Earlier this year two different research reports came out describing the overall cloud computing market and Amazon’s role in it. Synergy Research Group saw Amazon as by far the biggest player (bigger in fact than the next four companies combined) with about 30 percent market share. But Gartner, taking perhaps a more focussed view of just the public cloud, claimed Amazon holds 82 percent of the market with cloud capacity that’s 10 times greater than all the other public cloud providers combined. I wonder how these disparate views can be possible describing the same company? And I wonder, further, whether this means Amazon actually has a cloud monopoly?
Yup, it’s a monopoly.
Amazon has monopoly power over the public cloud because it clearly sets the price (ever downward) and has the capacity to enforce that price. Amazon is the OPEC of cloud computing and both studies actually show that because both show Amazon gaining share in a market that is simply exploding.
The way you gain share in an exploding market is by exploding more than all the other guys and we can see that at work by comparing IBM’s statement that it would (notice they are speaking about future events) invest $1 billion in cloud infrastructure in the current fiscal year, versus Amazon’s statement that it had (notice they are speaking of events that had already happened) spent $5 billion on cloud infrastructure in the past fiscal year.
Maybe $1 billion against definitely $5 billion isn’t even a contest. At this rate Amazon’s cloud will continue to grow faster than IBM’s cloud.
Wait, there’s more! Only Amazon can really claim they have a graphical cloud. While not all Amazon servers are equipped with GPUs, enough of them are to support millions of simultaneous seats running graphical apps. No other cloud vendor can claim that.
Having a graphical cloud is important because it is one of those computing milestones we see come along every decade or so to determine who are the real leaders. Think about it. There were mainframes with punched cards (batch systems) then with terminals (interactive systems), then interactive minicomputers, then personal workstations and computers, then graphical computers, mobile computers, networked computers, Internet computers and now cloud computers. Each step established a new hierarchy of vendors and service providers. And it is clear to me that right here, right now Amazon is absolutely dominant in both cloud and graphical cloud computing. They set the price, they set the terms, they have the capacity, and everyone else just plays along or goes out of business.
And that sounds like a monopoly, which is illegal, right?
Not really. Apple at one time had 70+ percent PC market share and nobody talked then about Cupertino’s personal computing monopoly. That’s because first movers always have huge shares of what are, at the time, really tiny markets. And right now cloud computing is tiny enough in absolute dollars and as a percentage of any vendor’s total sales that no company is in a position to threaten the existence of another strictly through cloud pricing policies.
If Amazon’s cloud success led to IBM getting out of the cloud business it wouldn’t be IBM going out of business, just Armonk turning its capital toward some other, more lucrative, purpose.
But there is an important question here and that’s at what point Amazon will be in a position to use lethal cloud force? It’s a market doubling or more in size every year. How many more doubles will it take for Amazon to gain such lethal business power? I’d say five more years will do it.
And when I say do it, think about the company we are talking about. Amazon is unique. No large company in the industry right now has a more effective CEO than Jeff Bezos. No large company has a bigger appetite for calculated risk than does Amazon. No company is more disciplined. And — most importantly — no large company has the ear of Wall Street the way Bezos and Amazon do. They can try and fail in any number of areas (mobile phones, anyone?) and not be punished for it in the market. And in this case that’s because the market is smart, relying on Bezos’ innate ruthlessness.
If Amazon reaches a true monopoly at scale they’ll do all they can to make no room at all for competitors.
And that’s why we should all probably root this time for the other guys, just to keep Amazon somewhat in check. In the coming months those possible competitors will identify themselves through significant graphical cloud investments. Microsoft will certainly be there. IBM might be there. Apple could always decide at any time to play in this new sandbox but I’m not sure they really understand the game and Amazon might already be untouchable.
What do you think?
Monopolies aren’t illegal – abuse of a monopoly position is illegal.
The crunch comes should Amazon tries to raise prices (start abusing its position) – what will people do? What competition will arise?
At some point it’ll be more attractive to run your own servers (as it still is, if your demand level is flat).
It’s all a bit odd to me. I’m still baffled by people’s insistence on throttling their fast, powerful local computers by chaining them to a clunky and slow network connection.
One word: cheap.
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Companies, particularly middle to big companies, look at cloud services as a way to get out of having to upgrade their equipment every 3 to 5 years. They also look at it as cheap storage.
