AWS: Pure cloud resale not a viable business model

AWS' UK boss says commodity IaaS pricing means partners must provide consulting or technical value add as he pays tribute to importance of channel

Amazon Web Services' (AWS') UK managing director has admitted that commoditisation of the IaaS market means it would be impossible to make money from reselling its technology without adding value.

Talking to CRN at the AWS Enterprise Summit in London today, Iain Gavin said the channel accounts for a "considerable" and "growing" chunk of the infrastructure-as-a-service (IaaS) giant's sales.

But he warned there will only be space in its channel for partners who add value around consulting or development as the cloud price war intensifies.

AWS has administered 42 price cuts in eight years, including the latest 51 per cent price slash it made on its infrastructure and compute services in March, Gavin said.

"You do not come to AWS purely to resell; you've got to add some value, whether that be a technical value add or a consulting or systems integration value add," he explained.

"It just doesn't work from an economic perspective. When you look at the commodity pricing we have, it's high volume, low margin and there's no margin to give away. If you look at a server that's running two cents an hour for five hours, what's the resell value in that?"

AWS is adding partner solution architects and development managers to help it stand beside - or behind - partners consulting or providing integration work on large deals, Gavin said.

He gave the example of News UK, whose IT director Chris Birch talked at the event about how the media group is moving 75 per cent of its server estate into the cloud within three years. The deal was won by an AWS partner who helped News UK with strategy and roadmap discussion, Gavin said.

"That's where the partner comes in," Gavin said. "We can't scale to that because we're busy doing what we do on our platform: innovating, bringing out new technology and talking about it."

Gavin batted off Greenpeace's recent criticism of how AWS generates the electricity it uses to power its datacentres.

"When you move from an on-premise environment, people are running datacentres with single or low double-digit utilisation," he said. "But in the cloud computing model, using AWS, we encourage them to utilise only what they need so it's far more efficient."

Analyst Forrester this week hoisted its growth forecasts for the public cloud market, predicting that the cloud platform sub-segment AWS leads will grow from $4.7bn last year to $44bn in 2020 as the market shifts towards replacement of current systems.

Gavin admitted even AWS itself had been caught cold by the growth of cloud.

"I've been here five years and if someone had said to me in 2009 cloud will be here by 2014, I would have been pleasantly surprised," he said.

"It's beaten our expectations of where it would be and that's primarily because when people do their second or third project it opens up the perspective of what else they can do. The only thing I can say for sure is it's going to get bigger and there are going to be more workloads [going to the cloud]."

Getting any financial numbers out of the notoriously coy AWS is like pulling teeth from a hen and although Gavin predictably refused to divulge AWS' direct/indirect revenue split, he revealed the figure is growing.

"It's a considerable portion and going forward I can see the [channel] growing considerably as an overall percentage as more and more customers come to us," he added.