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How AWS keeps its rivals at bay

A relentless focus on building for customers and inking partnerships with enterprise software bigwigs while lowering prices has given AWS a leg-up over rivals in the ANZ market

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In time, nearly all enterprises will move almost all their workloads to the public cloud, according to Paul Migliorini, the managing director of Amazon Web Services (AWS) in Australia and New Zealand.

That view does not seem too far-fetched, given the rate at which enterprises and startups alike are lapping up cloud services to spin up cloud-native, stateless applications or run existing legacy software.

During the first quarter of 2018, global spending on cloud infrastructure services jumped 51% from the same period last year, comfortably beating the growth rates achieved in the previous five quarters, Synergy Research Group revealed in April.

Market leader Amazon was a major contributing factor, as growth of its AWS division was also the highest achieved since late 2016. AWS’s worldwide market share has also held steady at around 33% for 12 quarters, even as the market has almost tripled in size.

In an interview with Computer Weekly on the sidelines of the recent AWS Summit in Sydney, Migliorini shed light on how AWS stays ahead of competitors and the company’s growing momentum in the ANZ market.

We know AWS is the market leader in cloud infrastructure services. How does the company maintain its lead over its rivals? What were some of the key things that you think it got right in the ANZ market?

Paul Migliorini: We’ve been operating in Australia since 2011, and by the time we launched our services here in 2012, we had more than 10,000 customers. One of the things that characterised our early success in Sydney was that we had a lot of large enterprises such as Suncorp and the Commonwealth Bank of Australia that saw the long-term potential of our platform.

At the time, the Australian startup sector was relatively small compared with that in Singapore, the west coast of the US or the UK, but we did have some significant Australian digital pioneers and startups that used the platform as well. Today, most of the top 50 startups in Australia are built on AWS.

We’re also seeing a lot of usage in the public sector. In 2006, the tax office moved a significant amount of production workloads to AWS. More recently, the Australian Bureau of Statistics ran the workloads for the marriage law postal survey on us as well. So we’ve seen the public sector really starting to trust us with their most significant and important workloads. 

The things that we think make us different and valuable to customers is that we have the broadest functionality by orders of magnitude compared to anyone else in the market today. We did that by building for our customers, taking care of the undifferentiated heavy-lifting and iterating at a very fast rate based on customer needs.

This is done through what we call “two-pizza” service teams who build the things they feel they need to build for customers, independently of other teams. Some 90% of what we build comes directly from customer feedback. The other 10% is from us trying to interpret what our customers need and we invent on their behalf. We rolled out 80 new features in 2011. Last year, the number was 1,430. That’s nearly four new services a day.

Because we have several times more capacity than the next 14 providers combined, we have the scale to drive economic benefits and lower prices. In the 12 years we’ve been in operation, we’ve lowered our prices 65 times. We’ve never raised prices – and most of that is on the back of little or no competitive pressure. We do that because we know that if we continue to lower prices, we will earn the trust of our customers.

Speaking of prices, there were a couple of Tesla cars outside that were wrapped with banners claiming that Oracle could half your customers’ cloud bill. What would you say to such publicity stunts from competitors that try to pull customers away from you?

Migliorini: When I saw that, it reminded me that we are focused on the right things, because if you start focusing on your competitors, then you’re focused on the wrong things. We choose to focus on our customers and we think that is the thing that will help us to do well over time. That was my observation when I saw those cars.

In recent years, there seems to be a renewed focus by cloud suppliers to go after the public sector in Australia and elsewhere around the world. Is there anything beyond just going for a huge slice of the market? What about the learning process that you go through while working with public sector customers? Do you see that as a way to tighten certain areas that might have fallen through the cracks for some reason, given that governments might be more demanding than other customers?

Migliorini: I’ll answer that generically, and then I’ll specifically refer to the public sector. But if you want to go deeper, I’d advise you to speak to our public sector team who specialises in this area.

For us, it goes back to the initial answer where what we build over time is what customers ask us to do. We have a phrase that we use a lot internally: ‘There is no compression algorithm for experience.’ What that means is that we’ve now been in existence for 12 years – several years more than any other provider in the market – and given our scale, we can see the problems of scale that other providers are unlikely to have seen.

The nature of our business model is such that when we put a fix in the platform for say, security, then everyone gets access to that so that security gets better over time. Out of the 1,430 new features that we built last year, about one-third of them are security, risk and compliance related.

So what’s happening more as we operate across more sectors, including regulated environments like government, financial services and healthcare, is that we comply with every conceivable certification and standard that you can imagine – whether it’s HIPAA or the MPAA content security standards in the US.

