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High-flying clouds: AWS bucks traditional business growth trends with help from the enterprise

The Amazon Web Services (AWS) public cloud juggernaut continues to go from strength to strength from quarter to quarter, but what is fuelling its non-traditional revenue growth trends?

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The law of big numbers dictates that it is impossible for large, fast-growing companies to sustain indefinitely the high rates of revenue growth that define their early-stage success.

Although its year-on-year revenue growth rate may have dropped steadily from a high of 78% in 2015 to around 42% during the third quarter of 2017, the financial performance of Amazon Web Services (AWS) seems to buck this trend overall. Particularly as more recent quarters have seen the pace of growth start to pick up again.

Over the course of 2018, the cloud giant’s year-on-year revenue growth rate has consistently hovered around the 46-49% mark, and AWS is now – as per its third-quarter 2018 results – a $27bn revenue run rate company.

This rebound in growth rate has taken investors, who have repeatedly predicted a sustained slowdown in the firm’s pace of growth, by surprise. And for good reason, acknowledged AWS CEO Andy Jassy during a keynote at the AWS re:Invent user summit in Las Vegas in late November 2018.

“Growing 46% year over year on a base as large as $27bn is unusual and that sometimes confuses people,” he said, before sharing his thoughts on how AWS is managing to buck these traditional business growth trends.

The enterprise market’s growing appetite for public cloud services is certainly playing its part, as AWS now has customers in “every imaginable vertical business segment”, said Jassy.

Indeed, this year alone has seen a number of high-profile companies state their intentions to shutter their private datacentres and go “all in” on the AWS cloud, including financial services giant Barclays Bank, low-cost airline EasyJet and biotechnology firm Amgen, to name a few.

“If you look at the FT250, it is really difficult to find companies that aren’t doing something very publicly and openly [with cloud] in a very meaningful way,” Gavin Jackson, managing director of UK and Ireland, at AWS, told Computer Weekly in an interview ahead of this year’s re:Invent.

He said this is being fuelled, in part, by a need to keep up with the company’s long-standing competitors and position its businesses so it can out-innovate any new market entrants, too.

“Cloud provides a level playing field, because you see how startups operate that are born cloud-native and they have free rein to innovate really quickly, and they don’t have anything [legacy] holding them back,” said Jackson.

“If you’re an enterprise, you can innovate that way [supported by legacy technology], but you can’t work off a bad diet, and if you’re consuming high-calorie technology, it will hold you back.”

In the UK, specifically, the public sector has emerged as a keen adopter of Amazon’s cloud services since the company opened its London datacentre region in December 2016.

And there are still lots of enterprises out there that are yet to move to cloud or are still hammering out their migration strategy, said Jassy. 

“We’re just at the early stages of the meat of enterprise and public sector [cloud] adoption in the US,” he added. “Outside of the US, I’d say they are 12 to 36 months behind, depending on the country and depending on the industry. So it is still early days.”

And, as its market share figures show, when organisations decide to move to the cloud, most are opting for AWS over competing public cloud offerings from Microsoft and Google. Synergy Research Group’s latest market tracker suggests AWS has a bigger share than its four nearest competitors combined.  

For enterprises that are still working out their cloud migration plans, there may be an element of “if everyone else is using AWS, why shouldn’t we?” when deciding which provider to go with, because – considering its market share – the firm looks like a pretty safe bet to entrust your data to.

Land and expand in AWS

But it’s not just the effect of net new customers joining the AWS bandwagon that is fuelling its growth. There is also a tendency among its users to start out using the Amazon Elastic Compute Cloud (EC2) and Simple Storage Service (S3) to run their workloads and store their data.

Then, as time goes on, the range of AWS services they use starts to broaden, and the amount of data they have stored and being processed within its datacentres ramps up accordingly.

That is certainly true for the technology team at Supercell, a self-confessed “born in the cloud” Finnish mobile game development studio, which has been using AWS technologies to underpin its offerings to gamers since the company’s inception in 2010.

