March 11, 2011
Given the hundreds of books piled up around my house, it isn’t unusual for me to talk excitedly about Amazon.com. Yet out to dinner recently with a friend, I found myself animatedly describing Amazon Web Services, a new business that doesn’t have anything to do with books. The fast growing unit is revolutionizing how start-ups spend their scarce capital and changing the competitive landscape for companies of all size.
What are Amazon Web Services?
What exactly are Amazon Web Services? To understand the division, first you have to understand the cloud. The cloud is short for cloud computing, which has been described by Amazon.com CEO Jeff Bezos as similar to the electric grid. As with the electric grid, the user of the cloud is generally unaware of how the service is provided or where the necessary infrastructure is located. Cloud computing infrastructures exist in massive data storage facilities, but their location makes no difference in service to the end user.
If you think of the cloud as metaphor for the internet, it is the infrastructure that allows users to log on to a secure web connection and access email, stream movies, music, news, applications and increasingly, essential information technology data in the workplace. The world’s digital universe will reach 1.2 zettabytes in 2011, according to IDC. Bloomberg reports that the number is equivalent to 20,000 times every word ever written in the roughly 6,500 languages spoken in the world. And someone has to process all this data. Enter, Amazon.com.
Amazon has been a growing presence in the cloud computing market since introducing its Amazon Web Services, or AWS, business in 2006 and is now the most dominant player in the space, according to Bezos. AWS offers IT infrastructure on demand to users in the cloud, charging only for the computing infrastructure that is used. In its simplest form, all that is needed to join is a credit card. The offerings are numerous and especially relevant for start-up companies. Customers sign up and choose from a comprehensive suite of products that include all of the unseen details that power internet commerce: backup and storage, web and media hosting, content delivery, e-commerce, high performing computing, and if a real person is needed for a job, an on-demand AWS-staffed workforce.
The strength and reliability of AWS’s offerings, which the company has been building since its founding in 1998, have small and large companies eschewing infrastructure investments in favor of leaning on Amazon’s rapidly growing network in the cloud. The infrastructure rental model allows companies to spend their time and money developing the best products, while Amazon delivers peace of mind by preparing for changing infrastructure demand. AWS can add server processing power and storage as popularity of the services or apps increase. Small companies have the ability to scale their capacity needs using real time data and can respond almost instantaneously, yet the price of AWS’s services only rises when customer demand increases.
CEO Bezos believes that customers
will gladly pay to hand over the administration
of their IT infrastructure.
Bezos spoke to PBS’s Charlie Rose about the AWS business in an interview this summer, and explained that operating an infrastructure data center well is essential to its users, but owning a data center doesn’t make a company better or even differentiate the business. Data centers could have been designed by film production crews readying for a science fiction thriller. They are cavernous and huge, often the size of multiple football fields, and have long corridors filled with servers, wires, and all types of large scale technical equipment. Bezos believes that customers will gladly pay to hand over the administration of their IT infrastructure.
Running a data center is a huge financial commitment but also a security-driven, labor intensive endeavor. In 2009, Microsoft spent $500 million to open one of the largest data centers in the world, a 700,000 square foot facility outside Chicago. Amazon operates large data centers in several U.S cities and has international data center operations in Amsterdam, Dublin, Frankfurt, London, Hong Kong and Tokyo, but the specific locations are a well kept secret. Amazon is keenly aware of security issues surrounding the data centers, as its website explains. “Only those within Amazon who have a legitimate business need to have such information know the actual location of these data centers, and the data centers themselves are secured with a variety of physical barriers to prevent unauthorized access.”
Physical security is only a small portion of the high maintenance needs of a maintaining a data center. In order to guarantee the reliability of its cloud network, Amazon has achieved multiple technical certifications and accreditations, insuring that its data privacy and other secure services restrict unauthorized access while providing the flexibility that Amazon believes is one of AWS’s most attractive features.
Understanding how massive an undertaking
designing, constructing and operating
a data center is underscores why AWS has become
so important for businesses.
Understanding how massive an undertaking designing, constructing and operating a data center is underscores why AWS has become so important for businesses. In a word, cost. Companies spend their venture capital on products that grow their business. AWS runs their web platforms seamlessly, and the company pays for their essential data infrastructure services on an as-needed basis. With hundreds of thousands of customers and an estimated $750 million in revenues from AWS expected in 2011, Bezos has been right; customers are flocking to the services. UBS analysts Brian Pitz and Brian Fitzgerald estimate that Amazon’s Web Services business will triple by 2014, contributing $2.5 billion to Amazon’s revenues.
Amazon Web Services power Netflix’s streaming operations, Zynga’s offering of online games including the popular Farmville, and a large percentage of new apps being developed by start up entrepreneurs. Jeff Barr, evangelist for Web Services at Amazon, said in an interview in August that Amazon hosts six to eight of the top ten games on Facebook at any given time. In 2009, Amazon Web Services was named Webware 100‘s Editor’s Choice. The editors stated that AWS is where new apps live. “Venture capitalists, who fund startups, used to look askance at a Web company that couldn't run its own servers. Now we're hearing that they're considered financially irresponsible if they do.”
But it isn’t just start ups who are using AWS’s cloud. A 2008 report on TechCrunch, citing a high ranking Amazon official, explained that “the biggest customers in both number and amount of computing resources consumed are divisions of banks, pharmaceuticals companies and other large corporations who try AWS once for a temporary project, and then get hooked.” Firms powered by AWS include NASA’s Jet Propulsion Laboratory, Autodesk’s software-as-a-service solution Autodesk Seek, and Virgin Atlantic’s travel website vtravelled.com.
While Amazon remains quiet about its largest customers, Zynga, which has a private market valuation of $7-10 billion, uses Amazon’s Elastic Compute Cloud (EC2) services to handle the traffic of its 200 million monthly users. AWS’s website offers case studies of hundreds of happy users, who describe how their businesses could not exist without Amazon. Consumer review website Yelp uses AWS’s storage services, and Yelp search and data-mining engineer Dave Marin describes one of the major benefits of using AWS. “Our developers can now do things they couldn’t before,” he said. “Our systems team can focus their energies on other challenges.”
In 2010, only five percent of the $1.5 trillion
in corporate IT spending was in the cloud.
In a 2006 Business Week cover story, Bezos looked ahead to the possibilities of AWS. "We think it's going to be a very meaningful business for us one day. What we've historically seen is that the seeds we plant can take anywhere from three, five, seven years." Four years later, still only about five percent of the $1.5 trillion in corporate information technology spending was in the cloud, according to industry data supplied by International Data Corp. and Gartner Inc. But with hundreds of thousands of customers and massive growth expected - there were 900 job openings in the Amazon Web Services division in March 2011 - the ASW cloud seems poised to be the infrastructure service platform of choice for all types of businesses, just as Bezos predicted.
Sources:
Clayton Freeman
Bloomberg
http://gigaom.com/2010/02/01/amazon-cto-werner-vogels-on-amazon%E2%80%99s-web-services-startups-and-innovation/
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