In February, Amazon Web Services (AWS) reported its quarterly results. Unsurprisingly, the results were very good, even if they fell short of expectations. The company’s revenues have steadily grown, and each quarter since q1 2015 there has been a noticeable rise. But even more important than revenues are the operating margins; as noted in CNBC “The cloud-computing unit provides a much more profitable business for Amazon. AWS has an operating margin of 31.3 percent of all AWS net sales, while the North American retail business has an operating margin of 5 percent of net sales.”
As far as market share goes, AWS is way up there. According to Synergy, the market share of Amazon in the public cloud is over 40%, while the next three biggest competitors (Microsoft, Google, and IBM) have a combined market share of about 20%, and that’s after a rise of 5% in q4 2016. The leader’s market share stayed the same in comparison to q4 2015, and John Dinsdale, a Chief Analyst and Research Director at Synergy, explained how the company maintains its supremacy, “Achieving and maintaining a leadership position in this market takes huge ongoing investments in infrastructure, a continued expansion in the range of cloud services offered, strong credibility with the large enterprise sector, consistently strong execution, and the wholehearted and long-term backing of senior management. AWS is checking all of those boxes.”
In the Synergy piece, Dinsdale mentioned credibility, and for good reason. While all businesses need to establish and maintain reliability and trustworthiness, in the public cloud, it’s even more of a necessity. Users are extremely reliant on their cloud services. Amazon guarantees its customers the service will be up and running 99.99% of the time, and they usually succeed in achieving a 100% uptime. However, as most of us are aware of (and many likely experienced on a personal level) the outage to S3 that struck AWS on the last day of February caused significant losses. The reason this event is more memorable, however, is due to how infrequently such outages and losses occur. As powerful and efficient that snapshots are, taking AWS’ native capabilities, and building an enterprise solution around it is the only way to ensure that data loss will not occur. N2WS’ CPM integrates native Amazon snapshots and various other key features to offer a seamless, automated backup solution solely for production environments in AWS.
At the most recent AWS re:Invent conference, James Hamilton, VP and distinguished engineer at AWS, went into great detail about the company’s unique stance on and commitment to shoring up its infrastructure and hardware: “We run our own custom-made routers, made to our specifications, and we have our own protocol development team,” Hamilton said. “…Though there’s a big cost improvement, the biggest gain is in reliability.” AWS developed their own routers, and according to Hamilton, those had only one requirement – keep it simple. “As fun as it would be to have a lot of tricky features, we just don’t do it, because we want it to be reliable,” he said.
In addition to reliability, and on top of the multiple regions and AZs offered by AWS, the company has its hands in everything, from routers to the entire network. Its investment in infrastructure and hardware has been and continues to be significant; case in point, the company’s latest infrastructure undertaking is the construction of a trans-pacific cable from Hawaii to New Zealand.Amazon never sits still; the opposite: the company moves forward all the time.
Hardware as a Service
Amazon (not AWS) CFO Brian Olsavsky has said that “experience” is one of the reasons for the cloud leader’s market position. AWS was launched in 2006, and it’s true that this experience is notable, especially when you take into account the relative youth of the company’s competitors in the cloud space. (Azure, the second-largest provider was only launched in 2010.)
Apart from being able to claim “we were first,” the amount time AWS has been in the cloud space contributes to its massive network. Now, when we think of AWS, we think “service provider,” and indeed, the company provides many services, with their community and offerings constantly growing. But there is another way to think of Amazon: as a hardware company.
The service that Amazon sells – whether it is S3 or EC2 – is based on the company’s physical hardware. Therefore, part of what Amazon aspires to – and makes them a cloud leader – is being a company in which hardware never goes unused. Furthermore, their physical hardware is always evolving, and will always be the most cutting-edge the market has available. The discounts, the reserved instances, the MSPs, and the ever-growing scope of services designed to keep costs down and efficiency high for customers? It’s an effort Amazon makes to keep “selling” its hardware. And, they succeed at doing so by providing better and better technology: It’s an ever-expanding circle, that feeds itself and drives Amazon up.
In addition to Amazon’s individual contribution to the cloud space, we can’t ignore the many companies offering solutions that fill the gaps that still exist in AWS services. It was a wise and strategic move for AWS to incorporate a partner program as a way of adding value to the services they provided and as a way to keep customers AWS-focused even when they needed outside tools or solutions. Whereas Amazon loves to be self-reliant when it comes to infrastructure when it comes to service, the ecosystem the company created makes a huge difference – whether it is backup and DR, billing optimization or database management – those extra solutions only cement AWS’s place in the top.