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Obviously, these companies aren’t interested in having tight control over their data, particularly those that play in public cloud space, but we’ll see whether a few hacks of Amazon public cloud services (you just know they’re coming, right?) will blunt people’s appetite for Amazon’s offering.
To expand on Cheap: lower headcount.
It’s still going to cost money with Amazon, but the hassle of keeping things current, staying staffed, health care costs and other benefits, etc makes getting rid of people the best way to cut costs. The jury is still out on quality, but the cost benefits are very clear.
A monopoly position is only relevant if there is a barrier to entry for competitors. So unless Amazon is throttling the internet feeds to competitors, I think they are fine legally.
“How many more doubles will it take for Amazon to gain such lethal business power? I’d say five more years will do it.”
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Cringely, study the graphic that YOU CITED. Microsoft is growing twice as fast as Amazon. If this projects out in 5 years, they will be in the lead.
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Jeez you are such a f***ing moron. Did you even finish the 3rd grade?
” f***ing moron” ©Trump Inc. 🙂
Yes, but that doesn’t count because Microsoft is doing it to help the government eavesdrop.
Or maybe it’s money laundering.
Google is number three and already has the scale of Amazon. IBM is just the new Rackslace.
Google OUGHT to be #3 but their strategy is muddled. They have everything except a clear vision of what they want to be in this market and that is killing this aspect of their business. But don’t feel sorry for Google (they make plenty of money) just wonder why the heck they are being so hesitant?
I wonder if Google is sitting back on this out of fear that they’d end up drawing fire for being too large in too many areas. It’s easy to see a situation where they’d provide a narrow set of cloud solutions at vast scale very cheaply and suddenly dominating a sector of that market, and that leading to more cranky calls from the EU or US authorities. They’re already fighting over removing user data by country, so waiting to see how rules evolve over app administration might be seen as prudent by the firm.
Also, I think the Google is more vanilla than what the market is asking for, so there’s a choice to be made before they go forward. They might be at a point where they have to decide if they want to expand their server architecture again if they want to support the wider variety of things it would take to challenge AWS. I can see that being more than they want to bother with if it’s going to be a commodity in five years.
I’d say in ten years Amazon is going to be in the same dominant position Microsoft was in late nineteen nineties – by that time, broadcast TV will be mostly dead, except in a few local markets, cable and satellite will be on the ropes, WalMart will be in very serious trouble not only from Amazon but competing upstart retailers – Amazon will have become the de facto destination for storage, business services, entertainment production and distribution, online retail and delivery, and will probably be hurting Google in the search and e-mail business seriously (I predict it will be Amazon who will buy Yahoo’s search and e-mail businesses) – at that time, something unforeseen will be popping up and eventually become a very big disruptor to cloud computing and even the mobile and conventional internet as we know it.
Walmart built is size up by building stores in rural communities where it could achieve monopolies. Target and its existing competitors stayed huddled in suburbia while Walmart gathered strength out in the bushes where Target would not go. (“I’ve been growing soft while Charlie’s been in the bushes growing stronger” paraphrased from memory, “apocolypse now”) Walmart saturated rural America and only then invaded the cities from the outside, in: exurbia, suburbia, and finally urban areas (limited on the latter).
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So, I’m wondering, why couldn’t the same thing happen to Walmart. Walmart’s been hiding in its brick and mortar operations while Amazons been growing stronger in the internet. What if Amazon starts building brick and mortar stores across the street from Walmart and has cheaper prices because they sell more stuff and can operate on a thinner margin (because they have more/other businesses that make money besides brick & mortar). Imagine Walmart getting shalacked the way it shallacked Target, Kmart and others.
Amazon has just opened a brick and mortar bookstore in University Village, Seattle.
https://www.seattletimes.com/business/amazon/amazon-opens-first-bricks-and-mortar-bookstore-at-u-village/
I suspect you have it backwards, and that Walmart could blow Amazon out.
“Bezos’ innate ruthlessness” pretty much sums it up – Amazon is willing to take big risks (not many tech companies are) and has no problem deciding that a strategic position is a failure and then dumping it quickly – and very few companies are willing to do that.
