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Killer cloud: report says Amazon Web Services threatens all IT incumbents

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Amazon(s amzn) Web Services faces growing competition from a dozen or more legacy name-brand IT giants. But instead of taking a hit, it poses a bigger-than-ever threat to the those vendors — all of which are building their own competitive clouds, according to new Morgan Stanley research.

Oh, and the researchers project that AWS will hit $24 billion in revenue by 2022. Amazon doesn’t break out AWS revenue, but most pundits figure it passed the $2 billion-a-year mark about a year ago.


The fact that AWS has a huge lead in cloud over the rest of the world is not news to anyone who’s been watching, but these projections could be a wakeup call to investors who think tech incumbents — companies like IBM(s ibm), Microsoft(s msft), HP(s hpq), VMware(s vmw), Red Hat(s rhat), as well as every telco and hosting provider — can challenge Amazon in cloud computing.

“Applying retail economics to the delivery of technology services well positions Amazon Web Services [to be] a Top 5 vendor within the $152 billion TAM [total addressable market], ” according to Morgan Stanley analysts Scott Devitt, Keith Weiss and team.

Nobody’s immune

The move to cloud computing means fewer companies will buy huge numbers of servers and storage arrays for their own use. Over the next five years, Morgan Stanley’s expects that 3 percent to 17 percent of current spending could be sucked up by cloud-based IT service providers. AWS represents a key risk for infrastructure vendors EMC, Brocade, NetApp, VMware and Qlogic, in particular, according to the report.

Other key takeaways:

  • “We expect on-premise server growth to remain negative long-term on the back of smaller footprints post the adoption of server virtualization combined with new workloads moving to the cloud. Partially offsetting the decline is 20% growth in servers shipped to cloud providers, though some of the demand is fulfilled by whitebox makers like Quanta and Wistron.”
  • “Storage market at risk of decelerating growth that isn’t fully baked into expectations (unlike servers which already declined in 2012). We expect 0-5% storage revenue growth going forward, down from 5-10% historically. EMC and NetApp likely gain share from server vendors, like IBM. We downgrade BRCD to UW, given over 30% of revenue derived from server OEMs.”

AWS as enterprise software power

And then there is enterprise software, where Amazon threatens VMware(s vmw) and Red Hat(s rhat) in the virtualization market. And, as we’ve reported, Amazon is pushing hard for enterprise workloads with its DynamoDB NoSQL database and RedShift data warehouse. Those AWS efforts represent a long-term threat to Oracle, SAP and Microsoft. In content delivery, where Amazon’s CloudFront is a factor, Akamai(s akam) faces a long-term threat.

Morgan Stanley isn’t the first analyst firm to up the ante on AWS expectations. In January, Macquarie Capital projected that AWS would account for $38 billion of an overall $71 billion cloud services market by 2015. If you don’t like Morgan Stanley’s take on AWS, hold on — there are bound to be others.

The growth of Amazon’s public cloud infrastructure and its push beyond startups into the enterprise,will doubtless come up at GigaOM’s Structure event, where Amazon CTO Werner Vogels will speak.

10 Responses to “Killer cloud: report says Amazon Web Services threatens all IT incumbents”

  1. Greg Knieriemen

    This is what happens when financial analysts look at numbers without understanding the technology. On prem infrastructure is indeed changing and where apps live will move around.

    But… one reality that will not change: It is by far more expensive to move wholesale to a public cloud than keeping it on prem. Last I saw, IT budgets aren’t growing at the annual rate of AWS costs, not even close.

    It’s all about private cloud my friends.

  2. Amazon is doing an amazing job with their cloud services. They keep pushing boundaries and keep the momentum going, something the other cloud providers must match to be competitive, so it is us as IT professionals and business professionals that benefit.

    Whether on-premise infrastructure will ever dissapear I don’t know. From a technical point of view it is already possible, it might not save you more money, but it should be competitive vs on-premise infrastructure. What will hamper it however is governance, risk-management and compliance. Those are outside the control of the corporates and Amazon to influence, and although they might comply, the perception will take a while to change.

  3. The idea that anyone (let alone analysts at an investment bank) can predict AWS revenue 9 years from now is one of the most insane things I’ve read this year, and I can’t believe anyone is printing this with a straight face and no hint of skepticism (or a range).

    IaaS is (realistically) less than 5 years old as a market, and while it is revolutionary, the idea that we know where the first-mover vendor is going to be here is crazy. This is essentially like Morgan Stanley predicting–in 2003–that Friendster would be a $25 billion company.

  4. As someone tweeted — predicting revenues a decade out is very tricky business, while another scoffed at the notion that it will take AWS 9 years to blow by $24 billion. In short this is one of those wait-and-see stories.

  5. scott herson

    customers are leaving amazon almost as fast as they come. usually when wall-street starts making statements like this, we are at a plateau or bubble.

  6. Enterprise Applications will move to the cloud, as the on-premise capital expenditure and on-going support costs are too high.

    I’ve seen massive, hyper-complex enterprise applications built in the cloud, by business people themselves. They know what they want, they build it themselves, roll it out across their business and do upgrades and support as they need to. All the while, bypassing their in-house teams of developers, infrastructure guys, etc.

    As an aside, I’ve even witnessed IT guys try to sabotage these efforts, in a ludicrous attempt to save their jobs. Of course, they were found out and ironically their behaviour got them all fired. What they should have done is embrace the new way of working to try to be valuable to their employer, but it seems they were more interested in misguided protectionism. End of aside.

  7. Doug Micha

    Ding dong the Microsoft monopoly witch is dead! The witch is dead! The witch is dead.
    Amazon rules the cloud (see you later Microsoft alligator). Apple and Google rule the smartphone OS roost (see you later Microsoft alligator). The only thing left at MSFT is Xbox and Steve Ballmer’s dwindling hairline.