Amazon Web Services is showing traditional IT players how they need to change

Amazon Web Services (AWS) is clearly doing something right. The e-commerce giant has split out AWS revenues for the first time in its latest financial results, revealing a $5bn business growing at nearly 50% year on year.

AWS has shown the big, traditional IT players the way to do public cloud – defining the market for infrastructure (IaaS) and platform as a service (PaaS) along the way, forcing the likes of IBM, HP, Oracle and Microsoft to respond. Amazon is by far and away the dominant public cloud player, and when you see it is also the company’s most profitable division, the scope for further growth, innovation and lower prices shows it is still in the early stages of its development as a business.

Perhaps unsurprisingly, there’s a certain resentment towards AWS in parts of the IT industry. It has not played the game by the same rules as its increasingly distant competitors. It has constantly cut prices – the more customers AWS has, the bigger the economies of scale, and the lower the unit cost for every customer. Every new AWS user is, eventually, helping to cut costs for every other user. You’re not meant to do that as a traditional IT supplier – imagine if the cost of software licences fell when more customers bought that software; it just doesn’t happen.

AWS has done very little marketing, relying on word of mouth among IT leaders. It’s common at Computer Weekly events for our CIO guests to be heard advising their peers, “Why don’t you just put it on Amazon?” AWS users seem not only to be happy, but to be happy to tell others about it too.

AWS applies a retail mindset to the provision of technology services – the “pile it high, sell it cheap” approach behind its e-commerce success. It exploits the commoditisation of IT to develop new products and services that build its ecosystem using the same commoditised pricing. And it encourages others to use that ecosystem to build their own open services that can be fed back into the ecosystem. It’s a bit like Microsoft asking third-party Windows developers to include all their applications in Windows, for free.

Amazon has achieved $5bn of cloud revenue at a time when there are still widespread fears about cloud – related particularly to security and data protection – that prevent many large organisations, especially in heavily regulated sectors like financial services, from moving to public cloud. But those fears will be overcome; the sceptics will be convinced; the laggards will be forced to catch up. A tipping point is approaching.

AWS has proved, so far, to be an impressive technology business, and its potential to further shake up corporate IT is huge. But we do need more competition – a challenge the rest of the industry must better respond to. As long as Amazon Web Services continues to do things in ways the traditional IT players find anathema, it is going to keep eating into rivals’ profits and embedding itself into IT leaders’ strategic plans.