Amazon Web Services is the benchmark for cloud in the enterprise but can it handle the challenge of federated cloud services?
Amazon is in the volume business and, unlike most of the IT world, so is its cloud business, Amazon Web Services (AWS).
According to Amazon’s founder and CEO , Jeff Bezos, traditional providers such as HP, IBM and Oracle operate on a 60-70% margin. A high-margin business is not the right one for AWS, he says.
There is no incentive to be efficient for businesses operating on high margins because they would make profits anyway, Bezos told delegates last month at the company’s first AWS user conference, AWS re: Invent.
“Operating a low-margin business is harder,” he says. Bezos also said the AWS business model is very similar to the retailer’s Kindle business model – where the money is not made when the device is sold, but when people use it and keep buying services for it.
Among the highlights of AWS re: Invent were the 25% price cut for Amazon Simple Storage Service (S3) and the launch of new cloud services – such as the low-cost data warehouse service called Redshift and the big data analytics service called Data Pipeline. AWS also launched two new instances designed for analytics – cluster high memory EC2 instance and high storage EC2 instance.
Data Pipeline is the workflow services with which users can create a variety of reasonably straightforward data processing workflows, says Rich Miller, chief executive of Telematica, a technology consultancy company in the US. “While it won’t be the tool of choice for the expert DBA, it will be appropriate for the workgroup user that signs up to use AWS rather than the corporate IT resource. Over time, this will become more sophisticated,” says Miller. Users at the re: Invent conference said they use AWS cloud services because it offers high scalability at low costs improving their businesses’ time-to-market.
“We are a medium-sized enterprise. AWS has allowed us to have the same uptime and speed to market that large enterprises have with their own infrastructure,” says Fred Nelson, president of Accountable Internet Systems. “Ability to offer extremely low costs and high-availability to all its customers is what makes AWS tick,” he says.
But it is not just small and medium-sized enterprises (SMEs) that are reaping the benefits of the public cloud. Nasdaq’s global head of access services, Ted Myerson says Nasdaq has built its own secure community cloud service for its users including brokers, regulators, and financial services companies on AWS technology. Its community cloud – FinQloud – combines AWS’s secure, flexible, and cost-effective cloud infrastructure with Nasdaq ‘s experience in providing advisory services.
“We thought of building our cloud internally but when we assessed the scalability and cost savings of S3, it was a no-brainer,” he says. Myerson was very pleased with the latest S3 price cuts, too. “AWS listens to us and that makes us feel confident about using its services,” he says.
AWS was launched as recently as 2006 and it is estimated that the cloud division will generate about $1.5bn in revenue in 2012, according to a Baird analyst report. “It is just six years old and has more than 50% of the public cloud market. It is the rising tide that is floating all other cloud boats” says William Fellows, principal analyst at 451 Group.
The company’s public cloud uptake has surprised even its founder. In his keynote speech, Bezos said that he is surprised by its reach into not just the enterprise market, but also the government and higher education segments. Among its enterprise customers are its own retail division – Amazon – as well as Nasa, the Guardian, Nasdaq, Thomson Reuters, Netflix, Orange Digital, Lamborghini, the US state of Washington, Reed Elsevier and Spotify. These enterprises run mission-critical and data intensive applications on the public cloud.
According to a Nasa spokesman, the underlying AWS infrastructure was critical in the success of the landing of Curiosity Rover on Mars, in August 2012. The landing was watched by millions and Nasa was able to stream the landing live and devote huge compute resources to support large volumes of data generated only because of the agile public cloud system. “AWS is the gold standard in cloud. It is what everyone wants to benchmark against,” Fellows adds. The 451 Group draws an analogy with the cola market and compares AWS to Coca-Cola. “There is no Pepsi in the market yet, but some credible yet smaller brands of cola are emerging in the market,” he says. AWS’s cost and scalability prospects are so promising that some IT teams are looking for ways to convince traditional business stakeholders to adopt the public cloud. “We have tried to make our internal datacentre unattractive so that our organisation adopts more cloud-based services,” said Sean Perry, CIO of recruitment company, Robert Half International.
AWS also provides a hybrid cloud set-up for public sector organisations that are stuck with legacy infrastructure and a long-term hardware contract. “We are not happy with our existing IT service provider, but are continuing to work with them,” says Yan Cerf, the systems architect at the Federal Authorities of the Swiss Confederation. Public sector IT contracts in Switzerland tend to run long-term. It now uses a hybrid cloud based on AWS.
“We have now started using the cloud side of our infrastructure for all important applications and databases, including road and highway management applications,” says Cerf.
AWS is five years ahead of competition such as Azure, according to some experts. “AWS thinks from a software point of view, while most of the traditional IT suppliers think from a system administration point of view,” says Mehrdad Piroozram, an IT analyst and technology start-up investor. The company also understands volume business, thanks to its success in online retail. “AWS is focused on cannibalising the entire IT enterprise with its disruptive business model,” says Piroozram.
Amazon’s strategy of aggressive price cuts and launching services in new segments, such as data warehousing, is its big push to grab further market-share. “Redshift [the AWS data warehouse] has the potential to kill off existing business intelligence (BI) providers with its appealing cost, if they follow the same strategy of high volume/ low margin in the data warehousing space,” says Piroozram.
How AWS addresses the issues of contractual responsibility and liability of data stewardship, and similarly how it brings clarity on the contractual responsibilities of AWS and its enterprise customers regarding the use of multi-tenant resources, will determine its success in the future.
“When these issues are addressed to the satisfaction of compliance auditors, the resulting explosion of cloud usage in hybrid environments by enterprise customers will definitely put the past few years’ growth to shame,” says Rich Miller, chief executive of Telematica. Michael Barnes, research director at Forrester believes more businesses will adopt AWS if it improves documentation, makes its billing transparent and offers reference architecture for a variety of scenarios.
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While Amazon has helped make the cloud more mainstream without a doubt, the future of cloud computing has to move beyond monolithic providers. Ditlev Bredahl, the chief executive and co-founder of OnApp, the company that provides platforms for service providers to build cloud services, thinks the future of cloud computing is federated cloud services – which could make AWS redundant.
A federated model is one where cloud providers come together in a global market, and combine their own specialities with infrastructure, technology and expertise from that market to create innovative services for their customers. But currently, existing cloud infrastructure lacks portability, interoperability and is not federated.
This was first published in December 2012