It’s basically the corporate management – Amazon is an American company, but it doesn’t act or think like one.
that’s because Wall Street is absorbing the news of little (or no) net profit for the siren song of continually growing stock prices, and hey, thanks for the new public offering, here’s your billions.
nobody else is getting away with it, and a few analysts have begun to whisper “Emperor’s Pants.” yet the rest of the market continues to pull and push the bandwagon.
talk about a “reality distortion field.” one of these days, Amazon will provide four quarters of noticeable profits. at that point, the Street doesn’t care if nobody else is around.
Well Amazon made a profit last quarter. I haven’t been following business like this that closely for really quite a few years, so I’m wondering what impact the cloud business is having on Amazon and its profitability. Is it making profits from the cloud? Is that why it made a profit last quarter? Will they be like Apple, and make the majority of the profit from a new industry? By your measure, they need three more quarters of profit. We’ll see if they get it.
Don’t forget Docker, and all the VM/Hypervisor/Private Cloud solutions out there. Lots of people running clouds inside the firewall.
Amazon cannot believe their luck, They had the (public) cloud computing market to themselves for years and the competitors (Microsoft, Google VMware etc) tried introducing platform as a services offerings (Google App Engine, Cloud Foundry etc) that were not that successful and only in the last couple of years introduced competitive Infrastructure as a service offerings. They gave Amazon a six year head-start!!!
We might get a hint of things to come in how Amazon has just yanked out AppleTV and Chromecast devices from its vast store because they have a competing offering. That has been a very anti competitive move that seen very little reaction (likely because Google and Apple are big bad boys so people think they’ll manage) and this may encourage Amazon to repeat this pattern elsewhere – just think that at some point, they may decide to no longer host new Windows based machines (far fetched I know, but it can be anything else with similar results).
I was more surprised that Amazon carried those products in the first place – after all Apple and the Google store are not selling the competing Amazon products. Pulling them from the store now simply generates more publicity (free) for Amazon.
The reason for pulling them is more likely to be that they were not profitable – it’s margin that drives Amazon, not petty jealousy.
The reason Amazon pulled them is that they didn’t stream Amazon Prime video. But then you could say that the reason they don’t support Prime is that Amazon didn’t develop a Prime app for them because they had a competing product of their own that did. Just another pissing contest. I think it’s entirely possible that all of this class of products may go away or be marginalized at least because all new TVs do the same functionality out of the box. It will be interesting. I’ll buy the popcorn.
“All the new TVs have the same functionality”. True but if Samsung fixes the firmware on their TVs at the same glacial pace they fix security holes on their phones, I’d rather buy a $30-40 dongle with updated software than a whole new TV.
Samsung is as quick as Vizio in updating their “smart television” firmware. Which is, not very.
I bought a samsung ‘smart’ tv about 6 months ago. About half the apps no longer load, despite everything I have tried to do to reset it, change default location, etc. So 2 weeks ago I bought a media box to feed content to what is now just a plain tv.
My impression is that it is not just what Amazon sells directly but rather they scrubbed their entire sure from those products, even from third parties (many products on Amazon are not shipped by Amazon). That does not look like profitability issue – if I remember correctly, Amazon mumbled something about “customer confusion”. That is rather lame excuse. There are hundreds of video boxes there that do not support Amazon Prime.
I think this is a bad move on the party of Amazon…
“It’s margin that drives Amazon”
You might want to put down the crack pipe. Regarding their internet retail business, Amazon has never cared a whit about margins, only market share. When they aren’t losing money, they are barely breaking even. It’s been that way for almost 20 years! 20 years!!!!
Amazon has a huge head start, obviously. So the question is, how would they potentially enforce monopoly power, and are there any potential competitors with adequate resources and initiative to catch up?
Monopoly power – If there were another company like Amazon, with resources and initiative, I don’t think Amazon could actually stop them. Certain economic factors necessary for monopoly market – high cost of entry, restrictive business agreements with suppliers or vendors – don’t exist in cloud computing. Can Amazon compete on price? Of course. But there’s nothing to stop other companies from competing equally. Amazon is not running their cloud business at a loss to prevent entry of competitors.
Other potential competitors? A better question. IBM? Nope. Their market strategy is a complete joke. Apple? They could, but probably won’t. Their focus seems more on consumer products, especially phones, tablets, and the like. Cloud is clearly more business market centered.
