Today’s one-day AWS Summit in San Francisco, which will be covered by theCUBE with a day of interviews of key players, comes at a particularly interesting moment in the development of the high-growth business-to-business cloud services market. For the last two years AWS has been growing at a phenomenal rate, with no sign that that growth is going to slow anytime soon. Yet despite that incredible growth and its dominant position in the market, AWS has just cracked the surface of the potential market, and despite its success its service is far from fully formed and is in some ways immature.

This year for the first time it is facing real competition from providers with the resources to match its own, in the form of IBM and potentially HP and the Google Compute Engine. At this one-day summit and at the East Coast summit later this spring in Boston, AWS should map out its direction forward, what it is doing to strengthen is service portfolio, and how it will react to this competition to maintain its dominant position. Overall, given the very high growth of this market, the issue will not be so much competing directly against these new entrants — the market is growing at a rate that should provide as much business as all the competitors can support — as it is growing faster than the competition and managing its growth to maintain its overall financial solidity.

So far Amazon’s main client base has been other tech industry companies much like itself, cloud startups founded and in most cases still run by young computer geeks, some of them very high growth companies. They naturally look to the cloud for IT support while simultaneously wanting to maintain control over their IT destinies. Technology is at the heart of these businesses, as opposed to the vast majority of traditional companies where IT is necessary but not central to their core products and services. But while these cloud-based companies are natural early adopters and major consumers, they are only one of the potential business markets for cloud services.

Cloud service markets

The second is the vast majority of smaller companies, from small dry cleaner chains up to regional grocery stores,  and including most small-to-medium retailers and hotels and manufacturers. Most of these are privately owned, profitable but not growing, with stable local or regional markets. Computing is vital to their operational efficiency but not a source of competitive advantage, a cost of doing business rather than a profit center. And many have no reason to maintain an internal IT operation at all. Their best IT strategy is to leverage Software-as-a-Service to handle their IT needs above the desktop or these days, the tablet. This gives them access to highly efficient, secure IT services backed by professional staffs at much less cost than they can duplicate in-house. They should look to local computer support companies to provide their desktop support and keep no IT staff in-house. AWS, which has no SaaS at this time, does not play directly in this market,  although its customers include cloud service providers who do.  It certainly could buy and/or develop SaaS services to gain entry, much as IBM, which today has a stable of more than 100 SaaS services and growing, has.

A third important market is traditional medium-to-large enterprises. These companies have their own, often large IT infrastructures and staffs and many are only beginning to seriously look to the Cloud to supplement their internal resources. They will be cautious and will want to work with known vendors, and they know IBM and in many cases large outsourcers, such as Tata and CSC, and regional colocators that have evolved into IaaS providers, but have little or no experience with AWS. Some operate under complex regulations that vary from jurisdiction to jurisdiction. And they have important security and service level requirements for their core systems. They also seem to favor a hybrid approach to cloud. So far AWS is a public cloud-only service provider, as opposed to IBM and HP, who are more than happy to sell a customer an in-house cloud based on their hardware that can easily be integrated with their external clouds to support everything from bursting to running Big Data analysis on data from cloud-based social media. One major question about AWS’s future is will it start selling private cloud infrastructure to support hybrid clouds. Viewers should be alert to any hints or statements one way or the other coming from today’s presentations and interviews on theCUBE.

CIO strategy

For enterprises integrating cloud services into their IT infrastructure the answer to whether to use AWS depends in large part on the application. It is a quality service,  but it does come with several caveats.  First it operates from a very few data megacenters. For instance it serves all of the EU from one megacenter in the Irish Republic.  This can raise regulatory questions about some kinds of data.  AWS attorneys argue that because the data center is in the EU it meets compliance requirements.  However companies thinking of moving regulated business data to AWS should consult their corporate counsel first.

It also raises performance issues for applications that need to run under stringent SLAs. Not only do the distances create issues in some cases, but AWS uses the public Internet, so traffic delays on the Web and issues with last-mile connections can also impact QoS. Finally,  while overall AWS has a fairly strong performance record, it has suffered service interruptions,  notably in April 2011, October 2012 and January 2013. Because it operates with very few data centers, failover between them has been problematical,  and of course for European countries maintaining a backup to another AWS site would involve moving data out of the EU. The use of the public Internet can also raise security concerns with particularly sensitive data. Some startups have also reported that data storage costs can reach a point where it is less expensive to create an internal IT infrastructure than to continue on AWS.

Positive record

Regardless of this, however, AWS has a list of satisfied users, some of who run large services on its infrastructure. Companies thinking of using AWS might want to start with Big Data analysis applications that use data already on the Cloud — for instance social media or Internet-of-things — and that can tolerate occasional small transmission delays in delivering results.

AWS has become a favorite platform for software development in the last three years.  CIOs and CMOs should keep in mind that software written on the Amazon platform will be optimized for that proprietary platform, making it hard to then port the finished application in house or to another IaaS service.  As much as possible,  developers should be encouraged to write code on the infrastructure where it will run.

The AWS Summit should provide some information on the direction the service will take over the coming year in beyond,  both in terms of further development of the platform and in the marketplace.  AWS clients and CIOs considering integrating IaaS platforms into their infrastructures should watch the interviews from theCUBE starting at 11:00 PDT for indications of the service’s plans.

photo credit: Pensiero via photopin cc

photo credit: swisscan via photopin cc

cc