As we comply with a standard and build a feature or function for one industry or country, we’re building more resilience and rigour into what we do. This benefits all our customers globally, including those in the public sector.

The year 2016 was a really sensitive year in Australia. There was a lot of pressure around technology in the public sector and we thought it was really significant that the Australian Tax Office chose to move the MyTax tax filing application to AWS. That says a lot about the trust that the public sector has in the public cloud to do really important things with really important data.

More traditional enterprise software companies are partnering with cloud service providers. One example is VMware which launched VMware Cloud on AWS last year in the US. This clearly signals the need for hybrid environments that enterprises are more comfortable with. From AWS’s perspective, do you think that perhaps one day, all workloads will be on the public cloud?

Migliorini: I believe in the fullness of time, almost all enterprises will move nearly all workloads to the public cloud. What we see in the short-term is that partnerships are really important. You would have seen a lot in the past few days around services partners that have competencies in different industry sectors – and that’s really important for customers. As you correctly say, technology partnerships are also important and customers are asking that both services and technology partners work together.

We think VMware is really interesting. Australia, I believe, is the most virtualised market in the world. Around 90% of Australian organisations have virtualised in VMware, and you’re right that basically every enterprise across Australia and New Zealand today is looking at ways to leverage the public cloud to innovate or remediate their legacy environments. So, we’re really pleased about the relationship, and VMware have announced that they’re going to go live with VMware Cloud on AWS in Sydney in the third quarter of this year.

There are a lot of enterprises in Australia that see the benefits of leveraging the AWS platform, whether it’s for innovation around machine learning or to get greater agility. But they have also made a big investment in VMware capabilities and toolsets, and they want to be able to leverage the benefits of the public cloud without having to reskill fully. We think the VMware relationship will be a really important one, particularly in the context of hybrid conversations, for years to come.

Was there any re-engineering on the part of AWS at the backend to support these enterprise workloads, some of which might be mission-critical?

Migliorini: The short answer is yes – we are building specific things to support relationships. I can’t comment specifically on VMware, but I’m sure we’re doing engineering to support that relationship. But what I can comment on is SAP. We’ve seen hundreds of customers move SAP systems to AWS in Australia. Some of them have done lift-and-shift type stuff with their existing ECC platforms, but in many cases, customers have also migrated to S/4 Hana.

One of the things we’ve done is to release a new category of instances called the X1 instance that’s really optimised to run in-memory workloads from SAP. We now have 4TB of such instances that are certified by SAP to run SAP workloads on AWS. We’ve also announced that we will be releasing 8TB and 16TB instances. To the best of my knowledge, no other supplier in the market has that level of certification.

Is the enterprise segment of the business growing faster than you expected?

Migliorini: I’m not sure if I ever had clear expectations, but, yes, it’s accelerating. I don’t think I’ve met a customer in the past 18 months who hasn’t made a conscious decision to move to the cloud. The conversations we have with customers really revolve around how quickly and when they want to do so. Australian and New Zealand enterprises are really getting imaginative and ambitious with their innovation agendas and that can mean leveraging new technologies like IoT, cloud computing and machine learning.

We’ve also seen a lot of organisations redesign their structures around agile and move to DevOps. It can mean experimenting with the cost of failure, driving greater agility and a raft of things around innovation to digitally transform their business. The biggest constraints to all of that are legacy environments that consume scarce capital, which more organisations are looking to redeploy on platforms that create value in the long term.

What are your thoughts on some of the issues regarding the National Broadband Network (NBN) and how does that impact your customers?

Migliorini: I can’t comment specifically on the NBN, but at the moment we’re finding that networks aren’t constraints for our customers. We have what we call Direct Connect at four locations across the country, and we have customers connecting to us directly. They can connect in other ways, but at the moment it doesn’t appear to be a constraint. In any case, the internet has a lot of redundancy and routing built into it to be able to cope with disruptions. We’ve built our own private network backbone which connects our regions as well.

Read more about cloud computing in Australia

  • AWS is eyeing the Australian public sector for growth, with increased budgets and IT disasters in the past pushing government organisations towards the public cloud.
  • Organisations in Australia and New Zealand are looking to invest more in software and cloud servicesto buttress their digital transformation efforts in 2018, a new survey has found.
  • An Australian energy upstart is using cloud-based microservices to shake up the energy sectorby providing households with access to wholesale energy rates and real-time consumption data.
  • Oracle is offering a broader range of cloud services from its Sydney datacentreto meet the needs of enterprises that have data sovereignty and low-latency requirements.

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