Microsoft? sure. Azure is out there, and probably what separates Microsoft from Amazon at this point is initiative to capture the business, and level of investment. Both priorities could be changed for Microsoft. Any others? I don’t know, I’m not that clairvoyant. But certainly, given that Amazon started in the cloud business as a retailer, albeit an online retailer and not a real estate oriented one, There are numerous potential competitors out there. Samsung? Toyota (don’t laugh)? GE? There’s no reason for Amazon to have this business to itself, despite their dramatic presence to date.
Amazon’s big “moat” is that AWS various services can be tied together programmatically. This isn’t just generic computing power but things like the GPU instances, storage and databases (of several different types), analytics (including machine learning), and all of the tools to monitor, manage, and scale everything in unison.
Google may be able to get enough developers on board with their cloud offererings largely because many developers are already using them due to Android and Google Play integrations. Google may also have the competence and capital to deliver very high quality services at scale. I don’t see a big enough in for anyone else.
I’m not sure about the pricing power. Amazon has had to drop their prices perhaps based on what others have done. If I buy a computer today, and a competitor builds a cloud in a year it’s either going to be faster or cheaper to build. The SSDs are going to be in way better shape too. Can it be rolled out at the same scale? No, and it’s just raw computing power not services.
I agree with Bob that Amazon is driving the price decreases. They have the market share to make the most of their economies of scale to the point where their pricing drives others out of the market (like HP).
I think you misunderstand what Amazon’s GPUs are used for. They’re actually not used for doing anything graphical. They’re used for doing massively parallel numeric computations. It’s misleading when you say “millions of simultaneous seats running graphical apps” because the apps really aren’t graphical. Take a look at https://developer.nvidia.com/cuda-zone to see what’s going on.
Cringeley wrote in detail about Amazon’s one-of-a-kind GPU cloud back in 2013: https://www.cringely.com/2013/11/06/amazons-new-graphical-cloud-helps-make-desktops-obsolete/
To really understand the market we need to take a step back and ask a simple question — why do businesses have computers? If you look in the computer room, what applications are running on the equipment?
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For the cloud to truly transform computing the things businesses need to be able to do with cloud services the things they are doing today with their computers. The market is moving to a software as a service (SaaS) model. Firms will want to buy accounting, payroll, HR, inventory management, etc. as SERVICES, not the computers or software.
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The gorilla in the application software world today is Oracle. The future of cloud could be decided by Oracle. While their cloud offering has been stumbling it is clear they’re working hard to make their applications more cloud friendly. Will they then enhance their cloud service? Will they partner with another cloud provider, like Amazon?
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There is a good consumer example to consider: I am a NetFlix subscriber. I had no idea NetFlix operates from Amazon’s cloud until I saw some articles about it recently. I buy a movie service, not a cloud service. I didn’t know my movie service came from the cloud and I didn’t need to know. The same will become true for many businesses. They won’t be shopping from a cloud service provider, they will be shopping for applications they need to run their business.
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I see genius in Amazon’s cloud business. They are clearly working super hard to be the lowest cost provider. Why is this important? If Amazon can be the best in market with the lowest cost cloud (platform) service, then the firms who have the software will be more likely to use Amazon’s service rather then build their own cloud. Amazon’s service is designed to allow others to sell their applications as services running invisible to the customer on Amazon’s platform.
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Several years ago, before cloud there was utility computing. IBM called it “On Demand” computing. At the time IBM claimed they were investing $10B in it. It doesn’t exist today. It turns out IBM’s “On Demand” service was pretty expensive, often MORE expensive than if a customer bought and managed the equipment themselves. In addition to spending a lot more on equipment and networks than a customer would, IBM’s sales model hurt them. IBM sells products through its commissioned sales force. In every sale a big chunk of money goes to the commissions of the sales person and his/her management. Customers bought a hardware service from IBM and brought their own applications. Amazon understands the business model must be very different and customized it for the future, not the past.
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Amazon and possibly Microsoft will eventually own the cloud platform business. The one that gets the most business will be the one who can attract the most software firms and provide the most popular SaaS offerings. This will be all about applications and the cloud service provider will become almost invisible in the background.
