Amazon Web Services – AWS – is a huge business in its own right. With the annual revenue run rate crossing $14 billion and operating margins staying north of 30% for the past few quarters, there is nothing that was stopping Amazon from trying its hand in other segments of cloud computing, such as the Software as a Service (SaaS) industry.
They could have easily bought a few companies and slowly built their position in that segment. But, even today, Amazon remains steadfastly focused on the Infrastructure as a Service (IaaS) segment.
Both Microsoft and IBM have strong SaaS offerings, with the former focusing on collaboration and enterprise management software, and Big Blue with a strong position in the Analytics as a Service segment. Amazon has nothing of the sort, yet managed to add 700 new services in 2015 and a 1000 more in 2016, according to their CFO Brian Olsavsky.
Though the IaaS segment is growing, it was worth only $22 billion in 2016, registering a growth of 38% from the year before. There is still plenty of room to grow, but the Amazon we know is not a company that is easily satisfied with what is available; it is always hungry for that little extra.
“AWS’ leaders “very consciously targeted software developers and startups early on,” even though they knew that enterprises and governments would eventually be the largest clients, according to AWS CEO Andy Jassy.
“That turned out to be an extremely underserved segment,” Jassy said. A lot of those developers were spending only a few bucks on AWS services, but “we didn’t mind that,” the executive said. “Some of those are going to be the next big enterprise in the next five to 10 years.”
Source: Seattle Times
By going after startups and developers, Amazon Web Services is simply making sure that the next several billion-dollar enterprises have a higher probability of already being on AWS. By staying focused on the Infrastructure as Service segment, Amazon has been able to add services and functions by the hundreds every year. This alone provides massive support for Amazon’s ambition to keep cutting costs in a big way.
Creating a product and then letting it sell itself is just not Amazon’s way. Look at what they’ve done in two years with Amazon Alexa and the Echo line of smart devices. Look at what they’ve done with Amazon Prime in a decade. That kind of “we offer quality so you better be happy with what we give you and pay a premium for it” is just not part of Amazon DNA.
As the company keeps going deeper and wider within the Iaas segment, their offering will always stand out. By adding more services, they have more products earning money for them, while allowing them to keep driving the cost of individual products down in a very strategic manner.
And in doing that, Amazon keeps expanding the market for IaaS. Today, the hybrid cloud segment is alive for a lot of reasons. Moving into public cloud is not at all an option for some of the large-scale enterprises, and they’d much rather have their data residing in their own premises instead of someone else’s. And then there is the security breach fear as well, which makes companies want to stay in control of their data at all times.
Cost, security, data residency are some of the most important factors that are keeping big enterprises away from the public cloud. But costs are already on the way down, the datacenter footprints of cloud service providers (CSPs) are expanding at a rapid clip and security features are going to constantly improve.
But Amazon is not going to stop driving its costs down. Their S3 Storage pricing has already climbed down from 15 cents per GB in 2008 to 2.6 cents per GB in 2016. Where do you think it will be in 2020?
With such a relentless pursuit of cost efficiency, it’s going to be impossible for large companies to ignore the fact that public cloud simply makes more sense. If, five years down the road, a large public company realizes that if it moves into a public cloud it can save a few hundred million dollars a year, how would it convince its board not to take that option?
That’s the direction AWS wants to take, and it’s not really a surprise that Amazon keeps talking about hybrid cloud as an afterthought. Amazon is not here to maintain the status quo; it is out to disrupt it in any way it can, even if that’s through sheer price cutting.
You can’t blame Amazon for thinking this way. It’s an “in a retailer’s blood” type of thing. But it’s effective, and we’re already seeing companies like Snap and Live Nation take to AWS even though they have Microsoft and IBM offering more holistic cloud solutions.
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