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Summary:

All the talk about big companies not wanting to put workloads on Amazon Web Services is hot air. The biggest companies already deploy workloads beyond test-and-dev on AWS. The question is: can AWS sustain that momentum as new options come online?

jeffbezos
photo: Amazon

Updated: As wildly successful as Amazon Web Services have been, there’s still a lot of noise about how big enterprises don’t want to put their precious workloads on this public cloud  infrastructure.  The Amazon cloud is not safe or reliable enough for these important workloads, some say.

Here’s a news flash: Big companies may or may not be wary of Amazon’s cloud, but they’re already using it. And this despite multiple snafus at Amazon’s US-East data center complex in the past year. It’s a pretty safe bet that virtually every Fortune 1000 company is running workloads beyond test and dev in Amazon’s cloud and that means trouble for incumbent IT providers like IBM, HP, Dell and others which are scrambling to respond.

Case in point: Cloudyn CEO Sharon Wagner, whose company helps businesses make best use of AWS, told me that 30 percent of its AWS customers are large enterprises. And while their applications vary, they do include business-critical workloads, and not just development and testing, he said.

Ken Ziegler, CEO of Logicworks, a New York City-based cloud computing and managed hosting provider, agreed that big accounts aren’t just fooling around with AWS.

“Many of the most cited barriers to cloud adoption have been addressed at this point and it’s getting more difficult for territorial IT decision-makers to defend managing infrastructure in-house.  You’d be surprised just how many companies have already made the move.  It’s not just Netflix.”

Amazon is pressing its first mover advantage to reinforce the notion that it is “the” brand in cloud. “As Kleenex is to tissue, Amazon is to cloud,” Ziegler said. To capitalize on that sentiment, Logicworks this week launched a new managed service that will enable it to manage business customers’ AWS deployments.

Over the past year, AWS unveiled an array of more enterprise-like support and service options. Expect Amazon execs — including CEO Jeff Bezos (pictured above), AWS Senior Vice President Andy Jassy, and CTO Werner Vogels to talk more about this market at the AWS Re:invent show next week in Las Vegas. The show also flaunts a  pretty robust enterprise IT conference track. The timing is good: An array of competitive public cloud offerings are now coming online from  Rackspace, Hewlett-Packard, and others.

AWS girds for more competition

Amazon is nothing if not proactive. Just as it rolls out services before announcing them, now it’s prepping for more intense competition for enterprise workloads. Rivals say they are better suited for enterprise needs than Amazon. Rackspace says its customer support sets it apart; HP says its enterprise service level agreements (SLAs) will win enterprise customers over.

Sources say that Amazon now offers special deals including discounts to enterprise companies doing as little as $250,000 a year in AWS business. Six months ago, it only offered such deals to companies doing at least $1 million of business annually. Why the change now? One thing that IBM and HP have that Amazon does not is long-term ties to big customers. Amazon did not respond to requests for comment on its discounting practices. 

Update: An Amazon spokeswoman got back to me after publication to say that the company introduced volume discounts for Reserved Instances (RIs) last March. If the customer owns more than $250,000 worth of such instances, it qualifies for a 10 percent discount on additional RIs — with the discount applicable to both the upfront and usage pricing. Customers owning more than $2 Million of RIs, qualify for a 20 percent discount on new RIs.  If they surpass  $5 Million in RI purchases, they can talk to Amazon about further discounts.

Said one AWS partner: “AWS feels that IBM entering with SmartCloud and HP with its public cloud may take away enterprise customers because [those older vendors] have much better relationships with them.” Developments like Telefonica’s joint public cloud offering with Joyent is also a problem for Amazon given that telcos also have tight enterprise relationships and telcos “own the network edge,” he said.

A stealth attack on enterprise IT

Some AWS partners said the company prefers to work under the radar in general and that stealth mode hid what they say is an escalated enterprise sales push. AWS has hired sales engineers and others from enterprise-focused companies like HP, SunGard and EMC.

“One of the senior AWS guys told us ‘we like that our competitors don’t think we’re active in the enterprise. When they find out it’ll be too late,’” he said.

One thing’s for sure, Amazon has a huge head start in public cloud services. The total net sales attributed to the company’s “other” category –which largely consists of AWS — were $608 million in Amazon’s third quarter ending September 30. For the nine months preceding that, “other” sales totaled $1.582 billion. So to say AWS is now a $2-billion-a-year business is not a stretch.

Amazon’s problem is that it’s had that field much to itself so far. That won’t be true going forward.

  1. Great article. And quite accurate based on feedback I hear from AWS and other cloud customers. One fine point is that I do hear a significant number of AWS customers *also* migrating some of their production workloads to other clouds that focus on enterprise needs. Not that AWS, will take this lying down. (And as Barb points out, they *already* have plenty of production enterprise apps running on AWS). I would expect to hear Amazon continuing to do more to make AWS attractive for enterprise workloads. For example, Amazon partner Zadara enables use of enterprise-class storage directly through AWS. At the same time, some extremely innovative cloud providers such as ProfitBricks (InfiniBand, SDN, etc.) and Cloud Provider USA (solid state drives, 40GBPs network, etc.) are grabbing plenty of customers with enterprise workloads as well as SaaS providers and gaming companies that demand the performance and reliability found in these clouds. Simply awesome to watch all these players compete!