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I like the idea of a Puget Sound cloud monopoly with engineers at Amazon and Microsoft job-swapping to get raises. Certainly Microsoft’s new CEO is about as cloud-centric as you can get.
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Just to be mischievous it’s always the case that one technical path invites a different path to attract people who just don’t want to follow the original path for whatever reason. Perhaps some other company with data centers (Facebook?) will offer a different service delivery model and give Amazon/Azure some real competition. As Bob mentioned Google is the obvious alternative, but not going gangbusters into this arena. I just can’t believe with all those servers sitting idle in a data center, another provider won’t pounce on this opportunity.
I wonder if another disrupter is on the horizon. Later this year Intel-Micron will be begin selling fast static RAM memory with circa 10 terabytes (stacked vertically) on a chip eventually in a couple of years or less. Who is going to need the cloud when a SSD will have 100 terabytes on a desktop. One will need internet speeds two orders of magnitude faster than good inernet speed today.
Dan Kurt
the Internet speeds are there, for a price. but with the congestion problems everybody faces in “prime time” from streaming, the network delays could become an interesting variable. we already have peer points that become roadblocks here and there in the country during the evenings. the question of making somebody pay for the engineering to clear those choke points is going to become critical, and the battle lines have already been drawn.
Why should a business carry all those capital assets on their books with the corresponding complications of depreciation and electronic waste disposal when they can just write off cloud service as an expense.
Sadly the latency cannot be removed at any cost.
Remember – if scaled – the chart goes something like this:
Getting something from CPU register – 1 second
Getting something from Main Memory – 6 minutes
Getting something from Disk – 2-6 days
Getting something from Network – 4 years
Obviously the second byte would take less time, but ouch.
Switching to a distance metaphor, if the CPU register is in your head we’re back to having to travel to the next star system to fetching data over the network.
See http://blog.codinghorror.com/the-infinite-space-between-words/
I guess I don’t understand your point. That table of times meant to illustrate relative time durations by assigning 1 second as the duration of a
cpu cycle. It doesn’t say anything about the latency problem actually experienced in any specific real life situation.
4 years is 126 million seconds. At 1Ghz, this is .126 seconds.
True, latency exists, but I still don’t get the point of the post. In any specific situation the issue is whether or not the latency is low enough to be inconsequential.
Regarding slow networks, any company of any size is going to have more than one location and network lag is a given whether they use AWS or their own homebrewed servers. I’m just a low guy in shipping, but my inventory servers are 2000 miles away at Corporate. And, yes, we are already using Citrix for some of our applications. If anything, switching to Amazon would probably lower latency in our case.
As a support engineer for a large storage company (until very recently), I don’t think storage is what will drive companies into the cloud. It will be the applications, especially the infrastructure or back-office applications. We had a standing joke in the organization. Customers called us because we answered the phone. Depending on the particular area of storage, a third to a half of all cases were not due to the storage. In the grand scheme of IT, storage is not that expensive or that difficult to manage. Or it wouldn’t be that expensive except for accounting rules. Storage is just the base layer of the infrastructure. I spent many an hour on conference calls with companies and their multitude of service providers. If I were a CIO and could outsource the entire lot to one organization at a competitive cost, it would make sense to put my company’s resources into what we were in business to do. Someone mentioned security. I would expect a company like Amazon to be more likely to hire the top security experts and administrators than I would be able to do so myself.
Interesting piece for sure. Excellent to a fault. I like Dan Kurt’s comment regarding the inevitable acceleration of tech and how it relates to the net. Thanks again for writing a really good piece.
From Dictionary.Com: Monopoly – exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices.
Amazon is large enough to manipulate the price “for a while”. One question to consider in determine their market power is how long could Amazon offer their service at a zero ($ 0.00) dollar profit?
Microsoft and Google are catching up and they have other business units that could absorb a pricing war with Amazon if it came to that. However, I’m sure Amazon is happy with their current profits and market share so I wouldn’t think they’d start any type of price war.
But I don’t agree, they really don’t have a monopoly in the classic definition of the word.
Doesn’t Apple have icloud?
Amazon is the prime example of a market distorted due to near-zero interest rates. Hot money flows to risky “growth” stocks for which profitability is not required.
