On March 14 2006, Amazon expanded from its retail heritage and launched its IT services business with the birth of Amazon Web Services (AWS).
This move was inspired by the company’s own need for computing resources that could scale rapidly at low cost.
AWS, which is part of Amazon.com, provides multi-tenanted pay-as-you-use cloud-based services and raw computing power to businesses through its cloud platform. Customers plug in and can use as much or as little as they require and only get billed for what they use.
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Two of the main services are Amazon Elastic Compute Cloud (EC2), a service that allows customers to use cloud-based severs to run their own applications, and web storage service S3.
Iain Gavin, UK managing director at AWS, said the company was born out of the necessity for Amazon.com to have access to on-demand computing resources to cope with peaks and troughs in activity. It realised it was not alone.
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“We had our own business challenges and we talked to a number of other companies in a similar mode as us and there was a pattern forming,” he said. Amazon then came up with the AWS concept and decided to go to market with it.
AWS is different from many IT suppliers in terms of its business model. Not many IT suppliers talk about a desire to make low margins on its services, but AWS does.
Gavin said Amazon runs its IT services business like its retail business, with high volumes of sales and low margins as its commercial model. This is a step change from many in the IT sector, where most companies are striving to increase their margins.
“We look at it from a retailers' perspective for high volumes with low margins. With volumes you get economies of scale,” he said.
AWS has dropped prices 41 times across the services since it launched. These lower prices attract more customers which increases volume further and then inevitably leads to lower unit costs.
How businesses are using AWS:
Commonwealth Bank of Australia
The bank has cloud-based strategy and has moved from running a dozen on-premise applications to the cloud. The bank has halved storage and app testing and development costs and aims to save hundreds of millions of dollars through use of the cloud in the future. Using its previous technology infrastructure it took eight weeks to set up a new server and several thousand dollars. It now takes eight minutes and 25 cents to do the same in the cloud.
The insurance company’s Quotemehappy.com is an online-only service that provides 24/7 access to car and home insurance. Through using AWS it is able to analyse massive data sets of structured and unstructured data to better supply customers with accurate insurance quotes for their cars and property.
The London-based startup launched a free smartphone application for iPhone and Android. The app, used by two-thirds of London cabbies and taxi drivers in 11 other cities around the globe, is powered by the AWS cloud. It has been able to expand to other AWS regions without any additional investment in technology infrastructure and without the need to re-architect the application. Starting the business only 18 months ago, AWS has allowed Hailo to rapidly expand to the point where there is now a Hailo hail every four seconds.
BP runs its entire digital communications infrastructure, including mission-critical website BP.com, on AWS. This was vital during the 2010 oil spill in the Gulf of Mexico. Using the cloud BP was able to rapidly scale its website to cope with the influx from 15,000 to 17 million daily users without having to invest in additional infrastructure.
National Rail Enquiries
Resource provisioning for the website is difficult due to peaks in demand which are often unexpected. To help with this unpredictable traffic load, and to save on over-provisioning infrastructure hardware, in 2012 National Rail Enquiries decided to move its technology infrastructure to Amazon Web Services.
Rail Settlement Plan
The company, which provides IT and retail services to UK rail operators, has over 10,000 ticketing outlets across the country. The firm recently moved IT to AWS to provide train operators with a flexible cloud-based system that can be scaled up to a billion tickets per annum by 2018 (up from 800 million) without more capital investment in computer hardware. It projects 70-80% cost saving compared to the previous hosting environment.
Electricity supplier Haven Power is using the Amazon Web Services (AWS) cloud to provide cost-effective access to more computing power than it will ever need as the firm grows rapidly. The company originally moved to a cloud-based model for its disaster recovery but soon began reaping other benefits.
Royal Dutch Shell
In 2010 Shell began using AWS as the underlying infrastructure for a large part of its exploration and prospecting business. Shell uses sensors to find oil in wells, which creates massive amounts of geological data. Shell's tech department had to drive IT costs down, effectively manage the giant files and make it profitable for the company to deploy these sensors. It uses AWS for big data analytics to help achieve these goals.
The fact that AWS is paid for by the hour means there are no lower unit prices for using high volumes. As a result businesses of all sizes get the same deal.
Corporates such as BP, Shell, Aviva and Investec are customers of AWS that have dramatically reduced costs and gained access to more computing power.
But low cost is not the main advantage, rather the flexibility it offers, said Gavin.
When businesses are experimenting or trying out new products or services they can do it on AWS’s cloud rather than having to invest in resources up front. “Businesses can try something out,” said Gavin.
For example Hailo, which developed an app for finding black cabs in London, has put its IT infrastructure in the AWS cloud. The company did not have to risk investing in a datacentre and the hardware that goes with it. Nor did it have to buy more than needed just in case.
Through using AWS, the company, which was only set up 18 months ago, has been able to expand to other AWS regions without any additional investment in technology infrastructure and without the need to re-architect its application.
Channel 4 is another example. It used AWS for its microsites in the early days of the Big Brother reality TV show to cope with peaks in online demand. Traditionally Channel 4 might have had to build another datacentre.
As well as large corporates with huge demand for computing power and small companies wanting to experiment benefiting from AWS, there are firms that have businesses prone to peaks and troughs in demand.
National Rail Enquiries, has its website in the AWS cloud, and the benefits of on-demand capacity are essential as there are steep peaks and troughs in demand from commuters. The website handles over two million enquiries every weekday for more than 16 million customers.
Other companies have transformed their businesses and cut costs. The Commonwealth Bank of Australia, is a big client of AWS. It is a bank which is moving lock, stock and barrel to the cloud. It even runs its online banking app on AWS.
Customers like these and many thousands more have increased the volumes of work on AWS’s cloud rapidly. It took six years for the S3 storage platform to reach a trillion objects stored and only 10 months more for this to double.
According to AWS, every day it adds enough new server capacity to support Amazon’s entire global infrastructure when it was a $7bn annual revenue enterprise.
Amazon as a whole grew its turnover from $5.3bn in 2004 to $74.45bn last year.
It is not just a utility for end-user businesses but also for IT services firms. The outsourcing sector has been transformed. IT services firms are now selling cloud services to customers on top of the AWS platform. AWS does the pipe into a business and the systems integrator links up the devices to add value.
It is not commercially a good idea for most IT services firms to build their own cloud infrastructure when they can tap into a resource like AWS. This would be like an airline drilling its own oil and refining its own fuel.
AWS has a global partner ecosystem with 5,000 systems integrator partners and 3,000 technology partners. These service providers add value to the AWS computing resources.
But the cloud still hold fears for some with security and continuity on the minds of businesses venturing into the cloud and AWS is not immune to bad press. The company has hit the headlines in the past for less positive reasons, which demonstrate some of the risks of having resources in the cloud.
In 2011 a lightning strike in Ireland put European cloud services out of action. Amazon said: “This disruption affected a small number of customers in one availability zone.”
Last year AWS went down for about an hour as a result of connectivity problems in a North Virginia datacentre.