AWS is the 800-pound gorilla of cloud computing.
Source: flickr user tiswango
It was a good week for Amazon Web Services, and one for which the company can take total responsibility. Customer wins, financial results and new features are all the due to AWS being the first cloud provider to market, building a big mindshare lead and doing what’s necessary to maintain it.
A brief recap of the week: AWS announced a year of free service for new developers; added new features to make its Hadoop-based Elastic MapReduce product more useful; won a contract to provide cloud computing resources for the government’s Apps.gov service; and, presumably, comprised an even greater portion of Amazon’s $7.56 billion third quarter. Here’s why these events matter when it comes to improving Amazon’s bottom line and AWS’s market share.
Money, Money, Money, Money – Money
I think the Apps.gov win and the third-quarter results are intrinsically intertwined. Om wrote in August about the UBS report estimating AWS revenue at $500 million in 2010, out of roughly $900 million labeled “Other” on Amazon’s earnings sheet. In the third quarter, “Other” amounted for $240 million, bringing the to-date 2010 total to $632 million. That quarterly revenue was an 18 percent increase over the second quarter. If “Other” even matches that rate, it will hit $283 million in the fourth quarter, and $915 million for the year. Assuming UBS’s methodology is accurate, AWS will hit its $500 million mark.
But … the fourth quarter is here, and the holiday spike in web traffic should mean a lot more money for AWS. Last year, its fourth quarter “Other” revenue amounted for $231 million of the $653 million annual total for “Other,” and represented a 42 percent increase over third-quarter “Other” revenues. A comparable spike this year would bring fourth-quarter “Other” revenue to $341 million, raising the 2010 total to $973 million. AWS’s portion of that could push toward $550 million.
Looking forward, there’s no indication, however, that UBS took the government contract into consideration when projecting future revenues. The Obama Administration has been pushing cloud computing at every turn, so agencies might jump on board once IaaS resources are available via Apps.gov. And government contracts are notoriously lucrative, in part because of the extra effort vendors undergo to make their products FISMA-compliant, and in part because the government is a huge consumer of IT. Apps.gov could prove to be a cash cow for AWS.
Lower Prices, More Features Equals More Customers
The other two announcements this week — a year of free AWS usage and adjustable job flows for Elastic MapReduce — just underscore AWS’s top position among cloud providers. At this point, no other IaaS provider is even close in terms of features, so AWS can focus some attention on addressing growing user bases, like Hadoop developers. As the ranks of Hadoop developers grow, so will interest in Elastic MapReduce, and AWS will be ready.
The year-long free promotion is both another tactic to woo more developers by driving down IaaS pricing — something AWS has been doing regularly for a couple years — and an empty gesture. I don’t know of any other providers offering free instances for a year, so there’s that, but I do know that running a Micro Instance continuously for a year would cost approximately $180, hardly a bank-breaking amount. Also, 10GB of EBS comes out to $12 per year, and 5GB of S3 storage comes out to $9 a year. At current rates, 15GB of bandwidth in and out would total $25 per year. The allotted SimpleDB, SQS and SNS levels are free already.
Weeks like this remind us just how big AWS is in the world of cloud computing. Competitive providers like GoGrid, Joyent and Rackspace and VMware are advancing fast, as are projects like OpenStack, but they won’t steal IaaS revenue share or developers from AWS without a fight.