Ed. note: This is the second in a three-part series drawn from a major report on Amazon AWS by Wikibon Co-Founder and Chief Analyst David Vellante. The first examined Amazon’s formidable AWS strategy. The third will discuss the implications for CIOs in medium-to-large organizations.
At first look, AWS seems destined to eat up the entire AWS market. Its strategy, as discussed in the first story in this series, is nothing less than formidable. However, writes David Vellante in his comprehensive new analysis of Amazon’s AWS business, “Cloud Computing 2013: The Amazon Gorilla Invades the Enterprise”, AWS is not invulnerable. It has defined a specific horizontal space within the overall Cloud services market, were price is a major driving factor and, significantly, services and service levels are not, as Netflix, the poster child of AWS customers, has discovered. Amazon’s attitude concerning SLAs is “we will do the best we can, and if that is not good enough, too bad.”
Amazon brags of large enterprise customers such as Shell, Adobe, IBM, Samsung, Dropbox, and many government agencies. However, Wikibon’s research shows, few of these rely extensively on Amazon AWS for infrastructure. Instead they use it for niche shadow-IT initiatives and application development. When those services grow large or become mission-critical, the companies move them in-house or to other IaaS providers. AWS customer churn is reported to be as high as 20% annually.
Wikibon also found that while AWS can be a good choice for simple applications, it is uninterested in handling complex ones or those that need to be integrated or share data with several other applications. The added expense and customization required for supporting those violates its low-cost, high-volume strategy.
This leaves plenty of room for competitors that may charge more but provide the services and support that complex, mission-critical applications require. That group includes some high-growth providers such as ViaWest. And their opportunities are increasing steadily as medium-to-large businesses become more comfortable with public Cloud services.
Successful cloud service providers avoid head-on competition with the Amazon steamroller, Vellante writes. Instead they deliver a clear value proposition to CIOs that promises business value through a partner ecosystem. The most successful are either industry-focused, providing special services tailored to the vertical they serve, or are best-of-breed or both and offer significantly better shared-risk models than Amazon. Specifically,:
- Differentiation is the key to success and focus is the key to differentiation.
- SPs are focusing on a set of customers and/or a market segment that allows them to achieve economies of scale.
- Successful SPs are taking an ecosystem approach, in which the participants each bring value to the table – multiple SPs are collaborating to achieve scale while at the same time preserving differentiation in their respective segments.
- Amazon competes broadly and horizontally across all verticals. Successful SPs targeting enterprise customers are focusing on selected verticals (e.g. financial services, media, healthcare) and/or certain domains (e.g. startups, mid-sized companies, compliance, etc.)
As with all Wikibon research, this report is available in its entirety on the public Wikibon Web site. IT professionals are invited to register for membership in the Wikibon community. This allows them to comment on research and publish their own Professional Alerts, tips, questions, and relevant white papers. It also subscribes them to invitations to the periodic Peer Incite meetings, at which their peers discuss the solutions they have found to real-world problems, and to the Peer Incite Newsletter, in which Wikibon and outside experts analyze aspects of the subjects discussed in these meetings.
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