

Amazon’s AWS Strategy Becomes Clearer Every Day - edw519
http://abovethecrowd.com/2009/06/08/amazons-aws-strategy-becomes-clearer-every-day/

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DenisM
Strategy: good customer support, huge scale, low margins.

Good support wins loyalty, helps debugging the system to eliminate systemic
problems, and helps against Google (which is really bad at customer service).
Huge scale drives down the cost and allows reusing knowledge from user to
user, thus each user suffers less while Amazon learns. Low margins keep high-
margin competitors away (Microsoft, IBM) and make users happy.

~~~
jimbokun
Low margins making this a good fit for Amazon was really a light bulb going
off for me. Microsoft, IBM, and even Google hate low margins, but it is
inherent to Amazon's other businesses and built into their DNA. Microsoft,
specifically, knows that this space is important, but they can't get their
heart into it because they know the low margins will eventually have an impact
on their other high margin businesses.

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staunch
I do think there's a _ton_ of room for someone to destroy AWS. Amazon is
pretty good. I'm sure they can beat Google and Microsoft. But they're not
nearly as fast or smart as they could be with AWS.

I think a small team of sysadmins and programmers could get together with
$40MM and wipe the floor with them.

~~~
ryanwaggoner
I sincerely doubt that this is true, for a few reasons:

1\. Amazon can afford to lose money on AWS for years, while a new company with
just $40MM can't.

2\. Many of the early adopters using AWS are "rogue developers" within large
organizations. A key defense for a strategy like that if you get caught would
be that you went with one of the largest, most reliable companies in the
industry, as opposed to a small, unproven startup.

3\. A small team of very smart, very motivated developers and sysadmins with
$40MM would be better off going after a high-margin business where they don't
have to compete with three or four of the biggest and most powerful technology
companies in the world.

Not saying that there's not room for improvement, or that a startup in this
space couldn't do well, but I highly doubt they'd "wipe the floor" with
Amazon.

~~~
staunch
1\. $40MM is probably less than Amazon invested initially in AWS. That's
enough to buy hardware/bandwidth/datacenter space in quantity for significant
savings. It's also enough to afford to lose some percentage of money every
year for a while. Definitely enough to prove to investors that you're on to
something. This is the strategy Amazon used themselves. Also, I truly doubt
Amazon designed or operates their datacenters as cheaply as is possible
(whether they think so or not). IT infrastructure is probably a relatively
small cost for their retail business. They're also surely quite bloated by
legacy choices.

2\. Fair enough. They certainly have a great brand name, that helps them.
They're going to have an easier time getting rogue developers. That still
leaves startups and other small businesses that only care about what's
actually better for them. I think it's safer to bet on what's _actually_
better winning than what has a good brand name, otherwise Google would be
winning already with App Engine.

3\. I agree it'd be easier to play it safe by going after some high margin
niche. That doesn't mean it's "better" though. Some people want to do really
big things.

I think a great team with great financial backers could absolutely wipe the
floor with Amazon. Amazon only looks untouchable because they haven't faced a
really serious contender yet.

~~~
easp
Let's think this through.

1\. If IT infrastructure was a relatively small cost for their retail
business, why on earth would Amazon have built a core competency building
infrastructure and services that operate at a scale only a handful of other
companies match? A lot of AWS is evolved from internal services that supported
their retail business.

2\. Given the above, what possible reason do you have for thinking Amazon
doesn't strive for efficiency in its datacenters? They spent ~$80M on servers
in 2008, and it seems very likely that they spent at least that much this
year, so most of their equipment is fairly new. Also, given that power &
cooling costs are a significant portion of both capital and operating costs in
a data center, the economics for aggressively retiring older equipment is
quite strong.

3\. Bloated legacy choices: See the above two points. I think the fact that
the dominant infrastructure as a service vendor grew out of a f'ing bookstore
should tell you that Amazon is not a company that gives bloat and inefficiency
a free pass. Furthermore, given the growth they've seen in the last few years,
they've had both the opportunity and probably, the necessity, to revisit
earlier choices. And by the way, they hired a VP earlier this year who clearly
lives & breathes data-center efficiency.

4\. Don't underestimate the advantages of scale in this business. Say saving
10% in costs is worth $50K to your startup. Consider how many dollars shaving
just 1% in costs is going to be worth to Amazon. It could easily be enough to
hire an engineer for a year. For a startup, it might be enough to buy lunch
for the company, once a month.

It going to play out in other ways too. Amazon is surely transferring enough
data that they can negotiate free peering, something a little startup is going
to have a harder time doing. And having a broader customer base likely gives
them an advantage in higher average utilization while still keeping a
reasonable safety margin.

5\. You act as if the Amazon name offers nothing to small business and
startups. The relative certainty that Amazon is going to be around tomorrow,
next week, next month, and next year is not some foolish superstition. How big
is their Amazon bill going to be that it is worth risking data-loss or
multiple days of downtime because they were dependent on a startup that ran
out of funding?

In the end though,its really not clear to me how you think a startup is going
to "absolutely wipe the floor" with Amazon. What's actually going to be
better? Clearly, there is room for improvement, but you're talking about
taking on the market leader in a growing, and all you talk about is
efficiency.

