A few weeks after Amazon Web Services beat IBM for a prized CIA cloud contract worth US$600 million ($655 million), the Seattle-based vendor held its second annual AWS re:Invent conference in Las Vegas.
The timing was fortuitous, coming just after a knock-down, drag-out, eight-month legal battle in which IBM’s legal team tried every tactic in the book to get the government to reopen bidding for the CIA contract after the agency chose AWS.
The CIA deal was, in many ways, Amazon’s biggest cloud win since launching Amazon Web Services in 2006. Not only did Amazon prevail over IBM – which for years has been synonymous with big enterprise and government IT deals – but it later emerged that the CIA felt the AWS cloud was technically superior to IBM’s. As enterprise IT wins go, they don’t get much bigger.
The CIA, one of the world’s most secretive organisations, isn’t just putting its data in the AWS public cloud. AWS is building a replica of the AWS cloud that will run inside the CIA’s data centre. This sounds like a private cloud, an area of the market in which AWS previously hasn’t played.
AWS re:Invent had an overriding theme of showing that the Amazon cloud was enterprise-ready, so it would have been a great place for AWS executives to share insight into their plans for tackling additional private cloud opportunities, and getting into the wheelhouse of competitors such as Microsoft, VMware and IBM.
Instead, conference attendees heard the same message they always hear from AWS executives: that private clouds are unnecessary and overhyped. That the concept is created by old-school enterprise vendors that want to keep customers away from the public cloud because it threatens their traditional revenue streams.
The way AWS sees it, public cloud can handle everything enterprises need, and chief among its many benefits is letting customers slash capital expenditure. “Over time, we think very few companies are going to own their own data centre, and ones that do will have a small footprint,” said Andy Jassy, senior vice president, Amazon Web Services and Amazon Infrastructure, in his keynote.
Exception to the rule
Later, in a press conference, Jassy said the CIA deal does not represent a shift in Amazon’s thinking, but he did leave the door open to more CIA-type deals. “We think the most cost-effective and scalable option for the enterprise is public cloud. But there will be a small number of organisations that want private because they’re unable to use public cloud. If they want to have a conversation about doing something in their data centre, we’re willing to have those conversations.”
Terry Wise, director of business development at AWS, had a similar take in an interview with CRN US at the conference. “We recognise that large customers may have unique requirements, and we will listen to them. If we feel we can serve those with a great degree of operational excellence, and a low price point... we’ll take a look at it.”
AWS executives have steered clear of calling the CIA deal a private cloud. But in an interview with 60 Minutes that aired 1 December, Amazon CEO Jeff Bezos confirmed that AWS is indeed building a private cloud for the CIA.
“We’re building what’s called a private cloud for them... because they don’t want to be on the public cloud,” Bezos told CBS News’ anchor Charlie Rose, according to the interview transcript.
With that unambiguous description, Amazon’s cloud plans came into their sharpest focus yet. Whether or not it’s labelled private cloud, AWS is going after all sorts of enterprise opportunities that blend elements of private clouds and public clouds. And the reasons are simple: enterprises are eager to tap into the economic benefits of public cloud, but it’s going to be some time before they’re willing to give up their on-premise hardware. This hybrid approach is the primary way enterprises are adopting cloud, and Amazon – never one to ignore a market opportunity – is giving them what they want.
Next: Stealthy enterprise offensive
Stealthy enterprise offensive
IBM’s response to losing the CIA cloud deal was to launch a print, online and outdoor advertising campaign extolling the superiority of its cloud over Amazon’s. Jassy couldn’t resist taking a jab at IBM in his AWS re:Invent keynote, saying that “some of the old-guard tech firms are getting a little panicky” at the rapid growth of AWS.
The “old-guard” enterprise vendors have good reason to be worried. The CIA deal gives AWS a ready response to the oft-voiced criticism that its public cloud isn’t secure enough for storing sensitive data. While the CIA won’t actually be using the AWS public cloud, it did choose AWS in part for scalability reasons, and that’s a valuable endorsement for enterprises.
“We won based on technological superiority. If that doesn’t show that we’re enterprise-class, I don’t know [what does],” AWS’s Wise told CRN US in an interview at the event.
Asked about critics who claim Amazon isn’t ready for the enterprise, Wise shrugged. He pointed to enterprise customers such as Samsung, Nokia and Unilever, among others. “They’re using us to run mission-critical apps in the front office and back office.”
AWS was going hard after enterprise customers even before the CIA deal. There was a big enterprise sales hiring push earlier this year – in February, Business Insider reported there were 75 open AWS sales positions listed on LinkedIn. As of late November, AWS had five open enterprise account engineer positions listed.
