Thursday 22 February 2018

How Amazon cornered the cloud services market

Employees process customers orders for shipping at the Amazon fulfilment centre in Bielany Wroclawskie, Poland.
Employees process customers orders for shipping at the Amazon fulfilment centre in Bielany Wroclawskie, Poland.
Adrian Weckler

Adrian Weckler

Why does Amazon dominate the cloud services? How did a company known mostly for being the world's most successful online retailer become the go-to place for businesses to host their services? It started in 2004 with a different company: Sun Microsystems. That year, Sun Microsystems revealed a radical plan to shake up the computing industry. It would build a series of large data centres and sell access to the computers inside them for $1 per hour in the US. Sun was taking a huge risk.

Sun's plan proved too radical. The US government, which regulated the sale of large computing systems at the time, baulked at the idea of allowing any old terrorist with a Mastercard to gain unfettered access to a supercomputer. Building the data centres also proved harder than Sun expected, and its so-called "grid engine" stalled. While Sun licked its wounds, something altogether unfathomable happened. The online book and decorative pillow seller swooped in and, in 2006, launched its own computer rental system - the future Amazon Web Services. The once-fledgling service has since turned cloud computing into a mainstream phenomenon and left hardware makers such as Sun (now part of Oracle), Dell, IBM, and Hewlett-Packard looking like lost souls.

"One of the biggest surprises around this business has been how long it took the old guard companies to t ry and pursue an offering," says Andy Jassy, head of Web services at Amazon. "None of us thought we would get a seven-year head start."

Amazon's cloud business may be the fastest-growing corporate technology business of all time and executives contend that it can grow to be bigger than the company's $83 billion-per-year retail operation. The only thing standing in Amazon's way are giants like Microsoft, Google, and the rest of a computing industry that, at long last, has woken up to seek revenge.

There's a degree to which Amazon stumbled into this mega-business. In the early 2000s, the company had a fledgling product called, which built online stores for retailers such as Marks & Spencer. While promising, the idea was difficult to execute. Amazon's infrastructure had grown so fast that the company found itself in a morass of interlocking software systems. "It turned out to be way harde r and more time-consuming than any of us imagined," Jassy says. Over time, its engineers figured out how to build much simpler, independent computing systems.

Amazon began using its improved system internally and saw that it could go after a much wider audience than a handful of retailers. "We wanted to enable any individual, in his or her dorm room, to have the access to the same price and cost structure and scalability and infrastructure as the largest companies in the world," Jassy says. Since Amazon was aiming at developers, rather than CIOs, it felt free to roll out an imperfect service and add new features as it went along.

"Large tech companies usually wait to launch until they've built all the bells and whistles their development team can imagine," says Jassy. "We thought it was very important to be first to market."

By July 2006, just four months after launch, Amazon's S3 storage service held more than 800 million files. The next year, start-ups such as Dropbox based businesses on cheap Amazon hosting.

By 2013, giants like Netflix, which accounts for about one-third of the network traffic in North America on a given night, had committed to the Amazon cloud.

Companies that include Microsoft and Google have since built data centres every bit Amazon's equal. They've also ushered in a cloud computing price war.

The cost to store a file or process some data is now a fraction of a fraction of a penny.

The competitors, though, have struggled to keep up with Amazon's pace when it comes to adding new cloud features and software options.

Amazon, for example, was the first to roll out its own database service, as well as rentable computers that used faster and more efficient flash memory rather than conventional hard drives.

In 2012, Amazon also opened its AWS Marketplace-a type of online store for business software and tools sold by other companies; last year it launched a new database designed to accommodate the kinds of corporate clients served by massive incumbents such as Oracle. "They are essentially pursuing world domination," says Gartner cloud analyst Lydia Leong.

To retain the top spot, Amazon must lure larger and larger customers from a psychological attachment to their own on-premises data centers. For big customers, that can be difficult.

"It's scary for everyone involved in the chain," says Rich Ridolfo, senior director of operations for HealthSuite, a recent Amazon convert that's a division of European conglomerate Philips. "It is a fundamental shift in thinking for everybody in the process." His division is now planning to load "petabytes" of data into AWS every year-equivalent to more than a decade of HD-TV video.

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