Where are the challengers to AWS?

This is part of 2 of my response to Bernard Golden’s recent CIO.com blog post in response to my announcement of Gartner’s 2013 Magic Quadrant for Cloud IaaS. (Part 1 was posted yesterday.)

Bernard: “What skill or insight has allowed AWS to create an offering so superior to others in the market?”

AWS takes a comprehensive view of “what does the customer need”, looks at what customers (whether current customers or future target customers) are struggling with, and tries to address those things. AWS not only takes customer feedback seriously, but it also iterates at shocking speed. And it has been willing to invest massively in engineering. AWS’s engineering organization and the structure of the services themselves allows multiple, parallel teams to work on different aspects of AWS with minimal dependencies on the other teams. AWS had a head start, and with every passing year their engineering lead has grown larger. (Even though they have a significant burden of technical debt from having been first, they’ve also solved problems that competitors haven’t had to yet, due to their sheer scale.)

Many competitors haven’t had the willingness to invest the resources to compete, especially if they think of this business as one that’s primarily about getting a VM fast and that’s all. They’ve failed to understand that this is a software business, where feature velocity matters. You can sometimes manage to put together brilliant, hyper-productive small teams, but this is usually going to get you something that’s wonderful in the scope of what they’ve been able to build, but simply missing the additional capabilities that better-resourced competitors can manage (especially if a competitor can muster both resources and hyper-productivity). There are some awesome smaller companies in this space, though.

Bernard: “Plainly stated, why hasn’t a credible competitor emerged to challenge AWS?”

I think there’s a critical shift happening in the market right now. Three very dangerous competitors are just now entering the market — Microsoft, Google, and VMware. I think the real war for market share is just beginning.

For instance, consider the following, off the cuff, thoughts on those vendors. These are by no means anything more than quick thoughts and not a complete or balanced analysis. I have a forthcoming research note called “Rise of the Cloud IaaS Mega-Vendors” that focuses on this shift in the competitive landscape, and which will profile these four vendors in particular, so stay tuned for more. So, that said:

Microsoft has brand, deep customer relationships, deep technology entrenchment, and a useful story about how all of those pieces are going to fit together, along with a huge army of engineers, and a ton of money and the willingness to spend wherever it gains them a competitive advantage; its weakness is Microsoft’s broader issues as well as the Microsoft-centricity of its story (which is also its strength, of course). Microsoft is likely to expand the market, attracting new customers and use cases to IaaS — including blended PaaS models.

Google has brand, an outstanding engineering team, and unrivaled expertise at operating at scale; its weakness is Google’s usual challenges with traditional businesses (whatever you can say about AWS’s historical struggle with the enterprise, you can say about Google many times over, and it will probably take them at least as long as AWS did to work through that). Google’s share gain will mostly come at the expense of AWS’s base of HPC customers and young start-ups, but it will worm its way into the enterprise via interactive agencies that use its cloud platform; it should have a strong blended PaaS model.

VMware has brand, a strong relationship with IT operations folks, technology it can build on, and a hybrid cloud story to tell; whether or not its enterprise-class technology can scale to global-class clouds remains to be seen, though, along with whether or not it can get its traditional customer base to drive sufficient volume of cloud IaaS. It might expand the market, but it’s likely that much of its share gain will come at the expense of VMware-based “enterprise-class” service providers.

Obviously, it will take these providers some time to build share, and there are other market players who will be involved, including the other providers that are in the market today (and for all of you wondering “what about OpenStack”, I would classify that under the fates of the individual providers who use it). However, if I were to place my bets, it would be on those four at the top of market share, five years from now. They know that this is a software business. They know that innovative capabilities are vitally necessary. And they know that this has turned into a market fixated on developer productivity and business benefits. At least for now, that view is dominating the actual spending in this market.

You can certainly argue that another market outcome should have happened, that users should have chosen differently, or even that users are making poor decisions now that they’ll regret later. That’s an interesting intellectual debate, but at this point, Sisyphus’s rock is rolling rapidly downhill, so anyone who wants to push it back up is going to have an awfully difficult time not getting crushed.

Posted on September 5, 2013, in Infrastructure and tagged , , , , , . Bookmark the permalink. 21 Comments.

  1. Many IT execs are confused and think that just because AWS accepts credit cards, it doesn’t take customer feedback seriously, or reach out to customers to provide additional value.

    On the contrary, I’ve seen first hand the effort and focus that AWS puts on getting quality feedback from customers; it is part of the DNA there. The focus and speed at which this feedback is iterated on is one of the biggest reasons why AWS is dominating.


  2. Where is IBM & HP here?


  3. Agreed, @edla.

    @jayaram, HP and IBM are both Niche Players in this year’s MQ.


  4. It seems that IT operations buyers still control most of the budget in the vertical industries, and in the emerging countries, so I think VMware may have a good play in these markets, Just as you said,it could be an interesting intellectual debate, but I believe IaaS as a extension of managed hosting may be good enough for a lot of customers in a very long period. and VMware has a really smart strategy to enforce its SP partners to keep this trend.


  5. There are no challengers to AWS right now. And to be honest I can’t even imagine a single challenger, at least not for quite some time.

    Because true cloud computing needs skill, experience and money (a lot, it is rumoured that AWS spent about 12 billion USD and Microsoft invested roughly 20 billion USD).
    So far only three businesses have been able and willing to invest enough money to operate at a level that truly is “utility computing” (about 1 million servers distributed globally): Google, Amazon Web Services and Microsoft.
    In addition to that only two of the businesses mentioned above have all of the needed (money, skill, experience): Google and Amazon Web Services.

    So, if the only real challenger to AWS is Google – why aren’t they trying to compete with AWS (offering GCE, without seriously marketing it, is not competing)? After all Google most probably has even more skill and experience than AWS operating at such a large scale.
    It is easy to answer that: first of all, Google has plans: obviously they are on a mission to create the ultimate search engine – an artificial intelligence. Secondly: Google isn’t stupid – directly competing with AWS, a business that is used to operating at a very low margin, would be highly dangerous – AWS would start slashing prices which Google would have to follow to stay competitive (just like they did with Terremark), which probably would end up in a price war which obviously might take down at least one of them and would end up in weakening both businesses so far that other competitiors could truly challenge them (unlike now).
    After all: if you’re the kingpin in your city (meaning SaaS for Google and IaaS for AWS) – why would you go to another city and challenge the kingpin there, especially if you know that he can match you?

    Given all above, that only leaves Microsoft as a, seriously disadvantaged, challenger to AWS: they have the infrastructure and the money (at least for the moment) but are lacking the skills and experience. Will they catch up with AWS before running out of money? I have no idea what the chances might be for that – after all Nick Carr probably is right in his assumption he made in “The Big Switch”: “But pioneering a new business while continuing to harvest profits from an old one is one of the toughest challenges a company can face. It remains to be seen whether Microsoft will be able to pull it off.”
    Maybe, for a start, they should drop Azure and switch to a custom Linux (which Google and AWS use) to be on a par, at least in regard to the foundation of their cloud, with Google and AWS.
    Can anybody imagine Microsoft swallowing a frog that size?

    Summing up all above I reckon AWS will probably continue to have no serious challengers for at least another 2-3 years, maybe even 5 years.
    It all depends on CEOs (and possibly investors/shareholders) waking up, before their business’ time has run out.

    Will anybody, for example IBM, wake up in time? I have no idea – but if not we are looking at a very long time frame that AWS will be the undisputed No. 1 in the cloud.


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