Amazon.com Inc. Chief Executive Jeff Bezos famously refuses to talk much about his competition, and Andy Jassy, CEO of the Amazon Web Services Inc. cloud computing operation doesn’t much like it either — occasional jabs at Oracle Corp. aside.

But the fact remains that in the midst of its annual re:Invent conference in Las Vegas, AWS now faces credible competition for the first time. That was proved most recently and forcefully by the Pentagon’s surprise move in late October to hand the $10 billion, 10-year Joint Enterprise Defense Infrastructure or JEDI contract to Microsoft Corp.

In particular, AWS’ next big challenge is to capture the hearts, minds and wallets of large enterprise buyers, which mostly have yet to move their operations to the cloud. It’s a world where Microsoft, IBM Corp. and Oracle have decades of experience and relationships.

Still, Jassy (pictured), in an exclusive two-hour conversation in Helmet Head, the sports bar he set up in his Seattle basement, laid out why he thinks AWS is better-positioned thanks to its own unmatched experience running cloud services at very large scale. He also explained why he thinks the Department of Defense allowed political pressure from President Donald Trump, who considers Bezos his nemesis thanks the CEO’s ownership of the Washington Post, to make a wrong decision on JEDI contract, for which AWS was a frontrunner from the start. The conversation was lightly edited for clarity.

Look for more strategic and competitive insights from Jassy in the first installment that ran Monday and the second part that ran Tuesday. And check out re:Invent coverage all this week by SiliconANGLE, its market research sister company Wikibon and its livestreaming studio theCUBE, now in its seventh year covering re:Invent from the show floor.

Competition in the cloud

Furrier: One new thing companies are doing is using multiple clouds.

Jassy: I don’t know if that’s new.

Furrier: Well, there’s multiple clouds out there. You’re one of them. Azure has been gaining share. Google has their story and Alibaba is in China. How do you guys view that?

Jassy: Sometimes people get a little confused about relative growth rates. It’s a little hard to do apples-to-apples comparisons because we’re the only ones that really expose our infrastructure cloud computing numbers. But as best as we can tell from triangulating what others and analysts say, we’re growing at a meaningfully more significant absolute dollar rate than anybody else. Gartner estimates that we have a market segment size that’s a few times larger than the next few providers combined.

We have a large number of companies that have gone all-in on AWS and that number continues to grow, but there are going to be a lot of other companies who decide that they’re going to use multiple clouds for different reasons. But when you look at people who decide to have a multiple-cloud strategy, they don’t typically split it up 50-50 or evenly across a few. Mostly because if you do, you have to standardize on the lowest common denominator.

These platforms are in pretty radically different spots right now in terms of capabilities and ecosystem and maturity. You also end up taking your development teams and asking them to not just make the big shift from on premises to the cloud, but then having actually be fluent across multiple providers, which development teams hate. It’s very unproductive.

And if you split it across multiple providers, you get a lesser discount. So we find the vast majority of companies that are pursuing a multicloud strategy tend to pick a predominant provider. And then if they feel like they want another cloud provider either because it has a group that really is passionate about them or they want to know they can use a second cloud provider in case they fall out of sorts with the initial cloud provider, they will. But it’s much more like 70-30, 80-20, 90-10 than 50-50.

Furrier: Do you see more enterprises build their own in-house development teams?

Jassy: Much more. Systems integrators will continue to have very large businesses. There’s always going to be a number of companies that outsource their technology and then there’ll be some that outsource parts of it. But we do increasingly see more enterprises trying to bring more of that development in-house. In part because the pace of technology change is so furious and rapid right now that if you don’t have the capability of taking advantage of that quickly and as cost-effectively as possible, it’s tricky.

Leadership trumps technology

Furrier: We were at re:Inforce, your inaugural security conference. The general consensus among the chief security information security officers was they’re flipping the script. They’re saying, “I don’t want to buy your product. I’m building my own stack for security reasons and control, on Amazon, and then using application programming interfaces. And if the vendors don’t support the APIs, they can’t be suppliers.” This points to the fact that enterprises have to change how they procure, how they build and how they compete. So now you’ve got a top-down leadership playbook that needs to be developed. How does a company do that?

Jassy: Most of the big initial challenges of making a transformation in the cloud are not technical. They’re frankly leadership. You’ve got to first make the decision you want to move and get your senior leadership in alignment with that. Which is not easy, because you have a lot of people with a lot of different ideas and a lot of different skills who’ve been doing things a certain way for a long period of time. Then you’ve got to set a big aggressive goal to force them to, push and you got to train people, and then you’ve got to build a plan. And then you actually have to hold people accountable.

