Amazon Web Services' Results Highlight Growth of Infrastructure as a Service

What do Amazon Web Services’ Financial Results tell us about Infrastructure as a Service? There is a great deal of interest in Amazon's business model and success, as it acts as an indicator for future enterprise appetite for Cloud services. TBR analyst Jillian Mirandi comments on AWS results, and the future of Hybrid IT solutions. Pricing wars between AWS, Google and Azure are driving down the cost of cloud computing and storage, forcing the Infrastructure as a Service (Iaas) market to differentiate outside of cost Even with dropping prices, AWS grew 74% year-over-year, to an estimated $1.12B in 1Q14, driven by an increasing number of enterprise workloads using compute, storage and database, and a large and growing number of long-tail accounts, reports TBR’s analyst Jillian Mirandi. While competitors Microsoft, IBM (SoftLayer) and Google have the potential to begin closing the gap, their IaaS revenue is significantly smaller than that of AWS, with Microsoft and Google both generating around $30M in IaaS revenue in the quarter, and IBM generating an estimated $350M in IaaS revenue in the quarter. In March, the price war heated up with Google cutting pricing and innovating its pricing model, AWS dropping prices for the 42nd time, and Microsoft following suit to match AWS pricing on basic compute and storage. All three companies have massive businesses outside of cloud to ensure the lights are kept on, but their strategies affect the broader market. Price cuts put pressure on later entrants to the public cloud market (such as IBM, HP and Cisco), as price-cutting leaders accelerate their customer acquisition on a global scale. Beating competitors on price gets AWS into accounts and attracts partners, but it’s the expanding value proposition that will drive longer-term success. AWS is also differentiating itself from largely VAR-sold Google and Microsoft by building direct sales teams, improving dedicated support and adding a professional services team for its largest customers. The company has rapidly evolved from self-service provider to enterprise-ready partner, and will continue building on this throughout 2014. [eventPDF] Aside from increasing the rate of adoption, price wars force vendors to differentiate outside of dollars and cents. AWS has been an early mover in differentiating as well launching services, free and paid, on top of its platform. While TBR estimates that 80% of AWS’ revenue is derived from compute, storage and database services, the company is leveraging its broader services to market a more sophisticated, enterprise-ready, hybrid message. Andy Jassy’s March AWS Summit keynote underscored the company’s messaging shift to hybrid IT vendor, clearly noting that AWS is investing to simplify data movement between legacy data centers and AWS. According to TBR’s Hybrid Cloud Customer Report (publishing in June), AWS lags Google, Microsoft and IBM as the primary IaaS vendor in hybrid cloud environments, but we expect AWS to improve across 2014 as new messaging and sales tactics come to fruition. Hybrid IT is a critical trend for AWS as this heterogeneous blend of IT deployment across on-premises, public clouds and private clouds is where the enterprise market is heading. Enterprises will neither leverage cloud for 100% of their IT assets nor rely on a single vendor, so an environment that makes it easy to connect IT and migrate data between clouds and on premises will drive greater adoption. Chinese Market Offers Growth for Cloud Vendors Price cuts, paired with the general availability of Microsoft Azure (operated by China-based vendor 21 Vianet) announced in March, increase the challenge to IBM, HP and Cisco in the public cloud. In December 2013, AWS announced an upcoming limited preview of its China Region (Beijing), which was slated to launch in early 2014. Similarly in April, Google launched Cloud Platform in two APAC zones. China is a growing region for cloud vendors to penetrate, and vendors such as AWS, Google, Microsoft, IBM, HP and local vendor Alibaba all wish to benefit. AWS is capitalizing on its existing partnerships with local data centers, bandwidth and content delivery partners to enable China-based and multinational companies to use AWS’ services while remaining in compliance with China’s strict regulations. (This is a summary of a report compiled by Jillian Mirandi, Analyst, Technology Business Research, Inc) Note: For more information about TBR’s analysis of Amazon Web Services or its Cloud Portfolio please contact Alison Crawford at (603) 929-1166 or alison.crawford@tbri.com.

Amazon Web Services' Results Highlight Growth of Infrastructure as a Service

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