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  2. Sharks eat others Wednesday, November 21, 2012

    Barb, nice PR piece for AWS, but anyone with a brain (from a startup to a Fortune 100) has to ask themselves if they are ok with signing a lease with Jeff Bezos as landlord with Bezos also being a “shark”. Case in point, don’t forget, Bezos used to work in finance in NYC such as for D.E. Shaw, so Bezos knows how to be a shark. Sharks eat others for dinner!

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    1. Reg. the “shark” comment above, reminds me of Borders outsourcing its online sales operation to Amazon about which Peter Wahlstrom of Morningstar wrote: “In our view, that was more like handing the keys over to a direct competitor”
      http://www.npr.org/2011/07/19/138514209/why-borders-failed-while-barnes-and-noble-survived

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    2. no doubt amazon competes w/ partners and customers. see: http://gigaom.com/cloud/amazon-moves-freak-out-partners-and-rivals-alike/
      The point of this story was to point out its enterprise push. Thanks for your note.

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    3. i’m not sure i know of any CEO of an enterprise IT company that could not be called a shark. Ever hear of Larry Ellison? But I take your point, Bezos is sharp as a tack.

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  3. Any thoughts on where Amazon is headed with the AWSMarketplace?
    https://aws.amazon.com/marketplace/

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  4. AWS released a number of Cloud services in 2012 that make Cloud work better for enterprise–that part is visible if you look. What’s not so apparent to AWS competitors is that AWS has hired and trained excellent account managers, enterprise architects, and that these people serve as an extension of the overall Amazon brand that means exceptional customer service and value. Amazon’s Platinum support and deep understanding of customer service is truly excellent and I think difficult to mimic by a startup, and not to be found at large non-cloud enterprise IT firms.

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    1. Brian, do you think AMZN has anywhere near enough coverage now though–enough sales engineers/reps to cover big accounts? From what i hear not at all. So more hiring t/c.

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  5. Amazon is no more going to dominate the cloud than companies like IBM, HP, Dell, etc have dominated the data center. There will be many public cloud companies. There will be global competition.

    Here is what Amazon is supposedly going to accomplish. They are going to:

    1) Compete against traditional retailers like Walmart, Target, Staples, etc. which no longer have a state tax disadvantage and secondly are getting better at competing via the web.
    2) Compete against Apple, Google, Samsung, and Microsoft in tablets and in online digital retailing.
    3) Compete against IBM, Microsoft, HP, Rackspace, Oracle etc in cloud and in enterprise software.

    Amazon is going to do all of this successfully while having margins less than 1% and FCF of only $2 billion? Every single company that Amazon competes with above has better margins and FCF than Amazon. Even companies like Lenovo have better margins than Amazon.

    How exactly does this seem realistic?

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    1. no doubt it’s got its work cut out. The biggest issue to me though, is that Amazon will increasingly have to pay sales taxes on its retail businesses in more states going forward– to me that means AWS will have to pay its way. Thoughts?

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      1. I know nothing about the retail side of their business so I can’t comment there.

        On the cloud side, they have a huge advantage that isn’t discussed in the article. They GET CLOUD because they run a huge online business. Nobody else you mention as competitors in this article come close to that standard (except perhaps Rackspace). IBM and HP are legacy companies and they think and work like legacy companies. Amazon is an online company and they act like it. Advantage: Amazon.

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  6. AWS’s success is key to the cloud, as competition leads to innovation. What AWS needs to focus “also” on is how they handle downtime because for them this lady year of ” multiple failures” has been an eye-opener… Something they are not used to. Everything said and done what really defines you is how you provide customer support when your customers most need it. This also ties into the comment by jhser.

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  7. Andrew Lugavere Thursday, November 22, 2012

    LOLed at his head. Did not read article.

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  8. I go for Xerox Cloud Services, its going to be on top very soon…

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    1. Patrick Sullivan Saturday, November 24, 2012

      Where is that stupid “like” button?!?

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  9. From my own personal experience migrating to AWS was the first, most obvious, and most cost-efficient move to make. I agree with some of the statements below that there are other clouds to consider but Amazon’s feature set is superb and appears to be growing fast. I’ve had Amazon inquire directly regarding new feature suggestions and observed them implemented within six months. And, despite the bad media attention for a couple of outages, I believe that was poor architecture on the Clients’ parts – AWS provides the tools for redundancy; if companies choose not to leverage them for the cost benefit then indeed it will remain a risk. For me – I’m on-board and I won’t look back anytime soon. And no, I’m not affiliated with Amazon in any way, shape, or form but I’d be the first person to recommend it!

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  10. Thanks a lot for sharing this wonderful article! It was interesting to read about the the intense kind of competition which is building amongst the entrepreneurs.

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