If people realize that this is something that you’re not going to hold them accountable for, and it’s OK if they just make as much progress as they feel like they could that year, you’re not going to find people taking the goals seriously. Making a significant change is hard. Change is hard for most people. Most people say they want change. But in reality, a lot of people balk at it when they realize that they have to learn new skills and new capabilities.

You have to make sure that the organization is trained and you have to make sure that if you need help either from systems integrators or from professional services that you get that help. But it comes down to the leadership.

Furrier: I’ve been noticing a trend of cloud-naive buyers that would prefer a consumable experience, pre-packaged, because that’s the behavior they’re used to buying in. So there’s this tension between capabilities and consumability of IT. AWS talks about having a broad portfolio of services with the deepest functionality within those products. But Microsoft and Google have made progress with functionality. And the packaging will help them.

So maybe someone says, “Hey, I think it’s safe to go with Microsoft versus I get more capabilities with Amazon.” That’s a different psychology of the buyer. It’s maybe risky for some that may not be educated or up to speed. I’m seeing some data that says, “Maybe it’s easy to just to go with Microsoft. We have Office, and we have these servers. We’ve got this on-premises stuff.” Or they say, “Amazon’s risky because I got to learn something new.” So how do you address that?

Jassy: I don’t see that in the market segment in which we participate today. There are a number of folks, including some of the big analyst firms, who have argued that in the cloud, people say, “Nobody gets fired for going with AWS,” now. We have, by far, the largest enterprise business in this space. I think most people realize there are some pretty big differences between the platforms.

And actually, if you look carefully at the capabilities, if you get through the check boxes and you look carefully at the capabilities that different platforms have and the features with the most capabilities, I actually think the functionality gap is widening. Most of our customers tell us that we’re about 24 months ahead of the next-largest provider, and the next-largest provider is meaningfully ahead of the third-largest provider.

Having a lot more functionality and capability is a huge deal to customers. It’s why is we’re successful in the vast majority of head-to-head battles that we have in trying to earn customers’ business because the reality is that people want the right tool for the right job. It saves them money. It saves them time, and it enables them to build at a much faster rate.

Furrier: What else do you think distinguishes AWS from competitors?

Jassy: The ecosystem is also pretty different. It’s not just thousands of systems integrators that have built practices on top of AWS, but most independent software vendors or software-as-a-service providers will adapt their technology to work on a cloud infrastructure provider. Some will do two. Very few will do three, but they all start with AWS just because we have such a significant market segment leadership position.

The third thing that really matters and is different is just the operational maturity. We have this expression we use a lot internally: “There’s no compression algorithm for experience.” It’s because you just can’t learn certain lessons until you get to different elbows of the curve and scale. It turns out it’s really different to run infrastructure for yourself where you get to make all the rules and tell people how it’s going to be verses running it for millions of other active customers all over the world and every imaginable industry that can use you without any warning.

With a business that’s several times larger than the next few providers combined, you just learn certain lessons in operational experience because you get to different elbows of that curve and scale. A good example is if you look at Gartner’s most recent Magic Quadrant for our market segment, they’ll  point that out with some quantitative detail. There’s a pretty big difference in operational performance between the providers.

We continue to have such a significant leadership position because we have a meaningfully more capable and well-partnered and mature platform. We never thought there would only be one successful cloud vendor. We always thought there will be several. I’m quite sure there’ll be multiple companies that will invest and pursue this for a long period of time. We’re optimistic that we’ll continue to lead.

Competing in the enterprise

Furrier: But certainly the competition has heated up. I’d love to get your thoughts now that you’re, say, maybe two full years of really competing in the enterprise with new entrants to try to match AWS capabilities.

Jassy: I think it’s longer than that. It’s been a lot longer than two years.

Furrier: I think there isn’t any question that for cloud-native, born-in-the-cloud companies, Amazon pretty much wins those almost nine out of 10. But what about traditional enterprises?

Jassy: My experience with customers, and we have a very large enterprise business that’s growing quite rapidly on a very large base, is that I see both ends of it. I think when enterprises are deciding to make big transformations and migrations to the cloud, when they are looking carefully at whom they’re going to partner with, they are concluding that the best, most capable and safest choice is AWS on the functionality and the ecosystem on the operational performance, and on the security side.

