Unravelling the enigma

If Amazon Web Services were a Hollywood actor, it would be Joaquin Phoenix: hugely successful commercially but frustratingly enigmatic. Doug Woodburn attended the firm's recent UK summit to get to the bottom of the IaaS market's mysterious leading player

When Amazon chief executive Jeff Bezos launched Amazon Web Services (AWS) in 2006, critics questioned why anyone would buy IT services from a bookseller.

Seven years on, it appears that Bezos' confidence that the world's leading e-tailer could recreate its success in the emerging infrastructure-as-a-service (IaaS) market was not misplaced.

Although Amazon is highly secretive about AWS' size - refusing even to divulge EMEA staff numbers to its partners - an analyst at investment bank Macquarie Capital recently estimated it will haul in revenue of $3.8bn (£2.5bn) this year and has a market valuation of $19bn.

That would put AWS - which now offers 33 services spanning storage, compute, database and application management - as the runaway leader in an IaaS market key competitors such as Google and Microsoft have only just entered (see panel opposite).

At its recent summit in London, AWS was typically furtive, confiding only that its customers now number in the "hundreds of thousands". However, it did provide a few tantalising clues as to its scale, revealing that the number of objects stored in its S3 storage service hit two trillion last month, up from one trillion just 10 months earlier. The amount of compute resource it deploys around the world in a single day is now equal to the compute resource it used to power Amazon.com back in the whole of 2003, it added.

Last year it added 195 major features and services, compared with 82 in 2011, 61 in 2010, 48 in 2009, 24 in 2008 and nine in 2007.

Brian Matsubara, senior manager of global ISV programmes at AWS, said no one should be shocked by AWS' rapid rise to ubiquity.

"A lot of people don't realise that Amazon.com is really a technology company that happens to make decent money being an e-commerce retailer," he told CRN.

"Even though AWS launched its first services in 2006, it had been working on the underlying technology for 15 years and at some point, Amazon realised it was actually pretty good at operating an elastic, scalable internal system that powers Amazon.com."

Although its early customers were mainly tech start-ups, AWS is increasingly leaning on the channel as it pushes deeper into the enterprise space (see panel opposite).

Founded in 2009, cloud service brokerage Cloudreach counts AWS as one of its two key partners alongside Google Apps and has completed more than 100 projects among its base of enterprise clients on behalf of the vendor.

Co-founder Pontus Noren said an AWS executive had refused to even divulge how many staff it has working in its EMEA HQ in Luxembourg in the course of a casual conversation, but argued the extreme secrecy over its numbers works in its favour.

"It kind of works because the services speak clearly enough for it," he said. "We would tout [their numbers] around if we could, but of course they don't want to tell Rackspace, Google, Terremark, IBM or Microsoft just how successful they are."

Noren claimed that cloud should no longer be seen as a "Star Wars phenomenon".

"When people talk about cloud computing as being the future, we always look puzzled," he said. "Cloud computing is now, and we have a three-and-a-half-year history of growing the business from two to 90 people on cashflow generated from people using cloud platforms - we don't do on-premise."

He added: "The great thing about AWS is you can set up a server in five minutes. Time to value is the biggest benefit of cloud - it's not just a flexible paying model but how quickly you can achieve it. IT has had a bad reputation for the past 10 to 20 years, with the government spending hundreds of millions on failed IT projects, and that should not happen today."

Joseph Spear, marketing manager at Smart421 - an SI specialising in middleware that signed up with AWS in late 2011 - said AWS had been the obvious partner when it realised it needed to be in the cloud game.

"We kept polarising back again and again to Amazon because it is the biggest kid on the block, has the most credible play into the enterprise market and has an early-stage but progressive approach to the channel," he said.

"Quite often, our biggest competitor is the internal IT department that wants to keep it all in-house. They have a political vested interest in doing that because of previous technology decisions they have made. It is no longer a technology argument - cloud has grown up sufficiently well, and AWS in particular sufficiently well with their rate of innovation - that it is no longer a technology argument."

Bookselling and IT services seemingly have little in common but AWS CTO Werner Vogels told delegates at the summit that the business models for Amazon.com and AWS are startlingly similar, with both focused on driving down prices through economies of scale.

"We want the same thing for AWS as for Amazon the retailer - we want to be the earth's most customer-centric company," Vogels said.

"What does that mean for a service provider? It means we should be on our toes every day: if we do not deliver the best services for you, you should be allowed to walk away and change your tech provider."

Cloud computing will be like turning on a light

AWS' relentless focus on reducing costs sets it apart from the competition, CTO Werner Vogels told customers at the vendor's summit in London last month.

The IaaS giant has cut prices 31 times since it launched in 2006 and Vogels said he hoped one day soon that compute and storage would be regarded in the same way as electricity as AWS continues to slash its prices. AWS is able to do this by passing on cost savings achieved through increased economies of scale and innovations in both its infrastructure and software, he said.

"When you woke up this morning and switched on the light in your room, you didn't think about how much it will cost," he said. "If we can get the cost of compute and storage to that point as well, the amount of innovation [our customers can drive] will be tremendous."

Microsoft pledged to price-match AWS on its Azure infrastructure services when it announced their general availability last month. Google has also recently leapt into the market with its Compute Engine offering.

The prospect of a price war can often set alarm bells ringing in the channel but AWS partners welcomed the vendor's efforts to simplify and commoditise the infrastructure market.

Cloudreach's Noren said customers will still need expertise from channel partners to help them resolve complexities around applications.

"If it is supposed to be a utility, the whole definition of utility is that the price should be low and should over time, as you become more efficient, become even lower," he said.

"Just because AWS is doing its best to automate and simplify the platform - and so are Google and other platform providers - we still think there will be a key role for us to play. So we support the price reductions and think this is the way the industry should be behaving. We play in the highly intellectual space so are moving away from being the guy plugging in the cable to cutting-edge technology."

Smart421's Joseph Spear also welcomed the price competition Microsoft Azure would provide.

"It comes as no real surprise that product managers responsible for Windows Azure would feel almost duty bound to try to match [AWS]," he said. "In fact, I think the competition is welcome. It all helps to keep the big names focused on delivering value in the channel."

Siding with the channel

AWS will use the channel - rather than direct sales - as the engine of its growth in the enterprise market.

Having launched the AWS Partner Network (APN) last year, AWS now has 4,000 consulting, reseller and ISV partners globally, including Smart421 and Cloudreach in the UK.

Brian Matsubara, senior manager of global ISV programmes at AWS, said the channel is growing as a proportion of overall sales as the company looks to bulk out its presence in the enterprise space.

"Of course there is a self-service aspect to what we do - people can sign up and use AWS without having to talk to anyone," he said.

"But the large enterprise customers and government agencies are going to need a direct interface to help them understand how to use AWS. We will continue to build out our enterprise sales team but we are not going to overbuild - our overall expansion strategy will be driven through the channel."

APN classifies partners as either technology partners/ISVs, consultancies or resellers, with the latter typically able to achieve discounts of 30 to 40 per cent if they buy AWS' services in bulk, Matsubara said.

But a typical reseller or consultancy partner will bolster their margins by layering extra services on top of AWS' platform and monetising the entire stack, which could be something like content management.

Partners can now also certify by competencies designed to make it easier for customers to find a channel partner specialising in a specific solution. The first two competencies are for big data and business intelligence/analytics, but over the next year competencies relating to SAP, Oracle and Microsoft will also be launched, Matsubara indicated.

AWS Stats:

• 4,000 AWS partners globally
• $19bn market value (estimate)
• 195 major features & services AWS added last year