Obviously, we can’t predict the future. Even forecasting 10 years into the future is quite iffy. But we can certainly play a game of extrapolation and speculation. We’ll stay away from predicting numbers; let’s review how AWS reached its current position and just point out directions and trends. It’s potentially eye-opening, so join us, won’t you?
What is Amazon?
Most people still think of Amazon as an online book store. It is true, but since its launch in 1995, it has become a lot more than that. From the start, Jeff Bezos, Amazon’s founder and CEO, aimed to build the “biggest store in the world”. However, its initial offering was solely books.
In 1995 the “store” carried around one million titles. Today, Amazon’s retail business covers uncountable numbers of almost every product that can be sold. They also serve as an e-commerce retail platform for a network of external sellers. But Amazon’s retail business is only a colossal proof of concept, for the real promise of Amazon: Amazon Web Services (AWS).
It is interesting to note that Amazon’s mission statement focuses on online retail, which seems to be quite outdated in the present: “Our vision is to be earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online.” Arguably, this vision also drives the AWS business, although it requires a new and expanded interpretation of the ideas of ‘customers’, ‘people’, and ‘buying online’.
In the early 2000’s, Amazon realized that its online retail platform can serve as a model for offering IT infrastructure services. In 2011 Jeff Bezos said exactly how it all started. He described how Amazon had positioned itself as a global online retailer when he then realized that “Whoa, everybody who wants to build web-scale applications is going to need this. We figured with a little bit of extra work we could make it available to everybody. We’re going to make it anyway—let’s sell it.” Source: Wired Magazine.
And this was the birth of AWS. The first service (Amazon Simple Queue Service – SQS) was introduced in the mid-2000’s and since then AWS has grown steadily to become the largest IaaS provider. According to the Gartner Group, in 2015 AWS was used for 10 times more deployments than the next 14 providers. AWS is Amazon’s future, and arguably, the future of IT.
The Secret Sauce
As we described above, AWS grew on the fertile soil of Amazon’s e-commerce online retail platform. Amazon took the same approach to AWS markets and customers as it did for its online retail business: Customer focus and an aggressive push to excellence. They remain vigilant in understanding customer needs and have never for a moment abandoned their continuous pursuit of technological and market innovation. Amazon R&D annual investment has grown dramatically from $1.9B in 2011 to roughly $13B at present [Bloomberg], surpassing giants like Alphabet (Google, which also increased its R&D spending at similar rates), Microsoft, Intel and Apple. This spells commitment, and it shows!
Introducing new services and improvements to existing services is happening on a weekly basis (sometime more). Within the four days between September 12th and September 16th, AWS made 10 announcements, mostly with improvements and enhancements to their popular services. This is a regular week, not a special one. Since January of 2016, they have made hundreds of announcements, each of them related to specific items of interest to their customers. At present, AWS offers 73 (and growing) different service applications and tools under the following categories: Compute, Storage & Content Delivery, Databases, Networking, Analytics, Enterprise Applications, Internet of Things, Mobile Services, Developer Tools, Management Tools, Security and Identity, Application Services, Game Development, Software.
Perfection Cannot Be Rushed
New services, however, are introduced gradually. First, AWS offers limited functionality in limited distribution when launching a new service. We call it a “slow start”. To test and experiment with new offerings, AWS uses their home grown Weblab, which is an advanced alpha testing environment. In 2013, they operated 1976 Weblab worldwide and they’re still adding more to this day. This is a clear sign of AWS’ commitment to quality. In addition, AWS uses early adopters as their testers and reviewers. They excel at listening to their early adopters’ response and are quick to correct a problem and implement the required modifications.
In 2012, Amazon launched a thriving partner community which provides technology and professional services for AWS customers. The Amazon Partner Network (APN), as it’s known, is a central component in the AWS market strategy. While AWS provides much of the enabling technology for its customers, it is not always capable of comprehensively addressing a complete business challenge. The partner network is there to provide the missing parts and address complete solutions. AWS- is then expected to certify these partners and validates their solutions. Essentially, AWS is an ecosystem where Amazon, its partners, and its customers live in synergic dynamic relationships. It appears to be working well.
