Feeds

Amazon cloud spin-off 'inevitable,' says Oppenheimer

You've got to segregate to accumulate – or do you?

  • alert
  • submit to reddit

Internet Security Threat Report 2014

Analysis Amazon Web Services must be spun-off from its mothership to prevent it losing out on cloud customers, one analyst has argued – but a break-up could render AWS toothless, says The Reg.

The spin-off was recommended by Oppenheimer analyst Tim Horan in a report published on Monday.

"In our view, we believe an ultimate spin-off of AWS is inevitable due to its channel conflicts and the need to gain scale," Horan wrote. "We see the business as extremely valuable on a standalone basis, possibly even operating as a REIT," the insider's acronym for a real estate investment trust

Amazon's quandary, according to Horan, is that as the company expands into new areas – streaming films, e-books, devices – it bumps up against competitors who have put their infrastructure on its cloud, such as procrastination-enabler Netflix which battles Amazon in streaming media.

A paranoid company might worry that Amazon would give preferential treatment to its own products and services above those of its competitors. (Amazon, cognizant of this, has filled its site with documentation insisting that this can never happen. Unfortunately for Amazon, paranoia doesn't need to have a basis in reality.)

By splitting Amazon Web Services away from the e-retail mothership, both companies could expand without unnerving their customers, or so Horan's logic goes. They would also make oodles and oodles of cash – Horan reckons AWS could be worth $20bn in 2013, rising to $101bn by 2018 – and have a more predictable commercial existence in the long-term.

Spin-off could cause tech tailspin

The crack in this bout of crystal-ball gazing is that Oppenheimer is an investment firm that by nature likes predictable cash above everything else, and Amazon's leader Jeff Bezos is a mercurial, ambitious figure who has demonstrated time and time again a love for risky, long-term projects*.

This Reg hack believes the Oppenheimer spin-off analysis misses the temple for the gold fixtures: keeping Amazon Web Services yoked to Amazon holds a slew of major advantages, many of which could be critical in the battle for dominance of the cloud, but they will all take time to play out and are not a sure thing.

For Amazon, a spin-off would break its close links with its only major technology supplier and could lead to unpredictable rises in its own costs – a nasty proposition when the company has a penchant for running at 1 or 2 per cent margins.

Getting rid of AWS would shut Amazon off from a source of secret, high-performance tech; it's an open-secret in the industry that Amazon tests out many of AWS's in-development products, before other major customers and eventually Joe Public get a look-in.

To top it all off, although Amazon insists it is just another customer of AWS, the relationship is probably colored by the fact Amazon CEO Bezos can influence the hirings and firings within the latter organisation. Life would be more difficult for Bezos if he had no control here.

For Amazon Web Services, the spin-off would remove the valuable proving ground that is the Amazon e-retail site. Losing the ability to test and develop products for an understanding customer would be a major blow and could almost certainly lead to a higher cost of R&D – unappetizing for a business competing in an industry whose destiny is utility-like lowest-common-denominator pricing.

It's hard to find a compelling reason for Amazon to split Web Services off into another entity.

In cloud computing, controlling both the infrastructure and the software layer allows you to operate with the lowest possible costs – right now, Amazon can do both; if spun-off, it could do only one. As long as Bezos is in charge, why would it possibly do that? ®

* Bootnote

For examples of Bezos's farsightedness, see the ups and downs of his secretive Blue Origin space startup; his pivotal role in the 10,000-year-clock project via the Long Now Foundation; and indeed the formation of Amazon Web Services in the pre-YouTube early 2000s – a time when few people could imagine there to be a massive market for fungible compute power.

Secure remote control for conventional and virtual desktops

More from The Register

next story
Azure TITSUP caused by INFINITE LOOP
Fat fingered geo-block kept Aussies in the dark
NASA launches new climate model at SC14
75 days of supercomputing later ...
Yahoo! blames! MONSTER! email! OUTAGE! on! CUT! CABLE! bungle!
Weekend woe for BT as telco struggles to restore service
You think the CLOUD's insecure? It's BETTER than UK.GOV's DATA CENTRES
We don't even know where some of them ARE – Maude
DEATH by COMMENTS: WordPress XSS vuln is BIGGEST for YEARS
Trio of XSS turns attackers into admins
Cloud unicorns are extinct so DiData cloud mess was YOUR fault
Applications need to be built to handle TITSUP incidents
BOFH: WHERE did this 'fax-enabled' printer UPGRADE come from?
Don't worry about that cable, it's part of the config
Astro-boffins start opening universe simulation data
Got a supercomputer? Want to simulate a universe? Here you go
prev story

Whitepapers

Why cloud backup?
Combining the latest advancements in disk-based backup with secure, integrated, cloud technologies offer organizations fast and assured recovery of their critical enterprise data.
Forging a new future with identity relationship management
Learn about ForgeRock's next generation IRM platform and how it is designed to empower CEOS's and enterprises to engage with consumers.
5 critical considerations for enterprise cloud backup
Key considerations when evaluating cloud backup solutions to ensure adequate protection security and availability of enterprise data.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.
Beginner's guide to SSL certificates
De-mystify the technology involved and give you the information you need to make the best decision when considering your online security options.