“We have grown together with AWS,” Heikki Verta, services team leader at Supercell, told Computer Weekly at re:Invent. “As we have got bigger and demands from different parts of the company have grown, we have started using more and more different services from them.”

The firm uses the compute power of EC2 to run its games and back-end databases, as well as S3 for backup purposes, and is increasingly drawing on AWS’s burgeoning portfolio of database services, including its managed NoSQL offering, DynamoDB. 

“We use DynamoDB for some of our support workloads and also in the games,” said Verta. “Most of the games are running on MySQL, but we do use DynamoDB as well to store the replays, for example, and also in our analytics and support functions.”

Supercell also uses Amazon Elastic Map Reduce (EMR) to process and analyse the data generated by gamers, and “a lot of” Amazon Kinesis, said Verta, which allows it to process big data volumes in real time, too.

This data is important for helping to inform some of the decisions its game development teams make about the future direction its games should take, as well as which titles should progress from “soft launch” to global release or be retired.

“Metrics are important, but we also believe the metrics [alone] are not what decides if a game will be a hit or not,” said Verta. “You need the professional experience of the game designers to make a fun game, but what the data can do is validate your learnings.”

Each of the studio’s games is created by a small, cross-functional team of 20-25 people, he said, who collectively have all the skills and competencies needed to run it. As such, each team has developers with server and client-side skills, artists, designers, quality assurance people, and data scientists.

“The teams are small and independent, so they can move fast because there is less need for hierarchy, processes, politics and all of that,” said Verta.

“It allows us to move much faster as an organisation, because when the decisions are made by the people closest to the problem, they have the best information and can take the right action.”

This philosophy also goes some way to explaining why Supercell decided all those years ago to forgo the hassle and cost of building out its own on-premise infrastructure in favour of using the AWS cloud, said Verta.

“Out of the 20 or so people in our teams, only three might be server developers and they have to maintain the infrastructure and develop the game, and we want to minimise the work they have to do there, so they can focus on the game rather than maintenance,” he said. 

“Using the public cloud and AWS has freed us from the operational aspects of running the game, and allows us to be more agile.”

Innovate to accelerate growth

Another thing AWS is renowned for is its pace of innovation, which, according to Lydia Leong, vice-president and distinguished analyst at IT analyst house Gartner, is a major point of competitive difference for the firm.  

“Of the major cloud providers, AWS has the broadest and deepest service portfolio, the best first-party professional services and most organised migration approach,” she said.

On this point, AWS has previously claimed users of its platform gain access to an average of three new standalone services or feature capabilities per day, such is the pace of product development at the company.

To this end, the week of re:Invent saw the firm debut more than 80 new products and services, including its first foray into blockchain, and a piece of hybrid cloud-enabling on-premise server hardware kit called AWS Outposts.   

The show also saw it debut AWS Ground Station, a managed service that will draw on the firm’s global datacentre infrastructure to help cut the time and cost involved with processing data generated by orbiting space satellites, and moving it to the cloud.

Cutting the cost of experimentation

Depending on the nature of the service, some of these are offered to customers on a try-before-you-buy basis, or their pricing is tiered in such a way that users are charged only when they have used a service for a certain number of hours, for example.

This, in turn, spurs enterprises to experiment with using more products and services in the AWS portfolio, and increase their overall adoption of its technologies.

And it is how cheap and easy the company makes it for customers to experiment that keeps them coming back for more, said Matthew Fryer, vice-president and chief data science officer at Expedia-owned holiday booking site Hotels.com.

The economies of scale at which AWS operates mean it is not uncommon to see the cost of using its services go down from one month to the next, said Fryer.

“It makes you curious because of what you can do with the elasticity of cloud and when the costs keep coming down,” he said.

“It means you can ask different questions, and people get curious, and that curiosity leads to discovery and innovation, which leads to more business value – and that’s incredible.”

