Amazon’s Cloud Business

How Amazon’s Cloud Business is Competing With Its Customers

By Benjamin Roussey

Amazon Web Services (AWS) is the clear leader in the cloud market. The firm has been dominating the sector for a decade now and is not showing any signs of letting up.

In the third quarter of 2018, AWS had a 34% share of the cloud infrastructure market with a revenue of $6.68 billion, according to Synergy Research Group.

While AWS has primarily been an Iaas provider over the years, the company appears to be slowing metamorphosizing into the Paas and Saas field. In so doing, AWS is directly competing with its customers.

This may come as a surprise to some, but anyone who has been following Amazon’s growth over the years knows this is nothing new with the company. AWS’s parent company adopted a similar strategy in 2009 with the launch of Amazon Basics, which offered identical products as top-selling merchants on the e-commerce platform.

Amazon’s Strategy

Does this amount to a conflict of interest? Well, not according to Jeff Bezos. The Amazon CEO noted in an interview during a trip to India in 2014 that the company is focused on its customers rather than its competitors.

During re:Invent 2018, the annual user conference hosted by AWS, the company announced several new services that put it in direct competition with its customers. Here are two notable examples:

  • Amazon Managed Streaming for Kafka: Apache Kafka is an open-source platform for creating streaming apps and streaming pipelines. Thousands of companies use this platform including some that rely on AWS for cloud storage.

What’s more, the creators of Apache Kafka also have a streaming platform called Confluent Cloud which can be integrated with AWS. Therefore, with the release of Amazon Managed Streaming for Kafka, the company is fundamentally undermining the efforts of the creators of Apache Kafka and at the same time taking advantage of their open source software.

  • Amazon Sagemaker: AWS took a step into the artificial intelligence field with Amazon SageMaker. This platform will enable users to create, train, and use machine learning models. SageMaker covers every aspect of the machine learning workflow from preparing the algorithms to deployment. While Amazon Sagemaker is an impressive service, it will compete with similar platforms that run on the cloud like Algorithmia.

Long before re:Invest 2018, Amazon has been making moves that made the firm a competitor with its customers. Here are two classic examples.

  • In April 2017, AWS released AWS CodeStar. This cloud service was designed to enable developers to conceptualize, build, and deploy apps easily. AWS CodeStar is very similar to Salesforce’s Heroku, which can be integrated with AWS. Many similar apps can be linked with AWS including Nanobox, Cloud66, Docker Cloud, and Openshift. CodeStar represents competition for all these platforms although they can work with AWS.
  • Also in 2017, AWS launched Amazon Connect. This customer service app for call-centers does the same thing as many apps that work with AWS like Talkdesk.

The examples highlighted above are just a few instances where AWS has launched products that compete with those of its customers. The list can go on-and-on. Now, the question is, how do these firms compete with a behemoth?

Amazon does not only have more capital, but also the fact that most of these services are merged with the company’s cloud platform makes them a more attractive option.

 

Big Spending

Dropbox was in a similar situation. The cloud storage platform used to depend a lot on AWS. However, with increasing competition from the likes of Amazon Drive, the company decided to take matters into its own hand and build in-house data centers. This monumental task involved millions of dollars.

Dropbox continues to use AWS to a certain extent, but a bulk of the data of its 500 million users are no longer hosted on Amazon’s cloud platform. This move has helped the company save up to $75 million in two years.

A Different Playing Field

Although creating in-house data centers is the best option, not every company has the spending power of Dropbox. So, how can small and mid-sized businesses who rely on AWS compete with the services rolled out by the company?

If the trajectory of Amazon Basics is taken as a yardstick, it is unlikely that AWS’ offshoot ventures will snuff out the competition. Nonetheless, they will take a bite out of the market share. It seems the only option for these small and mid-sized companies to survive is to offer dedicated services with a lot more features than AWS’ products.