To help recruit customers, AWS takes a tiered approach to the market. Users can start small and free of charge, experimenting with the technology and developing customized solutions. As they expand and grow, they become paying customers on a ‘pay for use’ subscription model. This approach eases the integration and lowers the upfront cost for new users. No capital expenses, granular pay-for-use billing, and numerous buying options make AWS attractive to a wide array of customers of all sizes.
AWS has not given up on any segment of the market or any type of customer. They rarely abandon ideas and constantly create new offerings even if they have to struggle before their ideas come to life. This is true for both Amazon, the online retailer, and AWS, the IaaS provider. The patience that they practice with themselves (slow start, defer profits, persevere with struggling to bring new products to market) has paid off and turned Amazon into a technology company with vast coverage of products and solutions.
Both Amazon as a retailer and as AWS are always in search of new technology. Bezos said several times that they find themselves shopping for technology that doesn’t exist. Their solution? Invent it, build it, and deploy it. Many times during their history, they introduced breakthroughs simply because they thought they had to. Their R&D investment is paying off. Amazon has been one of the most prolific innovators in the Internet and computing industries and their innovation is accelerating (we already mentioned their R&D budget growth).
From its very start, Amazon has been aiming at global deployment. They are everywhere, and their worldwide presence is impressive. The amazon world is divided into 13 “regions” (not including their dedicated “government cloud”). Five new regions have recently been announced. Regions contain “availability zones”, which are, in fact, brick & mortar data centers hosting AWS services. It is estimated that AWS, at the end of 2014, had roughly 1.5M servers deployed in its availability zones. This number must have gone up by now. One of the benefits of this worldwide deployment is that AWS can design a robust protection and high availability for its services. Even if one availability zone becomes unreachable, another one can be accessed for service continuity.
Amazon has demonstrated that it would do whatever it takes to be trusted by the most demanding customers, thus making it a primary choice within the IaaS market. If Netflix, Salesforce, Expedia, and many other large corporations trust AWS to be their infrastructure provider, it can be trusted by anyone – enterprises, startups, public sector organizations, and the government.
Never Ending Growth
Amazon emphasizes growth over profit. For the first years of its operation (pre-AWS), they didn’t even try to turn a profit. Since then, their revenues have grown into a three figure billion dollar business. The rate of growth of AWS is staggering (for 2015 it was 63% YoY). AWS’ revenue in 2015 was $7.88B. Just a year earlier, in 2014, when they first reported, revenue was a mere $4.644B. More recently, in April of 2016, AWS revenue for the previous four quarters was roughly $9B, getting closer to $10B annually.
Amazon is the undisputed leader in its industry, expanding its coverage and providing services to related fields as well. Competitors exist, for sure. However, Amazon’s momentum, commitment to innovation and superb business model will continue to propel it into the future, while contenders will still be able to capture market share and thrive as well (keep your eyes on Microsoft, Google and IBM).
AWS is only getting started. Cloud computing has revolutionized the world of IT. On-premise IT is being replaced by cloud-based IT. It is happening fast and the cloud is winning because it is so right… The world is moving to global virtualization. Functionality is being offered as web services. Complete data centers move from the brick & mortar plants to the cloud.
With a virtually infinite addressable market made up of every IT shop on earth, big or small, startup or established, commercial or government, AWS aims to become the largest corporation in the world. It is not a crazy fantasy – it’s actually very possible. While Amazon will not capture 100% of the market, it is very well positioned to devour much of it.
What will amazon be in ten years? We can expect Amazon’s online retail and e-commerce business to continue growing, but it is quite safe to say that AWS will soon surpass it. In ten years we believe that AWS will leave Amazon’s e-commerce business far behind and will be much, much larger. Competitors will also thrive. Microsoft, IBM, and Google are in this game and they are doing quite well with superb growth figures. “Old world” technology vendors are getting into this market and should be watched (see Oracle and Cisco, for e.g.). But Amazon, with its momentum, culture, and business model is going to remain the leader for the foreseeable future and beyond.
Some argue that the real “secret sauce” of Amazon and AWS is Jeff Bezos, the maverick restless human engine who doesn’t listen to reason and charges forward tirelessly. As long as Bezos is at the helm, the only way is up and above.
We really don’t know what will happen until 2026, but we’re willing to make a reasonably safe bet: Amazon is one of the better long-term investments one can possibly think of. We’re certainly in.