All new businesses have an early, barely profitable “startup phase” while growing their market share. However, Amazon’s “startup phase” has lasted 20 years — so far. They’ve never been required to make money.
How long can this go on? Until the Fed raises interest rates — at which time Amazon’s stock will go down and their prices will go up.
It will be fascinating to watch and see whether they find a profitable line of business — the cloud, or anything else — before that day comes.
“Not really. Apple at one time had 70+ percent PC market share”
Apple at no time ever had 70 percent PC market share. They were not the first mover in the PC market.
http://arstechnica.com/business/2012/08/from-altair-to-ipad-35-years-of-personal-computer-market-share/
This is what the personal computer market looked like in the beginning:
http://cdn.arstechnica.net//wp-content/uploads/2012/07/Computers-1975-1980.png
I’m not here to argue with you, Jeremy. Maybe my old memory isn’t reliable anymore. But as a guy who was there at the time I sure remember things differently. I remember, for example, when Apple became the first $1 billion in sales microcomputer company (I remember because the company had a party). None of those other companies — not even Tandy — were even close. MicroMarketWorld, which covered such things back in the day, didn’t consider many of those computers in your chart (Atari for example and Commodore) as even being computers because they didn’t support business applications and were generally not purchased from dealers that supported the product. I’m not saying you are wrong at all, just that in terms of BUSINESS MICROCOMPUTING the Apple ][ and VisiCalc were cleaning-up. It took Lotus 1-2-3 to end that party.
Apple did indeed have a party to celebrate reaching $1 billion in sales, but that was in 1982, by which point the IBM PC had been out for a year and was matching Apple’s sales and very quickly running away from them. Then the clones would come out and the PC would quickly win the market share race forever. The point is that Apple never did have a monopoly on the PC. The Altair did, for a very brief period of time, before a whole slew of competitors (most of whom are long forgotten today) fragmented the market. The Apple ][ wasn’t the first. It wasn’t even the first Apple!
To get back to Amazon, if you look at a graph of public cloud computing sales over time, I don’t think we’re in the “Apple ][ versus Tandy versus Atari 400” era. I think we’ve moved past that. AWS has been around for nearly ten years now, and I think the market has already matured in that time. Everyone knows what cloud computing is, tons of business is done with it, and Amazon Web Services is the acknowledged standard. Microsoft is catching up, and Google is doing okay. IBM is nowhere.
But everyone DOESN’T know what cloud computing is. It’s a definition in rapid flux that is going to change dramatically in the next 2-3 years. Amazon has a SERVICE MODEL everyone is pretty familiar with, but the scale and the actual services supplied are nowhere near where they will shortly be. As in the early days of almost any economy, mercantilism is at work here with every player tending to see not a growing economy but economic growth to be stolen from their competitors (blame Nicholas Fouquet in 17th century France for that). A whole lot of cloud stealing is about to take place.
Now about Apple versus IBM I worked at Apple in the early 1980s and as I recall the numbers we were selling about 50,000 Apple IIs and IIIs per month in late 1982 when IBM was selling 20,000 PCs per month. I’ll have to go dig up those numbers.
AWS has been around since 2006. That’s nearly ten years, an *eternity* in the tech market. The *iPhone* wasn’t even around ten years ago!
Microsoft has been moderately successful with Azure in “cloud stealing” in certain enterprise markets, but it’s not like Amazon is taking their ten-year head start and standing still. They are investing ridiculous amounts of money in securing market share for AWS. Google’s efforts seem non-committal, and IBM (as you have written about) is completely clueless and hopeless. I don’t see the market shifting that dramatically in the next two to three years, but I suppose we shall see.
> AWS has been around since 2006. That’s nearly ten years, an *eternity* in the tech market.
Appearances can be deceptive. if Bob is right and the cloud market could double in size every year for the nex 5, the cloud industry we have now is only 3% of what it will very soon become. That’s enough of a change for major players now that miscalculate to become irrelevant in very short order. A universal constant in the it industry is change.
50000/70000= 71.42%. Throw in other brands and Apple is below 70%, maybe 60% if the other brands are selling 13000 a month.
