Amazon Needs More than Cheap Cloud Prices to Tackle the Enterprise

Amazon Web Service owns 70 percent of the $2.5 billion public cloud IaaS market, and its business is expected to nearly double this year – is there any hope left for the competition? The answer is yes.
AWS was absolutely groundbreaking when it launched in 2006. Amazon’s killer combo of effective scaling and competitive rates attracted SMBs en masse, and companies with less than 250 employees now account for 90 percent of its cloud income. The market  has gotten much bigger in the last seven years, but Amazon’s lead has only gotten smaller.

Google and Microsoft are both gaining share in the cloud services market thanks to the same combination of cost-efficiency and technological aggression that got Amazon to where it is today. The latter was forced to cut its rates multiple times throughout the past few years to stay on par with Azure and the Google Cloud Platform, but lower margins are the price Amazon is willing to pay to keep the lion’s share of the market.

The sheer scale of Amazon’s cloud infrastructure allows it to operate at greater cost efficiency than the competition, but that’s only one side of the equation. The company’s head start in the public cloud also gave it more time to flesh out its offering, though Google and Microsoft are bridging this gap at an accelerating pace.

“I think that, yes, competitors will take a page out of Amazon and keep prices declining and make a big deal of it every quarter,” said Wikibon co-founder and senior analyst, Dave Vellante. “But I think that competitors are going to compete, particularly in the enterprise, differently than Amazon does and they are going to attack areas of Amazon’s weakness.”

Amazon’s dominance in the SMB market is relatively safe for the near future, but the traditional enterprise market that Vellante speaks of is a totally different ball game. A recent study by Wikibon found that AWS is not very well equipped to power corporate environments with its thousands of apps, and that Amazon is often more expensive than on-premise hardware for companies that rake in more than one billion dollars a year.  AWS’s Security, SLAs and support have also been lacking; clearly, the door is still wide open for the competition to swoop in. These weaknesses leave the door open for other rivals as well, namely IBM, HP, EMC and others that are focused on developing their enterprise-ready services portfolio.

“The reality is that selling to the enterprise is a really different take,” Vellante says. “Those companies that I mentioned…they’re competing with their own cloud, you have companies like Cisco and VMware and EMC that are building ecosystems. So there’s a long way to go here, and I think that the enterprise in particular are looking not just for simplicity, but they’re also looking for service level agreements that as we all know Amazon is not renowned for.”

Here with more analysis on Amazon’s model, why it’s worked for the public cloud and where Amazon needs to improve if they hope to tap the enterprise market is Vellante, who appeared on this morning’s NewsDesk show with Kristin Feledy.