Amazon Web Services (AWS) received a raft of new competition this week as tech giants Cisco and Google amped up their efforts to sell infrastructure technology as a service over the Internet, a business known as cloud computing.
It’s a deeply geeky business that Amazon pioneered eight years ago and dominates today, generating more than $3 billion in annual sales by some analyst estimates. The potential growth for the market is huge, as companies shift from managing their own technology on computer servers they own to renting technology and services from Amazon and others.
As corporations make the transition, their massive tech budgets are up for grabs. Amazon is already battling Microsoft and IBM for those dollars. On Monday, Cisco announced plans to spend $1 billion to get into the business. A day later, Google cut prices on its cloud-computing offerings that are now, in some cases, lower than those offered by AWS.
“Every large technology company in the world is racing as fast as they can to copy and build a similar platform to what AWS has built,” AWS boss Andy Jassy said Monday in an interview with The Seattle Times ahead of Wednesday’s AWS Summit 2014 conference in San Francisco.
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“It’s hard to know at this stage, because the other offerings are in their earliest forms, which are going to be the most successful companies in this space alongside AWS.”
But Jassy believes all of the challengers will have to embrace the high-volume, low-cost model of cloud computing that Amazon has pursued with AWS. While that’s the model Amazon has embraced as it disrupted the retailing business, it’s entirely different from the high-margin businesses that have largely led to the success of the tech companies eyeing the cloud computing business.
“It will be interesting to see how many of them are good at it because you don’t flip a switch overnight and become a great high-volume, low-margin operator,” Jassy said. “There’s a certain type of operating discipline and skill you need that takes time.”
There’s little doubt, though, that the competition will become more fierce. Robert W. Baird & Co. analyst Colin Sebastian said in a research note that Google’s price cuts, coupled with its worldwide technical infrastructure, “should earn Google’s cloud platform more exposure, and a closer look by potential customers.”
As rivals eye its market, AWS is working on ways to expand. The company’s success has come selling computing services from servers Amazon owns. Those services are delivered securely over the Internet in much the same way that electricity or water is delivered to homes.
But some companies are reluctant to move to the so-called “public cloud,” in part because they’ve already spent significant sums on technology they own, and in part because they worry about relinquishing control of their proprietary data.
But last year, AWS earned a significant proof point, beating out IBM on a high-profile, $600 million contract with the Central Intelligence Agency. To ink the deal, AWS agreed to manage a private data center owned by the agency. Jassy said that deal led to requests from companies to have Amazon manage technology owned by them on their premises.
“We do have a number of companies who’ve approached us about a similar arrangement to what the CIA is doing,” Jassy said. “We’re happy to have those conversations.”
Amazon, though, still believes the most cost-effective offering for customers is running programs over its servers. And the company has been investing in ways to connect data centers companies own to AWS’s offerings.
AWS also plans to expand the breadth of its offerings at the conference, announcing a deal with Infor, a provider of business-application software. Infor is developing its run-the-business applications, which are tailored to such industries as automotive, aerospace and hospitality, to be run on AWS.
“We think we’re at an inflection point where customers are more confident moving not just their edge applications, but their core operations, to the Web,” Infor Chief Executive Charles Phillips said.
And Infor is not planning to develop its Web offerings for any of AWS’s rivals. That’s because AWS is significantly ahead of competitors in its ability to handle significant business.
“It’s a bet-your-cloud strategy on Amazon,” Phillips said.
Jay Greene: 206-464-2231 or email@example.com. Twitter: iamjaygreene