Based on this information, it’s clear that the DOJ should indict Apple for anti-competitive behavior with iCloud. I mean, that’s what they did to stop Amazon’s monopoly of the ebook industry. It should work again, right? Oh wait…
Speaking of the cloud, I wonder if someone will ever come up with a security system that can’t be hacked by criminals or unfriendly governments. This would be a system that even those tech illiterate bureaucrats and business executives could manage. That would surely be “the next big thing.”.
I think the cloud is a little like ebooks. It’s growing but it’s not going to take over. It’ll hit a wall at some point and only increase at a slow pace after that. Digital books work well for certain genres like romance or maybe even tech books describing the latest software. In terms of books the whole format is under threat, and there might be a similar situation for software. Many smaller businesses don’t need lots of software and they can probably get by with stuff that’s available for free.
To make the cloud work there are three important – bandwidth, bandwidth, bandwidth. (bandwidth = fast reliable connections). You have to get the data there and be able to touch it and get information back.
Maybe that’s where Google will play, in providing the bandwidth for everyone’s cloud service.
Hi Bob,
Simon has 3 blog entries that address Amazon and their cloud margins. Basically the only thing that precludes them from dropping prices more is that don’t have the capacity to absorb the increased demand (they can’t build data centers fast enough).
http://blog.gardeviance.org/2015/08/amazon-and-last-man-standing.html
http://blog.gardeviance.org/2014/06/how-to-beat-amazon-at-its-own-game.html
http://blog.gardeviance.org/2015/04/aws-and-gross-margin.html
Then it’s their game to lose or (more likely) win.
Cloud is becoming big also in the enterprise world: SAP is offering whole new services operating from the Cloud (using their HANA platform) probably using the AWS infostructure.
More that that, you can deploy a cloud instance of a SAP server thanks to a partnership SAP/Amazon. Of course at the moment not many customers are going that way, but at the certain point the adoption will start, and this is a solution available right now, with a transparent pricing scheme available.
Monopoly by definition is “one” (mono), alone. So it is not an absolute monopoly. You will find that monopoly’s only exist with government regulation/intervention -or- in very small markets.
Standard Oil was not a monopoly, but did dominate the market, and used legal and illegal competitive practices to grow and limit competition. But only after it was broken up did gas prices escalate, and the breakup was financially beneficial to Rockefeller…
The free market will change Amazon’s dominance, unless Amazon gets the government to limit its competitors effectiveness.
Cartels even need Government intervention to effectively influence the market…
Here is a read on monopoly pricing. It may surprise you..
https://mises.org/library/monopoly-prices
https://en.wikipedia.org/wiki/Comparison_of_file_hosting_services
Amazon is great! You want something, you can either search the internet looking for a small company that specialises in that product and gives excellent tech support and sales advice. Or save yourself some money and just search Amazon and buy from them. Just about anything you want, Amazon has got. With on-click shopping you don’t even need to make an effort to remember your own address! Next day, it’s here.
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You think you’re getting more choice because of the vast amount of goods they stock, but you’re actually getting less. Because when you need to find something that Amazon doesn’t have, you’re left looking around the web and all those old companies you used to use are gone. They paid their taxes, they paid their staff, they had to pay their landlords for their premises but you took your custom to Amazon and now that you need them, they’re gone.
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It’s exactly the same game Amazon are playing with Cloud services.
Bob, I’m disappointed in your use of the word “monopoly”, considering your prowess as a wordsmith; it is not a synonym for “dominant”. When there is a monopoly, like the government in many things or old-time AT&T, as a customer you have no choice who to deal with.There is no shortage of cloud choices.
[…] Cringely, published November 2, […]
Amazon’s ability to raise prices will be limited by the market severely. After all, at its core, “cloud” is just a bunch of computers sitting in a datacentre with a bunch of fancy, but not too terribly difficult-to-replicate management software running on it.
Currently a lot of firms use Amazon’s services to increase their operating leverage. Which is fine. But if Amazon starts raising prices to actually turn a significant profit on those cloud services, it is likely that Amazon will see its customer base melt away. Heck, just a significant downturn in the social media dot-coms that heavily use Amazon’s cloud services would be a serious problem for Amazon. This is likely as these profit-less firms run out of the VC money.
And Oracle big in the cloud? Seriously? Oracle is going the way of the dodo-bird. Everyone basically hates their guts and wants them gone from their organization, like that cancer that Adobe Flash was to mobile devices. And Google in the cloud? What a joke. For their own proprietary purposes, sure. But for everything else, nobody takes them seriously at all.
