Can Amazon become the biggest platform peddler in the world?
Crazy, but not impossible
Comment How long will it be before Amazon Web Services is the largest provider of raw server capacity in the world, outselling the tier one server makers who actually peddle boxes directly or through the channel to customers?
Look, I think I know how you feel about this, with a server close enough to my feet right this second to kick it, and several more behind me that I made myself because the 1U and 2U pizza boxes I shelled out cash for were too hot, too loud, and too damned big for my relatively puny Web workloads. There's yet another shiny new Xeon E5-2600 box in its cardboard wrapping, waiting for me to unwrap like it is Christmas, and slap in a video card and see if it can play Crysis. I like iron, too.
So forget for a second that when you buy a server you actually want to experience the joys of possession as well as that exhilarating new box smell. Imagine, for a thought experiment, that all you care about is raw capacity, that all code feels the same on it, and that you have whatever money you need to throw at the vendor or service provider to get what you need. Virtually or physically. Assume they are equivalent even though we know they are not.
Retail giant and cloud computing juggernaut Amazon is cagey about exactly how well or poorly its Amazon Web Services cloud is doing financially, and it says even less about how much server, storage, and switching infrastructure it has dedicated to the task of supporting the hundreds of thousands of customers that are running development and production applications on the AWS cloud.
But the company does plunk AWS into an "Other" category in its quarterly financials, so we can all sit around and make our estimates of how large or small the revenue stream from the 30 services that comprise the AWS stack is.
In the quarter ended in March, Amazon had $13.2bn in revenues, up 33.8 per cent, but the Other category, which includes the AWS cloud, marketing and promotion, sales generated through co-marketer affiliate sites, and interest and other fees from Amazon-branded credit cards, posted sales of $550m, up 60.8 per cent.
While that is a tiny portion of Amazon's overall sales, if the AWS cloud is the bulk of that revenue – and everyone thinks that it is – then it is a very large converged platform reseller in its own right. However, in typical retail fashion, Amazon probably doesn't make very much money on the EC2 compute, S3 and EBS storage, and other database, middleware, and networking services in the aggregate.
Considering that Amazon is building up a platform that it hopes to support millions of customers, who either don't want to deal with physical infrastructure or don't have the up-front capital and skills to do so even if they did, it would not be at all surprising if Amazon was losing money with AWS right now.
If you think of AWS as a startup, this makes sense. And if you also see that Amazon founder Jeff Bezos seems to take great pleasure disrupting markets and doing so without making very much money, you will then realize that Amazon may not care if it only makes pennies on the dollar with AWS.
Here at the El Reg cloud desk, we spent some time analyzing the past seven years of Amazon's financials and came up with our own guesstimates of the revenue stream from AWS.
As best we can tell, AWS, which launched in March 2006, didn't start bringing in any noticeable funds until 2007, when it might have pulled in something like $70m in revenues. Assuming a very aggressive ramp with triple digit growth, AWS might have hit $208m in 2008, with growth slowing but still huge and pushing it up to around $382m in 2009.
If AWS is like any other popular service or server vendors out there, its growth is limited by its addressable market, and the rate of increase would have downshifted again in 2010 and 2011. But even with that assumption, we still think AWS accounted for $695m in sales in 2010 and $1.23bn in 2011. And if the curve follows in 2012, it should break through around $2.1bn this year.
AWS is a true system, but not everyone pays Amazon to use it that way. You can load just raw operating systems and then your own code, or you can use load balancing, database, and other services in conjunction with the raw EC2 compute and S3 or EBS storage capacity.
To put AWS into perspective, HP's Business Critical Systems division, which peddles Integrity, Superdome, and NonStop machines running HP-UX, NonStop, and OpenVMS, has a run rate of around $2bn in the trailing twelve months.
Back in the summer of 2011, IBM reckoned there were only 10,000 HP Integrity server accounts and they drove a total of $2.8bn in spending on servers, systems software, upgrades, and various services such as maintenance.
Depending on who you ask, the Sparc/Solaris base has around 30,000 customers and generated around $2.3bn in sales in 2011 (that includes base server and OS revenues using Gartner's numbers) plus other support, which probably added another $700m or so.
IBM's Power-AIX base, which has been growing at the expense of Sun, might have 100,000 customers at this point (Big Blue has never provided any numbers for this) and accounted for $5.2bn in revenues in 2011, according to Gartner, not including services.
AWS as a platform could rival any single vendor's system platform
IBM has something on the order of 4,000 unique mainframe customers (with more than twice that many installations), who spend somewhere between $3bn and $4bn a year, depending on what point in the System z product cycle IBM is at. And they spend many additional billions of dollars more on systems software and support for those boxes.
At its peak in 1998, a decade after its introduction, IBM's AS/400 midrange system had 275,000 customers and about $4.6bn in server, storage, operating system, and database revenues, including OS/400 integrated relational database management systems. Those AS/400 customers had something on the order of 500,000 machines at the peak; this business has contracted dramatically since then, of course.
Collectively, Windows platforms and Linux platforms utterly dwarf these platform numbers, but they don't all come from the same vendor like the AWS platform does and arguably, with the exception of the database layer for HP and IBM boxes, RISC/Itanium Unix boxes do, too.
Yes, IBM can sell DB2 on Power-AIX, but the majority of its customers, like those using HP-UX on Itanium, are using Oracle databases.
The point of this thought experiment was not to split hairs over what is or is not a platform. What is clear is that all server vendors are trying to create converged hardware and software systems, complete platforms like the AS/400 and the VAX used to offer in the midrange and IBM has always done for big iron shops with its System/360 through System z family.
Amazon is offering one of these platforms, whether or not you like the performance of EBS or the less-than-adequate tech support, just to name two common (and legitimate) gripes. In fact, if you step back, it looks like a distributed, cloudy AS/400 or VAX.
And two or three years from now – and perhaps earlier – AWS as a platform could rival any single vendor's system platform. ®
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