Amazon finally broke out AWS revenues – it has an annual run rate of $ 5 billion with growth accelerating, and that is profitable. Lots of people are shocked Amazon has built a solid business in yet another sector – this time against titans like IBM, HP, Oracle and many other outsourcing/hosting firms.
Not surprising to me at all.
Amazon goes into inefficient sectors, makes big investments in automation and patiently grows the business. I have seen it first hand with my books. SAP Nation on the Kindle is priced at a quarter of what Wiley priced (and has not bothered to reduce after years) two of my earlier books, and my royalties are twice as much as what Wiley pays me even at the higher prices.
Think about that – readers and authors both do better. How? Amazon has squeezed out plenty of inefficiencies in between and automated the commerce and delivery of eBooks. In the paperback version, though not as efficient as the eBook format, its subsidiary CreateSpace brings similar print-on-demand automation and again does better for reader and author.
When it comes to the cloud infrastructure business, there have been visible clues of its intentions for over a decade now.
As I wrote in The New Polymath
“Actually, IBM may have had a clue. It had sold Amazon a mainframe that could not scale to its fast - expanding retail volumes. Amazon ’ s CTO, Werner Vogels, chuckled in a presentation when he said, “This is an Internet company in 1999 and we bought a mainframe. ” That debacle pushed Amazon into the world of what, in the industry, is called service – oriented architecture (SOA). “ We were doing SOA before it was a buzzword, ” said Vogels. Each Web page calls specific services designed to do specific tasks. Some of the pages call as many as 150 Web services. Having invested in these services and found a much cheaper and scalable Linux - based infrastructure, Amazon decided to “ externalize ” the Web services starting in 2002. “
Amazon understands quite bit about big capex - their network plans, distribution centers, automation in the DCs have always required big thinking. From The New Technology Elite
What distinguishes Amazon even more is its savvy with physical logistics, which was tested from the beginning by competition with Walmart and other retailers. As it has consistently used discounted shipping as a competitive advantage, it has been sophisticated in its design and location of distribution centers. It has innovated with “postal injections,”in which it uses its own trucks or independent carriers to drive truckloads of orders to local postal depots from Amazon warehouses.The procedure eliminates processing steps for the U.S. Postal Service.”
So from that to investing and managing billions of $$ in data centers has actually come somewhat easily. Besides, it has been going after an inefficient set of outsourcing competitors
Mark Thiele is EVP of data center technology at Switch SUPERNAPs, which boasts ultra-efficient and extremely power-dense Tier IV (Elite) data centers like its 525,000-square-foot facility in Las Vegas. His view on the state of the hosting market from SAP Nation:
“Many of the traditional, large, managed service providers(HP, IBM, etc.) have a significant legacy footprint of data center capacity. This older footprint is comprised of millions of square feet of data center capacity that is built with legacy design characteristics like raised floor and single-method cooling solutions like the old CRAC cooling on the floor.Each of the big MSPs has a few data centers they’ve built in recent years that demonstrate innovation in design, but overall these “showcase” data centers comprise only a fraction of their total footprint.”
Worse, these providers tried to keep their customers locked up at obscene rates in multi-year contracts. In contrast, Amazon has been reducing prices just about every quarter. The response of the outsourcers for a long time was “Amazon is not enterprise class”. Tell that to Netflix which depends on AWS for its global audience which each night accounts for a sizable portion of web traffic. And many other customers.
Having been born in the low-margin retail business and forced to scale up quickly against the likes of Walmart, being able to squeeze out inefficiencies of publishers like Wiley and outsourcers like IBM has been relatively easy.
What’s more surprising to me is why analysts who track outsourcers and publishers have not been pestering them why they have not become far more efficient and competitive for a decade now.