May 14, 2013 (08:05 AM EDT)
Amazon To Cloud Rivals: Try To Catch Us
Read the Original Article at InformationWeek
"Many old guard companies" are now talking about cloud products and cloud services. These are the same companies that are "threatened by the model we've brought to market" of low-cost compute cycles distributed from cloud data centers and charged for by the hour, he said.
The old guard might be Oracle and IBM. It might also be Microsoft, which recently announced its Azure revenues had passed the $1 billion mark and said as it offered infrastructure as a service in March that it would match Amazon prices. Competitors have begun to put pressure on the uniqueness of Amazon's offerings. Selipsky visited InformationWeek in part to reassert Amazon's claims to market leadership.
[ Want to learn more about how AWS fits into the parent company, Amazon.com? See Amazon Unlikely To Spin Off AWS Cloud Unit. ]
Amazon "is keeping up a rapid pace of innovation" by introducing a more complete set of services than competitors, he said. Last year it added Glacier low-cost storage and RedShift data warehousing, as well as new instance types.
As a result, it is more frequently serving as an extension of enterprise IT as well as a frequent infrastructure for startups. It's hosting the customer analytics of News International, the London-based branch of News Corp. One third of the servers needed by News International are now provided by Amazon's EC2. It's also frequently used as a platform by Bristol Myers Squib and other pharmaceutical companies as they use complex patient data to design new drug trials. Bristol Myers reported that such a design can be executed in 1.2 hours on an AWS server cluster, compared to the two days it previously took in-house. That's saved work time for the scientists, pointed out Selipsky.
But most of all, according to Selipsky, the comparisons between AWS and its competitors fails to see the high-volume, low-margin retailer's roots behind Amazon Web Services. Such an approach is not characteristic of the technology industry. On the contrary, he says he reads earnings reports from companies that say they are looking for a higher margin strategy, one that yields 70% or 80% margins more to their liking. "Frankly, I think many customers have been ripped off for decades," he said.
"It's important to have a cloud provider that has a history of lowering prices when they lower costs," Selipsky said. "We intend to run a high-volume, low-margin business," as Amazon has done in retail, and Amazon has lowered prices 31 times since launching its service, he said.
Prices, of course, are lowered in new or lesser used services more frequently than they are lowered in Amazon's core compute services. Nevertheless, Rackspace, Google and Microsoft have been at pains to keep pace with Amazon's moves and all three lowered storage prices when Amazon did last fall. What about Microsoft's declared intent to match Amazon pricing?
"It's easy for a company to drop prices," responded Selipsky. "The hard thing is being able to afford to drop your prices."
"It will be extremely hard for most companies to drive to the cost structure Amazon has and will continue to improve upon. … We will absolutely continue to drive down our business costs and customer prices," he said.
Still, getting to the heart of AWS' balance sheet is impossible. Amazon delivers low-cost compute cycles because of the way it builds and operates cloud data centers, but Selipsky was not at liberty to divulge any details of how it designs the servers with which it populates them or how it keeps operations staffs small. How, for example, does Amazon solve the problem of chilling the equipment? Does it use the big air-conditioning units known as chillers or some lower-cost method?
"We don't talk about that. We have a lot of our IP tied up in our designs," he said.
That, of course, is in contrast to Facebook, which has published its server designs as part of the Open Compute Project and opened its data centers to inspection tours. Is Amazon watching its power usage effectiveness -- the amount of power actually used in computing out of the total delivered to the data center -- as Facebook is?
Of course, said Selipsky. "We analyze everything. We're highly data driven." But PUE – power usage effectiveness - is another stat he was not at liberty to disclose.
As a result, part of the belief in Amazon's "high volume, low margin" ethos has to be taken on faith. Parent company Amazon.com doesn't directly report revenues for AWS. In the first quarter of 2013, it reported $798 million in revenue in the "other" category, widely believed to mainly represent AWS but the accounting is not precise on whether the parent company's retail cash flow in part supports AWS operations.
Nor was Selipsky prepared to provide such an accounting. Rather, without mentioning names, he wanted to draw a line in the sand and dare would-be competitors to cross it. Amazon continues to build out data centers, adding per day the servers it once took to support the $5.3 billion retail business in 2003. Some of this addition could take the form of upgrading old servers to more powerful models but Selipsky said Amazon is also filling more data center space with equipment. "We continue to expand geographically. We're not done yet," he said. It's already got centers in Northern Virginia as U.S. East, and centers in Oregon and Silicon Valley as U.S. West and GovCloud. Overseas, it's in Dublin, Sydney and Singapore, as well as in two locations in Japan and one in Brazil.
Macquarie Capital says Amazon Web Services had likely revenues of $2.5 billion in 2012 and could be valued as a $19 billion company by 2015. As competitors reach their first billion or struggle to maintain stock value as growth slows, AWS is pressing its case.
High volume, low margin is part of every aspect of Amazon's business. "It's the way we designed our headquarters and offices," said Selipsky. Challenged to illustrate, he says he and other executives work from desks that were originally made from doors as a low-cost office-equipment option. "Those desks are a visual reminder of the early culture of the company," he said.
"It's difficult, retrofitting your company from a DNA perspective," he says to competitors. "If you're looking to make 70%-80% margins," you don't think about costs in such a manner.
The scale AWS has achieved and its pace of innovation will continue to be based on that culture. Catch us, Selipsky seemed to say, if you can.