list of big Cloud providers, but they were selling Internet services before the term “Cloud” was used. Firms that started out in instant messaging are now trying to be Cloud providers
of  collaboration and conference call services. Likewise, many new firms are popping up hoping to become the next big thing in Cloud services.  Yet, Amazon remains unique among the big players: a retailer who wants to become a technology player.

Of course the reason is pretty obvious, while Amazon isn’t a technology firm per se, they are definitely a huge consumer of technology services. A few years back Amazon realized that it had quite a bit of excess server capacity, so it offered “virtual stores” to potential retail competitors. It made sense: the increase in the volume of technology purchases provided Amazon with a lower cost per GB of storage, and virtual store clients received
higher quality and lower cost web services than if they built it themselves. It’s just a tiny step from selling virtual stores to offering full hosting services. But when Amazon took this step, the numbers became staggering. In the year 2000 Amazon had a value of $2.7 Billion; a very sizable firm. Today, Amazon is adding the same amount of storage and server capacity that they had in 2000… every single day! That’s how quickly they are building their capacity. How quickly are your IT services growing? Could you build, update and invest in your services as quickly as Amazon? Probably not. In fact it is probably so
many orders of magnitude greater than what you are doing (and Amazon claims it is all being done with zero downtime to customers) why wouldn’t you turn over the keys to your server room to Amazon? And that’s just today… they are accelerating their pace, further expanding the gap between what your IT department can do and what Amazon can provide.

If Amazon can expand into Cloud services, then any firm with large scale computer services could follow the same path. I’m guessing that over the next few years a lot of other firms will follow the Amazon model. Three players that come to mind are: YouTube, Google and Ebay. Let’s take a closer look at these three:

  • YouTube: They are top dog in free on-line video. They’ve made some forays into paid video as well, but they’re not known as a provider of corporate services. Nevertheless, YouTube has been quietly moving into corporate training. As more
    and more corporations develop video rather than plain paper documentation and
    on-line training, a very significant market will open up (to say nothing of every University, High School and training facility). Every big firm has some corporate videos, but few have the resources or technical capabilities to produce a large library of video materials that are worth watching. Yet, Americans are spending ever more time (and money) for College degrees, certification programs and in-house training; who will produce and distribute their video training materials? Consider the endless conference calls (now video calls), meetings without anyone taking minutes (yet held in rooms with… video equipment), and the rapidly falling cost of HD or better video equipment (your smartphones probably records HD video!) and you get an idea of how HUGE the potential market really is. Will it be YouTube or another provider that controls this market?
  • Google: OK, they already have their hands in just about every on-line technology on the market, but other than being the search engine and (increasingly) the backup email for corporate employees, they haven’t penetrated very deeply into corporations. But they are trying! They own the world’s most popular search engine, and they would like to get it installed inside your corporation. Imagine replacing all of the proprietary indexing systems in your organization with just the Google engine (how many databases and programming languages do you support today?)! And look at all the unindexed data… documents on local drives, common drives on the network… a lot of data that’s not accessible to the people who need it (or the people who don’t even know it exists). If Google can index your data, they would be happy to move the index to the WEB, where their massive search capacity can speed your requests. Well, as long as the index is on the web wouldn’t it make sense to move all your data to Google as well?
  • EBay: They’re the dark horse of this trio, since they don’t have any real corporate
    presence. What they do have is an auction system and a PayPal, one of the best known Internet payment systems. EBay is valued at over $40 billion, but their auction model requires more computer activity per sale than Amazon (multiple bids by multiple buyers, different selling conditions for every seller, buyers monitoring changing prices, etc.), so they probably rival Amazon in total storage and network capacity. They could mimic the Amazon model and provide Cloud hosting, but they could also take a unique turn by leveraging their expertise and taking control of the procurement and purchasing world. Auction based purchasing is on the rise in corporations. Being the world’s premiere auction site, the next step would be to develop something like “PayPal Corporate” to meet the needs of corporate buyers. Just as EBay provides ratings for individual sellers, they could develop a system (and they have the volume to make it the best system in the world) for vetting and rating suppliers against the needs of a procurement department. Reducing the burden of reviewing the capabilities of potential supply sources and checking references would have quite a value to corporations. The problem facing procurement departments is that the best practices that they should follow are too expensive to be used universally. Smaller firms cannot afford the expertise for resource hungry processes like RFP’s (Request For Proposals). Large firms can afford the expertise for RFP development, but these firms procure across such a wide variety of products and services that even they cannot afford all of the subject matter experts they need. As the number of procurements departments increases, so too does the need for RFP’s. This is a huge market for EBay and a huge opportunity for corporate American to improve the procurement process.

Will YouTube, Google and EBay develop these and other corporate Cloud services? There are no guarantees, but if the Amazon model is an example, we can expect to see more non-traditional providers moving into the Corporate Cloud. At least, that’s my Niccolls worth!

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