AWS feels sting of market maturity

Posted by Ron Miller on Jul 29, 2014 8:18:27 AM

3654141771_22fe87c875_bIt probably goes without saying that being first to a developing market is a huge advantage. but once the competition sets in, it requires the ability to pivot and meet those challenges head on or risk losing the advantage completely. It's hard a lesson that cloud infrastructure pioneer Amazon Web Services has been learning lately.

AWS is not alone of course. It's a lesson Blackberry learned some years ago and one that Apple is learning now as iPad sales continue to drop in the face of increasing competition from cheaper Android tablets.

Amazon recently released their quarterly earnings statements and their numbers were disappointing. In a post on GigaOm, Barb Darrow suggested it's because of increasing competition from Google and Microsoft and changing business priorities on the part of bigger customers like Dropbox.

AWS has responded with price cuts, but that will only get you so far. "How low can Google and Amazon go?" could be the new parlor game, but it's not a great business model. In a race to the bottom everyone loses.

Back in 2008, when I first began to hear the term cloud in earnest, I remember seeing a panel with representatives from AWS, Google and Salesforce. It was such a new concept, nobody in the room really understood what cloud was and it took an educational effort to explain it and what the advantages of this approach were.

Fast forward 6 years and everyone knows what cloud is. When Amazon first came up with the notion of selling infrastructure services, it was a radical idea, but when something catches on, it won't take long for others to begin to imitate your model. That's what has happened to Amazon and its infrastructure services as Google, Microsoft, IBM, HP and others have jumped on board recognizing a good thing when they see it.

In fact, The Wall Street Journal reported that in spite of healthy 23 percent increase in revenue, Amazon still lost a hefty $126 million last quarter. The losses can't all be hung on the AWS unit of course, but it has been a contributor with revenue down from $1.2 billion the previous quarter to $1.17 billion.

As the article pointed out, this could be due in large part because of price cuts. It takes money to run a data operation as big as AWS and you can't keep cutting prices - even with ever-lower computing prices -without having some type of impact.

Ironically, AWS is actually growing according to reports, so it would appear it's not a lack of customers, but a lack of revenue due to the lower prices. AWS could in fact be a victim of its own success.

AWS is not a stand-alone company, of course. It's part of a much larger operation that is Amazon.com which has fingers in retail, book selling and publishing, music and video streaming, mobile phones and tablets and much more.

But as a cloud company, it's learning like other businesses that came before it, that you are not defined by who you are when you own the market. Instead you will be defined by how you react when the competition gets tougher. That's exactly what's happening now, and AWS has to find a way to step up.

Photo Credit: Eoin Gardiner on Flickr. Used under CC 2.0 license.

Topics: Cloud Industry and Technology