Cloud computing is transforming how business works, and much of it is being driven by Amazon, Microsoft and a group of Silicon Valley companies with local outposts.
In a conference room in Redmond earlier this year, Washington state’s two largest employers started sketching out the future.
In a daylong series of meetings at Microsoft’s Redmond campus, engineers from the software company knocked heads and keyboards with their counterparts at Boeing. The goal: tapping in to Microsoft’s Azure, the software maker’s network of on-demand computing power, to build a new generation of software.
Boeing for years has made tools, from paper navigational aids to maintenance software, that help its aerospace customers fly and take care of their planes. An engineer with a record book and a manual knows roughly when to replace a part. But an engineer equipped with software that can help make sense of decades of maintenance data could do a more precise job, the thinking goes, improving aircraft maintenance and fuel consumption. Boeing is hoping to build web-based variants of its aviation analytics tools on Microsoft’s Azure.
“If you’re not building [tools] that are keeping up with your customers on a daily or weekly basis, you’re falling behind,” said Corey Sanders, a Microsoft manager who leads a cloud-computing team working with Boeing. “Because your competitors are.”
Cloud computing, or tapping in to rented computer power and data storage over the internet, has existed for more than a decade. Most people know the cloud as the unseen servers that store the emails in their Gmail account or back up their iPhone photos.
But enabled by increasingly sophisticated technologies — and billions of dollars’ worth of factory-sized server farms being built around the world — cloud computing is changing from a consumer phenomenon to one that’s reshaping big business. Thanks to the growth of Amazon.com, Microsoft and a roster of Silicon Valley transplants, it’s also reshaping Seattle.
Most of us are increasingly relying on utilities, be it Amazon, or Microsoft or Google, to give us the computing we need.” - Ed Lazowska
Technologists compare the shift now under way to the advent of electrical utilities a century ago that sparked rapid advances in fields from agriculture to medicine and entertainment. Electricity rapidly changed from an expensive good available only to those with the wherewithal to generate it themselves to a ubiquitous commodity only noticed when it goes down.
Broadly defined, cloud computing comes in three categories:
Infrastructure as a service: Nuts and bolts of computing, rented virtual machines, storage space or network time, usually on a pay-for-what-you-use basis. This realm is dominated by Amazon.com.
Platform as a service: A developer’s sandbox, including ready-made databases or tools to create websites.
Software as a service: Ready-made tools accessed over the web. This is the bucket most consumers would recognize — think Facebook or Gmail. In the corporate world, think Microsoft’s Office 365, Salesforce.com’s sales tracking tools or Concur’s expense-management software.
“In general, there is someone who can deliver you electricity more reliably and less expensively than you can generate it yourself,” said Ed Lazowska, a University of Washington computer scientist. “What’s happening now is most of us are increasingly relying on utilities, be it Amazon, or Microsoft or Google, to give us the computing we need.”
In other words, the power of the technology at your fingertips no longer depends on how powerful of a PC you bought for your den or the number of servers blinking in the backroom where you work.
All you need is a credit card, which can give you access to the power and technology that enables everything from your corporate email account to a supercomputer.
Competing for cash
Sales of internet-accessed software and technology services are expected to total about $118 billion this year, researcher Gartner estimates.
That sum represents an industry in its infancy. Gartner estimates that business will direct more than $1 trillion of cash toward cloud computing between now and 2020.
The technology industry is fiercely competing for that cash, a race pitting traditional business computing giants like IBM and Oracle against relative newcomers Salesforce.com and Dropbox, and hundreds of startups.
Seattle is at the forefront of this revolution, largely thanks to Amazon.com.
Google, Microsoft and Yahoo all built their own search engines, email platforms and other global web services that relied on massive data centers, but it was Amazon that first started renting that kind of infrastructure to other businesses.
In 2006 the company launched Amazon Web Services (AWS), which at first amounted to a big, web-accessed hard drive where other businesses could store their data. A few months later the company added a service where businesses could also rent the processing power available on Amazon-maintained servers.
At the time, the world of business technology was structured like this: corporate information-technology departments bought servers and the expensive software that made them tick and installed on top of that the specific applications that the business needed to run, be it word-processing tools, accounting databases or other software.
Office workers accessed the whole pile of technology from a personal computer.
Amazon’s alternative was simple: Don’t bother with most of that; rent it from us instead. Employees, who can still access the whole system via the web or their PC, won’t notice.
That premise was a hit among technology startups, an alternative to shelling out tens of thousands of dollars for servers and software, and spending days or weeks setting it up.
“You look at the amazing infrastructure that a small business can be running on these days,” said Jon Roskill, chief executive of Acumatica, a Bellevue software company. “Who around the table wants to be the one who runs the server? Not me.”
AWS built dozens of services, replicating in cyberspace the functions of all sorts of out-of-the-box software.
Much of the rest of the industry, living well off the high margins they were used to reaping from business software sales, was caught flat-footed.
A watershed moment arrived in 2013 when the Central Intelligence Agency awarded a large data-center contract to Amazon over IBM, a company with decades of experience providing technology services to giant customers. The vote of confidence from the spy agency helped ease business-technology buyers’ worry about the reliability and security of Amazon, a company better known as an online bookstore than a technology provider.
We got a seven-year runway. That’s almost unheard of. For years, we were kind of left alone.” - Jeff Bezos
In the years since, interest in cloud services has spread to increasingly large and sophisticated businesses and government institutions. When they go looking for data storage, processing power and other infrastructure services, many choose Amazon.
Amazon’s annual shareholders meeting in May, held at an event space in Seattle’s Fremont neighborhood, was a triumphant affair. The company’s stock was near a record high, and investors cheered the transformation of an online bookseller to a retail juggernaut with a massive technology arm.
AWS took in more than $11 billion in sales over the most recently reported 12 months, accounting for 71 percent of the company’s operating income before taxes.
Jeff Bezos, Amazon’s chief executive, said he was surprised by how long it took big technology-industry incumbents to match AWS’ capabilities after the service was hatched.
“We got a seven-year runway,” Bezos said. “That’s almost unheard of. For years, we were kind of left alone.”
Microsoft jumps in
When a big competitor did come calling, it was a familiar name.
After a decade of flubs in consumer technology, and a few false-starts in cloud computing, Microsoft has gone all-in on the cloud, investing billions of dollars in data centers from Australia to Germany and Quincy, Wash.
While it built that infrastructure, Microsoft also changed its approach, reorienting a company that built its business around massive software releases delivered every few years to one that pushed out new products every week — and suddenly had to listen to customers at the same time.
Scott Guthrie, the Microsoft executive vice president who oversees the company’s Cloud and Enterprise unit, says the payoff has started to arrive in the past couple of years.
“There’s almost no cloud [buying] conversation anywhere that we’re not part of,” he said in an interview.
This year, those conversations have made customers out of companies like BMW, General Electric and Boeing.
“They came from so far behind, and they came out of the gate roaring,” said Brent Frei, an executive with Smartsheet, a Bellevue software company that partners with both Amazon and Microsoft. “I didn’t know you could turn a big company around that much.”