AWS rose to popularity as a way for developers to rent on-demand access to compute and storage resources over the internet, and later as a place for startups to run their IT operations. But developers and startups’ needs are very different from those of enterprises, which demand service-level agreements, attentive support, and data security that meets regulatory compliance mandates.
To establish a foothold in the enterprise data centre, Amazon is getting into private cloud opportunities, according to several sources with knowledge of the matter. “They are definitely going that route. They see opportunity in the private on-premise business,” one source familiar with AWS’s plans told CRN US.
Amazon’s first move into the data centre was the AWS Storage Gateway, a software-based appliance unveiled in January 2012 that connects a company’s private cloud storage with the AWS S3 cloud storage service for file sharing, backup and disaster recovery. Amazon added gateway-cached storage last November and started positioning AWS Storage Gateway as an alternative to local storage arrays for storing customers’ primary data.
But while the software-based appliance works for smaller organisations, it wasn’t scalable enough for enterprises. AWS is now testing a purpose-built hardware-based cloud storage appliance that represents the next evolution of the AWS Storage Gateway, sources told CRN US in late November. Amazon isn’t manufacturing the hardware itself, but through a third-party white-box vendor, sources said. Once installed in a customer’s data centre, the hardware appliance acts as a bridge between an enterprise’s data centre and the AWS cloud. The idea is to let companies store some data in the AWS cloud, while keeping sensitive data and workloads on-premise.
An AWS spokesperson declined to comment on the appliance, citing its policy of not responding to “rumours or speculation.”
Preference for hybrid
Enterprises like hybrid cloud because they can save money from using the public cloud for things like storage and bursting, while maintaining the control private clouds offer. AWS is hoping to gain enterprises’ trust with products such as the hardware storage appliance, which could later translate into more adoption of its public cloud.
“If you want to attract legacy enterprise customers, you’re going to have to build tools that lower barriers to the public cloud,” one AWS partner told CRN US, speaking on condition of anonymity because he’s not authorised to speak about company matters.
The old guard
IBM, Microsoft and VMware all clearly have AWS on the brain. Which isn’t surprising since AWS is treating the cloud market like its own personal playground.
According to figures from Synergy Research published in late November, AWS now has a 35 percent share of the global infrastructure-as-a-service market, compared with 5 percent for IBM and 3 percent for all the other IaaS players combined.
This size of the market gap was backed up by figures from research body Canalys, which claimed that AWS would report $3.8 billion revenues for 2013: more than the next five largest public cloud players combined, which are forecast to turn over $2.4 billion.
VMware execs has urged partners earlier to do everything possible to keep clients from moving workloads to AWS. VMware has AWS-focused marketing collateral on its partner portal, which one partner described to CRN US as “talking points and FUD checklists.”
Microsoft has vowed to match AWS’s constant price cuts with Windows Azure IaaS. Microsoft was one of five vendors that submitted initial bids for the CIA cloud deal. Shortly thereafter, it filed a protest with the Government Accountability Office challenging various aspects of the deal’s mandatory qualification requirements, but was rejected.
IBM is busily positioning SoftLayer, which it acquired in June for $2 billion, as more enterprise-ready than AWS. IBM next year plans to add some 100 products and 40 infrastructure services to the SoftLayer cloud, SoftLayer CEO Lance Crosby told the New York Times in early December.
“It will take Amazon 10 years to build all of this,” Crosby said. “People will be creating businesses with this we can only dream about.”
AWS has found one enterprise ally. In a partnership unveiled in November 2012, NetApp has integrated its storage hardware with the AWS cloud, allowing data and workloads to pass securely back and forth from private clouds. The tie-up brought AWS access to the NetApp channel. Partners must be certified with AWS and NetApp to sell it.
In Australia, AWS is working with Distribution Central, whose CloudSelect offering is hosted on NetApp infrastructure housed at the Equinix data centre.
The AWS-NetApp partnership works because, other than storage, NetApp doesn’t sell products that compete with AWS, one partner of both vendors told CRN US.
“NetApp is embracing and running toward AWS, while everyone else is running away and trying to compete,” said the source. “While there are AWS partners that have closer relationships with the vendor, none of them have the data centre focus of NetApp.”
Amazon doesn’t break out cloud revenue, and in general it’s one of the most secretive companies on the planet. However, CRN Australia dug out its first filings to the Australian Securities & Investment Commission since launching AWS down under, covering the 2012-13 financial year. According to the documents, it grew from a $1.3 million business in the six months to 31 December 2011 to a $25.7 million business for the full calendar year to 31 December 2012.
With a dominant share of the cloud market already, AWS is now going for the kill shot by getting enterprises to trust its cloud. That may be a long-term play, but Amazon – as evidenced by Jeff Bezos’ vision for flying delivery drones – is definitely a company that likes to think ahead. ν
Steven Kiernan contributed to this story