Later today Amazon releases its Annual Report and it is widely expected to document AWS revenues in the region of $8bn for the year. I’m looking forward to some interesting disclosures and expect it will make uncomfortable reading for anyone that hasn’t recognised the threat this poses to their business and the challenges and changes it represents to the IT sector as a whole.
For those that haven’t had their head in the clouds, 10 years ago Amazon launched AWS and it has experienced exponential growth by making it easier and faster for users to create and deliver applications. Initially it offered clients infrastructure as a service (IaaS) with a new utility pricing model that fuelled growth, particularly amongst the developer community. It was the best kept secret for many years amongst these advocates but word spread quickly (as did growth) while users continually looked for new and varied ways to deliver services from their new found toy, often these were business critical applications and production/monetised e-commerce operations. As the service developed, AWS and the flourishing community added a rapid-growing range of additional services to the core infrastructure offering. For a SaaS business like ours, it has been a game changer and it provides the supportive environment to compete with the establishment. Many of the billion dollar tech companies we know today (and have been the disruptive and then subsequently dominant force in their respective industries) were born and grew up on AWS - Airbnb, Netflix, Pintrest, Spotify and Dropbox are but a few examples. Not only has AWS allowed you to compete with the bigger players on a more level playing field but it has enabled you to compete on a global scale by pushing out your applications easily and cost-effectively to any locale in the world.
Historically AWS has been viewed as the platform from which businesses can quickly and cheaply deliver new applications with innovative qualities or provide the infrastructure for new start-ups in their entirety. Nowadays I’d argue that there is a greater shift towards migrating pre-existing production applications or legacy services and this will be the next wave of disruptive activity in a volatile and increasingly competitive IT infrastructure sector. If the server/storage vendors, IT resellers and service providers thought the last 12 months were tough, they ain’t seen nothing yet. Just to make it even more confusingly competitive, Azure is rumoured to be growing at an even faster rate than AWS and Google is striking back hard with some wins that included taking Spotify and Apple away from AWS. I don’t envy anyone that gets caught between these cloud titans.
If we look at the economics of this shift the stark truth becomes very clear. By my rough calculations you can store 1TB of fully loaded data in AWS (or your preferred cloud provider) for under £3000 a year or thereabouts. By comparison the fully loaded cost to do it yourself and store 1TB on premise with a traditional storage asset from a top 3 badged provider may be 3-4 times that cost. If we extrapolate these ratios and apply to the AWS financials it means that next year, given AWS is expected to grow to a $12bn business, traditional (on premise) IT vendors and solution providers will be missing out or losing out on an additional $16bn of standard IT procurement in the next 12 months. Or, to look at the entire total, $48bn of revenues that have been taken by AWS alone. Factor in Azure, Google and their respective growth figures and it’s a sizeable chunk out of the global IT forecast spend this year.
This is all a bit doom and gloom, so let’s look at who’s benefiting and winning? Well it’s great news for UK business particularly any SaaS business like ours as the opex cost, cost to grow and the option to deploy internationally reduces. If you can’t beat ‘em join ‘em, so any AWS/Azure/Google partners and integrators look to be doing very well thank you very much and these flourishing businesses are seeing their multiples rocket on fast-growing (but much slimmer EBITDA) revenues. The question nowadays isn’t so much 'who do you use for your hosting' as 'who is managing your AWS/Azure estate' and/or 'how many developers have you got in your business managing it for you’. The direct suppliers and manufacturers powering this growth are kept pretty secret but as an example and from some quick research for AWS there seems to be regular mention of Intel (buying chips direct) and hardware from Quanta, ZT systems and Foxconn. The businesses supporting the huge DC estate will also be celebrating as these behemoths roll out great swathes of DC capacity every day. For AWS that’s reported to be in excess of $6Million in equipment/capacity each. and. every. day.
A few years ago this business didn’t really exist. That’s impressive and/or scary depending how you view it. And, of course, once they see growth slowing in this arena it will only be a matter of time before the top 3 titans diversify and look at other complimentary sectors, products and services. They already are. I can guess at a few that would make a lot of sense but thats another post for another day.
For those that spotted the quote here’s H.G. Wells in full;
Yet across the gulf of space, minds that are to our minds as ours are to those of the beasts that perish, intellects vast and cool and unsympathetic, regarded this earth with envious eyes, and slowly and surely drew their plans against us.
— H. G. Wells (1898), The War of the Worlds