Amazon’s AWS Enterprise Strategy is Actually Pretty Simple


AWS strategy“Absence of evidence is not evidence of absence”

Many assume that because Amazon AWS isn’t aggressively building large-scale direct sales, solutioning and support capabilities like IBM and HP that it has no enterprise strategy.

Nothing could be further from the truth.

Amazon has had an intentional, purposeful strategy for the enterprise market for years.  But instead of following the well-worn path of traditional enterprise IT vendors, they’re following the strategy of disruptive innovation to a tee.

While the term “disruption” is thrown around quite a bit when it comes to cloud, let’s go back and see what a market disruptive strategy truly is as first described by Clayton Christensen.

To sustain growth over time large companies in established industries tend to innovate faster than required by their customers.  The result?  Products or services that are too complex, sophisticated and costly for the problem that the customer is really trying to solve.  In a single word, their offerings and sales models become overkill.

New disruptive entrants target the low end of these markets and provide new customers access to products or services that historically required more money, resources or skills.   Disruptors initially offer simpler products and services with new architectures for smaller target markets at lower margins.  Traditional customers initially shy away because the disruptive offerings are perceived to be “inferior” quality.

Over time disruptive offerings evolve to eventually meet the requirements of ‘traditional’ high margin customers at much lower cost, as the disruptive offerings were originally designed for lower margin customers.  Traditional vendors find themselves unable to compete, and the market disruption is complete.  Some classic examples (and the markets they disrupted) include:

  • Digital cameras / print photography
  • PCs  / minicomputers
  • LCD displays / CRTs

So if AWS was following a disruptive strategy in the enterprise market, what would we expect to see, and what are we actually seeing?

  • Rapid service offering evolution – Amazon initially launched basic EC2 compute-as-a-service back in 2004.  In the eight years since then, AWS has introduced no less than 30 new public cloud IaaS services.  New offerings have moved far beyond EC2 and S3 to include Virtual Private Cloud (VPC), Elastic Beanstalk (PaaS), and Redshift and Data Pipeline services recently announced at re:Invent.  New offerings have been used to both broaden the AWS portfolio, and help it move up the cloud stack to drive increased enterprise penetration.
  • Upmarket migration – initially AWS gained traction with startup developers where the economics of on-demand infrastructure was a no-brainer.  Eventually enterprise app developers were also won over, and AWS established its beachhead in the Fortune 500.  Services and offerings have been added targeting enterprise IT, including monitoring and management tools. GovCloud and FinQcloud have also been launched to address broader vertical specific requirements of the US Government and financial services sectors respectively.  Has AWS fully won the hearts and minds of Fortune 500 CIOs yet?  Of course not, but the continued progress they’ve made moving upmarket from SMB developers is undeniable.
  • New market price / performance relationship – this is the amazing part of the AWS, and the component that is a bit inconsistent with a classic disruption story.  AWS has started with targeting lower end market segments, but has still managed to drive 50% gross margin and 20-30% operating margins.  The fact that AWS could continue to aggressively cut pricing and still remain profitable shows how much potential still exists to drive even more disruptive value propositions.

So now let’s take a look at comments we frequently hear about why AWS won’t be successful in the enterprise:

“They don’t sell the way that enterprise IT likes to buy”

“The AWS SLAs are meaningless”

“Amazon doesn’t know how to provide enterprise-class support”

Objections like these typically focus on sales models and approaches, customer support, solutioning and SLAs associated with traditional, high cost enterprise models.  The objections often tend to be highly tactical, leading one to wonder if many market observers can’t see the forest for the trees when it comes to Amazon’s enterprise strategy.  Do these objections provide issues and challenges today?  Naturally, but over time as AWS pricing falls and services continue to iterate and evolve, AWS will eventually intersect mainstream enterprise requirements given current trajectory.  Not only will AWS change and evolve, but enterprises and CIOs will increasingly come to the recognition that traditional enterprise vendors have conditioned them to sales models and support levels that aren’t needed or justified in every case.

Will all enterprise workloads migrate to AWS and public cloud IaaS services?  Of course not.  Enterprise IT environments will always be complex, heterogeneous, and include a variety of platforms.  And there certainly will be workloads that will never make sense to move to external 3rd party IaaS or PaaS vendors.

Will AWS continue to evolve its go-to market model and services portfolio to better meet the needs of enterprise customers?  Of course they will.  They haven’t yet cracked the code on enterprise IT, but they also continue to systemically learn, evolve and iterate.

Net net it’s a bit absurd to say that AWS has no enterprise strategy or plan.  Just because AWS hasn’t fully caught up with broader enterprise requirements yet doesn’t mean they don’t have a strategy to get there.  On the contrary, their strategy would seem to be right of the classic disruptor’s playbook.

 

Comments

  1. I think the other key part of the strategy will be partners. There is more in it for the existing traditional enterprise VAR community being able to build a business around AWS then other cloud providers or building their own cloud stacks. This will change over time as companies figure out how to change, definately not over night.

    The other key will be more and more Enterprise IT vendors building integration with AWS. Already seeing a lot of this with physical appliances as well as new virtual appliances that will start scaling more into AWS over time driven by customer adoption and demand.

    Case in point, look at NetApp willingness to go to market around AWS. http://tinyurl.com/day1npsaws This was built out of demand from the Enterprise customers. We’d be happy to answer any questions.

    • Luis,
      Agree with your point here, enterprise traditionally have been using VAR’s & are comfortable with that model, we will see a lot of activities with traditional enterprise solutions to have parallel sales channel via AWS marketplace.

  2. Raj Sehgal says:

    Good points, Scott. Although, Amazon HAS actually been aggressively hiring enterprise sales people – check this out: http://www.businessinsider.com/amazon-enterprise-hires-2013-3

  3. Yes, the idea that AWS has no direct enterprise sales force is a myth.

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