Jeff Bezos - CEO, Amazon
Amazon Web Services (AWS) continues to surge ahead in its quest for unrivalled Cloud dominance, with strong sales and record profits positioning the tech giant for future growth.
As revealed last week, the AWS division of Amazon reported 58 percent year-to-year growth to almost $US2.9 billion, supported by continued operating efficiencies that enabled the business to reach $US718 million in operating profit.
Yet despite another blockbuster quarter, and a healthy lineup to match, can the leading Cloud vendor maintain its sizeable lead in the market?
“AWS is comfortable in its leading position and confident in its ability to sustain its pace of innovation, which it touts as a differentiator,” Technology Business Research, analyst, Meaghan McGrath, said.
“However, increasingly competitive vendors and hybrid Cloud acceptance by customers will challenge the share AWS continues to win.”
Going forward, McGrath expects that AWS revenue growth will maintain its “high-but-slightly-decelerating pace”, even as the Cloud vendor rapidly expands its capacity and global reach, due to revenue base scaling, service price reductions and increased competitiveness in more engagements.
Competition
As the market heats up, analysts believe the tech giant is under growing pressure from Microsoft Azure, Google Cloud Platform and IBM SoftLayer.
Worldwide Cloud infrastructure services expenditure grew 52.3 percent year on year in Q2 2016, with Canalys findings pitching AWS as the leading Cloud infrastructure services provider, accounting for 30.4 percent of total spend.
“Its early mover advantage, aggressive pricing, broad geographic coverage and wide range of service offerings are key factors behind its success,” Canalys research analyst, Daniel Liu, said.
Despite the growth however, overall, the other four providers represented 60.5 percent of total worldwide Cloud infrastructure services spend, with Microsoft Azure’s 102 percent jump boosting the growth within the quarter.
“The need for scalable and on-demand infrastructure is being driven by application testing, development and hosting; content delivery, big data and analytics; machine learning, IoT, disaster recovery and back-up; plus storage,” Liu added.
“But not every organisation and every workload will migrate to the Cloud. Cost is a major issue, but also compliance and regulations, security concerns, and application readiness are determining factors in Cloud migration strategies.
“The adoption of hybrid Cloud and on-premises solutions is prevalent as organisations seek to get the best of both worlds.”
Not only does AWS face competition from other Cloud vendors, McGrath believes the business also lacks its own legacy install base of customers that can support growth by being transitioned to Cloud alternatives, as Oracle, Microsoft and IBM have.
“While these legacy vendors work to retain their customers in transition, AWS conversely adapts its customer engagement efforts and must articulate a clear migration path from each competitor’s legacy solutions to AWS in order to convert customers to AWS’ alternative Cloud services,” McGrath explained.
As part of this strategy, AWS has added to its migration services to make it easier for customers to migrate from legacy solutions to AWS.
These updates include the addition of AWS Migration Competency to its Competency Program, the AWS Application Discovery Service, a new feature to accelerate Amazon S3 data transfer and a larger Snowball appliance that will be available in more regions.
“These added features aim to entice potential AWS customers to migrate to AWS from their current legacy solutions,” McGrath added.
Analysts are also in agreement that for AWS to drive more IaaS revenue through its marketplace, independent software vendors (ISVs) will play a crucial role in extending AWS’ Cloud offerings and global reach.
Currently, AWS’ Marketplace consists of more than 2,700 offerings from 925 ISVs, with the vendor recently opening product registration to European Union-based ISVs, even if the ISV does not have a U.S.-based entity.
As McGrath explained, the update will expand the AWS Marketplace by allowing smaller EU-based ISVs the opportunity to make their product available to a larger customer base, and will help drive even more AWS IaaS usage through the marketplace.
