Amazon is one of the few companies that went through multiple transformations in the last decade. Whether it was...
offering a commission-based brokerage service or creating an e-book reader that revolutionised the publishing industry, it has always disrupted the market.
While its retail revolution is commendable, offering storage and compute as a service was a masterstroke from founder Jeff Bezos. Today, AWS’s S3 and EC2 cloud services have become the infrastructural backbone for many well-known companies.
But a closer look at Amazon’s business strategy is reminiscent of Microsoft in the mid-1990s. The business models may be different and the market dynamics have changed, but here are five signs that prove Amazon is the new Microsoft:
1. Cloud monopoly
If Microsoft was perceived as a threat in the software sphere due to its monopolistic approach, AWS is undoubtedly a monopoly in the cloud market. While Microsoft used tactics such as bundling IE with Windows, AWS focuses on undercutting the competition with colossal price drops and a broad service portfolio.
While customers may appreciate this, the industry is threatened by its dominance. Recently, Rackspace president Taylor Rhodes admitted that AWS disrupted their business. The cloud price war forced Rackspace to re-invent itself as a managed cloud provider. If that’s what AWS can do to a publicly listed cloud company that existed before Amazon entered the market, imagine its impact on traditional datacentre, co-location and hosting providers.
2. Windows vs. Linux all over again
Back in the 1990s, the industry realised that Linux and open-source software are the only weapons to effectively combat Microsoft. Everyone from IBM to Oracle rallied around Linux to counter the growing threat of Microsoft Windows in enterprises. Initiatives like OpenOffice and StarOffice attempted to challenge Microsoft Office.
Fast-forward to 2014 and we see the same anxiety in the industry. Most of the industry players and users are rallying behind OpenStack to check the growing dominance of AWS. OpenStack is to AWS what Linux was to Microsoft.
OpenStack is facing exactly the same challenges that Linux went through in the 1990s. Linux suffered from complexity in its early days, with limited available talent in the market. It took more than a decade for distributions such as Red Hat Enterprise Linux, Ubuntu and SUSE to become enterprise-ready. Though OpenStack is rapidly evolving, it is still not ready for prime-time.
The other debate about cloud is around the standardisation of APIs. The industry is divided on accepting AWS as the gold standard of cloud APIs. Eucalyptus and CloudStack APIs are AWS-compatible but OpenStack took a different route through its own APIs. This is similar to the ODBC/JDBC debate and the standardisation of OpenXML vs OpenDocument.
Open source evangelists dubbed AWS as Hotel California for its lock-in. Amazon is often criticised for not disclosing the technology stack that powers its cloud.
3. Love-hate relationship with partners
Microsoft is known for creating a thriving ecosystem primarily driven by developers and ISVs (independent software vendors). Each time Microsoft updated Office, it added a set of new features that affected the partners who built and sold tools that had similar functionality. After reaching a specific threshold with the feature set of Office suite, Microsoft had no choice but to start bundling features that competed with partner offerings. When Microsoft announced its consulting services, system integrators and professional services businesses were intimidated.
Amazon is treading the same path with its AWS business.
AWS has the unique advantage of tracking the utilisation patterns and customer workloads running on its platform. Since AWS has a 360o vantage viewpoint to customer scenarios and top-use cases, it maximises its investments in those areas. But the problem comes when the new products and services put its partners out of business.
Take AWS OpsWorks for instance. It is a DevOps tool that makes it easy for developers and operations team to deploy and manage applications. Amazon acquired a company called Peritor for its multicloud management tool called Scalarium. Prior to this, customers relied on third party tools such as Scalr, RightScale and ScaleXtreme for managing their workloads. Another company, Ylastic, offered a set of tools to migrate machine images across regions. It also has a tool that periodically checks the cloud resources and recommends the right level of optimisation. When AWS announced its Trusted Advisor service, followed by cross-region copy of snapshots, it directly started competing with Ylastic’s business.
Last month, AWS launched file-sharing and collaboration tools (Zocalo), and mobile management capabilities (Cognito) to compete with providers such as Dropbox or Parse and Kinvey, that are powered by AWS.
AWS entered the professional services business taking away the business from partners and system integrators. A quick look at the careers website of AWS points to many job listings of consultants from its professional services business.
4. Everything to everyone
Until the end of 1990s, Microsoft was a consumer company. It enjoyed the success of Windows 98 and Office 98. In the mid-2000s, it decided to go after the enterprise business dominated by IBM, SUN, Oracle and SAP. It beefed up its server offerings and in a few years Microsoft had respectable market share in the enterprise. Microsoft’s Active Directory, SQL Server, SharePoint, Exchange, BizTalk and System Center have a sizable footprint in customers' datacentres.
With the success of Apple iPod, iPhone and iPad, Microsoft suddenly woke up to the fact that it had lost the consumer market. The debacle of Zune, Windows Phone 7 and Windows 8 put Microsoft in a precarious position. Its Xbox business is not growing, with analysts recommending dropping the product line from its core business.
Amazon is no different. It’s an e-commerce company, eBook reader OEM, cloud services platform, media services company and now even a devices company. While its story is much better than that of Microsoft’s, Amazon has an ambitious plan to be the segment leader in each of these domains.
AWS service portfolio closely resembles Microsoft product portfolio. Windows Vista had more than eight flavours, while AWS has over 35 web services, making it complex and overwhelming for customers. Amazon EC2 alone has over 35 instance types to choose from, with no guidance on what will suit which type of enterprise. Its marketplace is fragmented, with overlapping offerings from partners, and its pricing model is complicated.
Like Microsoft in the 1990s, Amazon is more interested in launching new services than simplifying the existing portfolio.
5. Aggressive engineering and marketing efforts
Both Microsoft and Amazon have some of the best brains working for them, on cutting-edge technologies. When it comes to marketing, Amazon was lagging behind but it seems to learn from Microsoft.
Microsoft is known for its mega-marketing machine that could position even inferior products like Zune as the coolest innovations. Conferences such as Build, TechEd and WPC are the flagship events where it showcased new products and innovations. And its training and certification programmes MCSE and MCSD achieved cult status among geeks during the 1990s.
AWS’ annual user conference re:Invent is reminiscent of Microsoft PDC in 2000. Though it’s new to Amazon, it has upped its marketing efforts by running roadshows across the globe. AWS certified professionals are attracting the attention of hiring managers and Amazon is working towards making it a standard for cloud certification.
And, of course, with both the companies based in Seattle, Amazon is luring some of Microsoft's top talent to its business.
Amazon is cautious in its approach but there are early signs that it is facing exactly the same set of challenges that other large platform companies faced. It is realising that becoming an enterprise software supplier is a different ball game from running an e-commerce portal. With competition heating up in the cloud services market, it’s time for AWS to focus on simplicity, rather than increasing its services portfolio.
Janakiram MSV is a Gigaom Research analyst and the principal analyst at Janakiram & Associates. He is a regular contributor to Computer Weekly and can be followed on Twitter at @janakiramm.