AWS could pay a price for Amazon’s broader ambitions


When Amazon decided to buy Whole Foods, it seemed straight-forward enough. Huge company sees an opening and spends a ton of cash to gain an edge with a brick and mortar business, but the deal might have had some unintended consequences for AWS, Amazon’s highly successful cloud business.

While Amazon has had a huge impact on retail in general, causing upheaval across the entire industry, up until now it had mostly stayed away from the offline world — pop-up stores and some other experiments aside.

When Amazon crossed over in earnest by buying Whole Foods, it seemed to light a fire under retail rivals like Walmart, who didn’t appreciate Amazon muscling in on its brick and mortar bread and butter. It bothered them so much, in fact, they began pressuring their tech partners to get off of AWS, citing Amazon as a direct competitive threat to their business.

Walmart is also reportedly building its own data centers running Nvidia GPUs, which could be related to the Amazon-Whole Foods acquisition. Regardless, building your own data centers is a highly expensive undertaking, especially with high-speed GPUs.

While all of that seemed unlikely to have any significant impact on AWS for the short term, other retailers could be following suit. Just this week, Target announced it was leaving AWS because it also sees Amazon’s move into retail as a direct competitive threat. Could others follow?

Rivals must be licking their chops at the prospect of companies running from AWS, which has a huge lead in the cloud infrastructure market. In fact, Ray Wang, founder and principal analyst at Constellation Research says his firm is starting to see just such an exodus.

“We are seeing retailers mount an anti-Amazon strategy and Microsoft, Google and Oracle helping to facilitate this. No one wants to fund AWS while the other side of the house is beating up on them,” Wang said.

If Wang is right, the business decisions being made on the Amazon side of the business could be having a material impact on AWS’s bottom line, but John Dinsdale, chief analyst at Synergy Research, a firm that tracks cloud marketshare, sees it a bit differently. He thinks each company in this space has its own competitive crosses to bear and could run into a similar situation.

“One of the key dynamics of the cloud market is that the leading operators have grown into the cloud from very different starting-off points, and the bulk of their revenues still come from other activities — Amazon and Alibaba from e-commerce, Microsoft and Oracle from software, Google from search and IBM from IT services. They are all going to face some oddball competitive situations in specific industry areas,” he said.

What’s more, Dinsdale says AWS’s lead in this space is so substantial, he doesn’t see this having a significant impact on their cloud business. “Walmart and Target may be two large companies, but in the overall scheme of things they are just players in one single industry vertical. AWS is now well penetrated into a multitude of industry verticals and the public sector,” he said.

While Dinsdale makes a fair point about AWS marketshare, it’s just possible that the defections we are seeing could be the start of something more substantial, and AWS could end up bearing the brunt of Amazon’s acquisition strategy.

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