Cloud services giant Amazon Web Services (AWS) is dominating a key IT industry
On Nov. 25, 2020, the entire internet went down. Or at least that’s how it seemed for thousands of users who couldn’t access most of their favorite websites and online services. Businesses found they couldn’t conduct sales on their e-commerce sites. Many popular streaming services went offline. People who used cloud-based password managers were unable to access their credentials.
Not only that, but many people at home were victims of a robot revolt: Roombas made by the company iRobot stopped automatically vacuuming their carpets and floors.
The reason for the chaos? A hiccup at Amazon Web Services, where an innocuous change to a data collection and analysis service set off a chain of digital dominoes that resulted in a major service outage. The event only lasted a few hours, but it was a wake-up call that revealed just how much of the internet relies on the existence of Amazon Web Services (AWS).
AWS: A Sky Full of Clouds
AWS began life in the mid-2000s and quickly took off using the same strategy that made Amazon the largest seller of books (and then nearly everything else) in the world: take something and sell it cheaper than anyone else can. Cutthroat pricing and aggressive expansion rapidly transformed AWS into the 800-pound gorilla of the cloud infrastructure marketplace.
AWS generated $11.6 billion in net sales in Q3 2020, based on quarterly revenue growth of 29 percent. According to independent research firm Canalys, AWS owned 32 percent of the global cloud infrastructure market as of October 2020. To compare, these were the next three largest players in the same timeframe:
● Microsoft Azure (19 percent market share)
● Google Cloud (7 percent market share)
● Alibaba Cloud (6 percent market share)
AWS is more than just simple cloud hosting. Amazon has continued to expand the functionality of AWS with new services covering a full range of solutions including relational database services, virtual private servers, and machine learning modules.
As far as marketing goes, AWS brand recognition has grown through the company’s strategic partnerships with professional sports leagues like the NFL and Formula 1 racing. You may have heard a TV announcer say, “Let’s look at some Next Gen Stats powered by AWS,” during a recent football game broadcast.
At the end of 2020, Amazon pulled another play from its retail strategy and introduced third-party software solutions to its AWS Marketplace. AWS customers can also purchase third-party IT professional services such as assessment of existing computing environments, assistance with rollouts of third-party software, and customized training for employees.
All of the relevant account management and billing for third-party solutions is handled through Amazon’s existing AWS payment system, which greatly simplifies a customer’s administration of these add-ons. It is a clever approach. By adding third-party software and services, Amazon will likely gain even more of its customers’ annual IT procurement spending.
Jeff Bezos clearly understands how to establish market dominance across a spectrum of industries. The question is, can any of Amazon’s competitors close the gap to AWS?
There are some dark clouds looming for Amazon (and the greater IT industry at large) as the U.S. government prepares to launch anti-trust lawsuits against several Big Tech companies in 2021.
Most of the anti-trust criticism levelled at Amazon has centered on its misuse of customer data and its predatory and unfair treatment of third-party retail sellers. Combined with the level of power AWS currently wields over American internet traffic, the U.S. Department of Justice could make a convincing enough argument to split Amazon up into separate entities.
That said, AWS is presently making so much revenue that it doesn’t need access to Amazon’s retail piggy bank to keep expanding its infrastructure — and its market share.
The resulting negative publicity from an anti-trust lawsuit could give a boost to Amazon’s closest competitor, Microsoft. Microsoft’s anti-trust woes from two decades ago are long forgotten, and the Redmond-based giant is not in the current list of the DOJ’s anti-trust targets. Businesses might opt to distance themselves from AWS and switch to Microsoft Azure if Amazon is involved in a lengthy, PR-sensitive monopoly case.
Google is on the DOJ’s naughty list as well, which doesn’t bode well for expanding its Google Cloud offering beyond its current 7 percent market share.
Which brings us to Alibaba Cloud, the top cloud services provider in Asia Pacific. In April 2020, the Chinese multinational announced its intention to sink $28 billion into its infrastructure over the next three years. Much like AWS, Alibaba Cloud is backed by a wealthy parent company, the Alibaba Group.
While Alibaba Group doesn’t have the same high-profile presence in North America as Amazon, it is in fact the largest retailer and ecommerce company in the world. It is also a highly-rated artificial intelligence and computing technology company.
While Alibaba Cloud intends to make large investments in its cloud infrastructure, the company has come under intense scrutiny by the Chinese government. News reports of a growing rift between Alibaba Group founder Jack Ma and government officials culminated in Chinese regulators recently blocking the financially lucrative IPO of Ant Group, an affiliate of the Alibaba Group.
Since the thwarted IPO, Jack Ma has disappeared from public view, and Chinese leaders have reportedly begun their own anti-trust probe into Alibaba Group. Given these recent developments, combined with an undercurrent of anti-Chinese sentiment in the United States and the United Kingdom around mobile technology and privacy issues, it is not likely that Alibaba Cloud will be in a position to challenge AWS in the near future.
Looking at the big picture, there are no compelling arguments to suggest that Amazon Web Services is under any threat of losing its current market dominance. The global cloud infrastructure services industry should grow significantly in the next five years, which will create opportunities for competitors like Microsoft and Alibaba — as well as the likes of IBM, Rackspace, and others — to gain ground on AWS.
Barring having some drastic penalties enforced by the U.S. government as a result of its anti-trust proceedings, however, the forecast is good. AWS is positioned to remain atop the cloud services pyramid for the foreseeable future.