Many companies’ and many enterprises’ explorations of the cloud started with “I can actually do things that I wanted to do for many years and have been told “no” so many times by our internal IT team that I can get promoted and I can change the business and I can change the customer experience by taking advantage of all the really broad capability that AWS has and the pace with which they innovate.” We see that we’ve been successful in enterprises on both ends of that spectrum.

Furrier: What about when enterprises start with another cloud provider?

Jassy: There’s really only one other enterprise cloud provider that we compete most consistently with and where enterprises may start with because of an existing relationship in a meaningful way, maybe one or two. We have a very large number of those instances where what happens is there’s an existing relationship that has been born over 10, 15 years with another provider. Oftentimes, they do enterprise agreements to re-up something, not even necessarily cloud infrastructure, something different where that provider will throw in a whole bunch of free credits to get customers try their cloud offering and get some traction.

In many ways, that has been one of the larger accelerants for us in enterprise business. Once they get those free credits from the enterprise relationship they’ve had for 10, 15 years and they get serious about trying cloud as they do their homework … they say, well, maybe we should also look at the cloud provider that’s the significant leader. When you do an apples-to-apples comparison, we usually are successful in having people choose us. In many ways, the pretty dramatic acceleration in our enterprise business over the last few years was in part aided by the fact that there were a lot of enterprises that were activated by older relationships where they were given free credits to try it. They explored us when they were thinking about really exploring the cloud.

Cloud wars and Star Wars

Furrier: AWS ended up losing the Pentagon’s JEDI contract to Microsoft. I personally think it was politically motivated. You guys have since protested. Can you clarify your position on this and how you feel about that?

Jassy: We obviously believe that it wasn’t adjudicated fairly. I think that really any objective apples-to-apples comparison of our platform versus others, you don’t end up with the conclusion that they made. Most of our customers pretty regularly tell us that we’re a couple of years ahead of others. So, I think there was a significant amount of political interference.

And when you have a sitting president of the country who is very open about his disdain for a company, and the leader of that company, it makes it really hard for government agencies like the DOD to be able to make objective decisions without fear of reprisal. I think that’s really risky for our country and for our democracy, for the decisions that the federal government has to make consistently.

Furrier: Microsoft doesn’t have what you guys have in terms of cloud capabilities. So clearly this was a political thing. A lot of politics and smear were involved. This is not the modernization piece of it.

Jassy: It’s very risky for the country. It’s very risky for democracy, it’s risky for making the right decisions for the country. Our national defense is critical for this country, but not just for this country. It’s critical for the world. So, when you’re in need of very significant modernization where the ramifications are high, it’s crucial that the decision is made in a completely objective way that’s clear from political interference.

Furrier: JEDI is a great example of old 1995-era government procurement methods. With a modern JEDI solution, they actually built a solution based upon the capabilities of Amazon. That was a key part of the proposal. Workloads decide this cloud selection, not cloud enabling what you could do with the workload. This is a flipped script from the old IT. Do you see it that way?

Jassy: I don’t think that they built an RFP around any one cloud provider. I think they had a set of requirements that they thought they needed to modernize their technology infrastructure and for the missions that they see today and they see coming moving forward.

There are some big enterprises or organizations that say, “You know what, I don’t know exactly what I need moving forward, but I know I need to modernize my technology infrastructure and I’m just going to pick the best cloud provider.” And there are others who want to modernize, but they have a very distinct direction or set of directions. They know what direction they want to head in because of where they see their business or assets they want to take advantage of at the edge. Or they see the data they have and what they can do with machine learning, where those requirements tend to be disproportionately important in their decision. We see both.

Furrier: What I’m seeing is that on the enterprise side as well, there are net new functionalities coming out based upon the capabilities of the cloud. And that’s a whole new architecture. It’s not just distributed, it’s connected. The winners, in my opinion, will be the ones who can create a competitive advantage by creating the net new capability for their business. You can’t put that in an RFP. How do you put that in an RFP?

Jassy: We earned the intelligence community contract and business a few years ago, which has really been a terrific, very productive partnership. Whatever you spec in that RFP, as you actually get into the details, there are always a lot of things that are a little bit different than you thought and then actually is. You have an initial scope that you work on and then, when the teams are really collaborating well, you think about all kinds of other opportunities that are available that you maybe didn’t realize were as achievable as they are when you have a really capable cloud provider.

Photo: Robert Hof/SiliconANGLE