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On Amazon, cloud service companies put themselves at risk

It's a risky business to swim in Bezos's petri dish

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Analysis The power that Amazon Web Services wields over its cloud partners illustrates the new business reality brought about by pay-as-you-go rentable IT – and it's not a pretty picture.

Last week we reported on allegations made by Amazon partners that the cloud king was using its third-party ecosystem as a proving ground for products it could knock-off.

The article spurred a debate, with some reactions to it pointing out that businesses have always expanded into new fields, and that the companies we spoke with were always destined to have Amazon create low-cost derivatives of their products.

"I think for all of us entrepreneurs, it's incumbent of us to protect our assets and innovate and execute," Tom Lounibos, chief executive of Soasta, a cloud-based mobile and web application testing company and a long-time Amazon partner, told The Reg. "You live with this constant fear of someone catching up ... and that's what propels innovation."

Lounibos is unruffled because although Soasta uses AWS, his is a difficult business to clone since it depends on the use of multiple clouds. It is one of thousands of businesses that have built successful operations by using AWS's rentable resources.

But some businesses are not so lucky. They have built tools and devices for the AWS cloud itself, and are ripe for what the tech darlings term "disruption" by Amazon.

With Amazon pulling in revenues of well over $1bn a year, it's no wonder that companies are flocking to a business opportunity – however short term it might be.

These businesses will be aware that their model makes them ripe for cloning – all they do is automate some bit of business process that Amazon hasn't yet presented as a product, or they hold the hands of companies confused by Amazon's management interface or setup processes.

By participating in the AWS ecosystem, these companies help to suck more people into Amazon by making it a more attractive platform on which to develop. But they also give Bezos & Co. a form of costless research and development, which lets Amazon benefit from the hard work done by third-party companies working on its cloud.

Once a company has established a viable AWS business, then El Reg imagines some process kicks in within Amazon's HQ that sees an assessment of the technology get drawn up, then handed to some engineers to create a mock-up.

Soon, Amazon produces a low-cost derivative of the product, as has happened with the launch of products such as OpsWorks, Trusted Advisor, or the many language additions to its free PaaS Elastic Beanstalk.

This clonerama costs Amazon little, as the market research and prototyping have been done by third-party companies.

In the old days of building for operating systems – or before that, mainframes – it would take the mother-company significant amounts of time to develop its own version of a third-party's technology.

Major organizations such as IBM, Microsoft, or Oracle would have to either buy a company to effectively mimic its IP, or enter into cross-licensing agreements, as Microsoft did with DriveSpace.

What sets Amazon (and other cloud operators) apart is that owning a cloud platform gives a business a vast amount of live data about how software is being used and what makes the most money – information that was much slower to bubble up to the platform operator in the days of the mainframe or PC.

This means that cloud operators can become aware of successful third-party products very quickly, and can easily clone them because tech that services AWS must work well with Amazon's technology stack.

Cloud operators can always produce these types of business-process or ease-of-use services at a lower cost than third-parties, as they own the infrastructure on which the services are delivered.

Amazon's strategy of creating a huge ecosystem of third-party services has benefited the company by outsourcing its research and development costs, while bringing in more cloud punters.

The question El Reg thinks businesses should ask themselves is whether they want to help cement Amazon's cloud dominance.

"If you're not paying, you're the product being sold," is what people say to pooh-pooh the concerns raised by users of social networks when they complain about being served ever more ads.

Similarly, in the cloud if you're not paying for the underlying infrastructure, then you're nothing more than a trial business for the data center operator.

Every time a company yokes itself to a larger one, it puts itself at risk of being cloned – but in the past this would happen through acquisitions or cross-licensing, or the slow process of R&D on the part of the operator.

In Bezos's big yellow cloud, the chances of a company being bought or partnered with are slight when compared to the likelihood of it suddenly finding itself competing with a derivative product. (Even if the company is a partner and has paid Amazon for advance briefings, it will typically get no advance information on the competitive product.)

All users of AWS exist in an ecosystem defined by Bezos & Co, so companies should think carefully before linking themselves closely with Amazon itself. If they do, they may find themselves in a business race that they cannot win. ®

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