For the rest of the world this means hosting your data in the US or perhaps not knowing where it is hosted. There are companies in Australia going for the Government and Financial coud business which are much, much smaller than Amazon, Google etc.
Also, do we know whether AWS benefits from the economies of scale because Amazon also has a huge retailing business, or is it the other way around, ie Amazon get their processing and storage for Amazon.com cheaply because they own AWS?
All your cloud are belong to us.
Jeff Bezos
> And that sounds like a monopoly, which is illegal, right?
Honestly I expect better than this from Cringely.
New ghostwriter?
Aren’t these cloud services an invitation for the hacks that Cringely has been writing about?
One of those rare examples where the best product is winning in an entire category.
[…] The former columnist for PC World and PBS Technology Guru offers a brief but illuminating summary of Amazon’s efforts to dominate the cloud. To some degree we’ll all be living in the cloud for both our personal and business computing activities, if we’re not already. This is a great business case study with lessons for all…and it will no doubt affect all of us. Take a few minutes to become educated on ‘Amazon’s next Amazon’….. a monopoly being born. […]
Re: “And that’s why we should all probably root this time for the other guys, just to keep Amazon somewhat in check. ” Not sure what it means to “root for” in this context. Of course I hope the other guys will succeed enough to keep Amazon in check, but not if it means paying a higher price for poorer service. AMD keeps Intel in check, Apple keeps PC and smart phone vendors in check, but so far I haven’t come across a specific reason to actually buy the former’s products even though I “root for” them. I guess I’m hoping others will do the actual spending necessary to finance the success of my good wishes.
I can only laugh, since I view “cloud storage” as a litmus test for gullibility. Let them load all the fools into their ship; my data stays in my server room and off-site backups.
When you look at the leaders in this market, it is clear that the demand for Cloud has been dictated by the consumer market more than the Corporate world. Amazon with its Prime services, TV and Kindle libraries has driven a culture and service model which it fully understands the Cloud users need. Microsoft follows suit with its gaming on the Cloud and Windows mobile followed by Google with a similar model. People understand Cloud in the consumer world, data is more about take it with you wherever you are and that is easily understood. Corporate cloud is different, business are yet to understand its complexity, the security and more importantly their own data content. Ask a business for key details about employee data, server details etc and you’ll find spreadsheets dotted around owned by different departments wth conflicting information. There is a lot more to do before Cloud is truly an option for the large corporations. This is why Amazon works, it can build the right model through the consumer market, and this is why the likes of IBM and others fail, they do not have that market to develop their cloud model.
The market will change over the next few years but till then I would imagine many of the visionaries and niche players to disappear offering the next best vision. Cognitive computing anyone?
Re: “People understand Cloud in the consumer world, data is more about take it with you wherever you are and that is easily understood. Corporate cloud is different, business are yet to understand its complexity, the security and more importantly their own data content. ” Businesses are made up of people.
While a case is being made for landslide victory for AWS here using economic cost of scaling arguments, is anyone counting the significant cost of liabilities that AWS will have to incur once customers start to move mountains of “critical” customer data onto AWS. Imagine Banks, Mortgages moving wholesale financial data out of their Data centers onto AWS, or hospitals moving critical patient data completely onto AWS! Is Amazon taking on liabilities in its service agreements ? What about the geographical moats and data sovereignty issues?
While AWS will surely have the benefit of humongous scale and knowledge, I don’t visualize a landslide here; instead a calibrated equilibrium between what can be out there on public clouds and the need to defend data on private clouds will emerge. So what happens to the data sitting on private clouds ? will CEOs accept yesterday’s technologies to manage private clouds ? It begs the argument, that Private cloud technologies need to evolve to the agility of what AWS has achieved. Are other infrastructure vendors / Competitors of AWS going to sit idle while AWS takes away their cake ? No! Instead software architectures for private cloud will evolve to webscale play. Competitors like Microsoft, Google, AWS will develop software plays for managing clouds. Rather than tilt the Earth on its axis, AWS may be getting ready to participate in software and appliances to manage private clouds. Competitors who can’t match the scale of AWS will create alternate strategies to retain the power of private clouds -creating a new equllibrium