At re:Invent 2017, Expedia outlined its intention to go all-in on AWS across all its brands, as part of a wider push to refocus its in-house engineering teams on projects that deliver value back to the business rather than bogging them down with hardware procurement and datacentre management tasks.

Its all-in pledge also coincided with a declaration of intent to migrate several of its core Microsoft SQL and Oracle databases to Amazon’s relational database service Aurora, which, since its launch in 2015, has gone on to become the fastest-growing service in AWS history.    

As well as Aurora, Expedia is also a power user of various AWS machine learning and artificial intelligence tools, which, on the Hotels.com side, it uses to help inform the booking recommendations it offers customers.

All these services are interoperable with each other, said Fryer, which is another reason why he thinks so many enterprises are choosing to go all-in on AWS.

“I haven’t got to think about whether that service will work with another AWS service, or worry about how I’m going to get Lambda [AWS’s serverless computing platform] to talk to S3 because it all fits together,” he said.

“A lot of the things a technology leader would traditionally have to think about, I don’t have to worry about now.”

A point of competitive difference

Speedy product development cycles are all well and good, particularly when it comes to being first out of the gate with services, but AWS is not in the habit of creating technology for technology’s sake or just because its competitors are, said the company’s Jassy during his keynote.

Nicholas McQuire, vice-president of enterprise research at analyst house CCS Insight, told Computer Weekly that this is another important point of differentiation for AWS.

“It’s very hard to poke holes in the AWS strategy at the moment, because it pays very close attention to customer needs, which drives its investments in new functionality and, above all, improved economics for customers using its cloud services,” he said. “This flywheel is why its numbers in 2018 continue to defy gravity.”

That said, the pace at which the company is operating currently does pose some sizeable challenges for AWS that it will need to overcome if it is intent on defying the law of big numbers for a long time to come, said McQuire.

“Some of its biggest challenges are a result of its growth. How do they hire the right people to preserve the culture? How do they improve customer support, grow their field organisation and professional services to help the less speedier customers migrate to their cloud and consume its services?” 

AWS has also encountered some conflict-of-interest issues that will need to be resolved, particularly when it comes to assuring retailers that its close association with Amazon.com will have no bearing on its dealings with them.

The most high-profile example of this is US retailer Walmart, which was reported, in June 2017, to have warned its technology partners not to use the AWS cloud when hosting applications and workloads on its behalf. The firm has since gone on to sign a five-year cloud deal with AWS competitor Microsoft.

“How can it reassure retailer customers, for example, that it is a trusted partner for the long run? These are all questions it needs to address and areas its competitors aim to exploit,” said McQuire.

Read more about AWS

Also, if AWS is intent on ensuring the gap between it and its competitors remains as wide as it currently is, it may need to think about broadening out its software-as-a-service [SaaS] play, he added.

While AWS does have a stake in the business productivity-focused SaaS market with its managed desktop service Amazon Workspaces, Microsoft and Google have far larger service portfolios that are already widely embedded in enterprises.

“While assets such as Workspaces, Alexa for Business, Amazon Connect and Chime are foundations, in the long run it will need to have a much deeper strategy in this space in order to fill gaps against Microsoft and Google in particular,” said McQuire.

“Of course, it will have to tread carefully as many SaaS companies run on AWS and its partner ecosystem and marketplace is a key enabler of its cloud.”  

Either way, AWS UK boss Jackson’s view is that, with cloud still in its infancy, the firm still has plenty of growing to do. And, with ample amounts of potential enterprise IT spend still to go after, is primed to continue to challenge the law of big numbers for some time yet.

“What we’re talking here across the world is potentially trillions of dollars of addressable spend in the rounds, and we’re a $27bn business today,” said Jackson during a pre-re:Invent interview with Computer Weekly. “So there is so much room to grow.

“And I just don’t see us slowing down any time soon – even on the law of big numbers. And who knows what tomorrow will bring? The next [tech] unicorn will be born, and the next, and the next, and then the next enterprise goes all into the cloud. It’s an exciting place to be.”

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