Vendor watch: Amazon - A gift for disruption

Having transformed the way we buy books, and then consumer goods in general, Amazon is now blazing a disruptive trail through enterprise IT

For a company that makes just shy of $50bn a year, online retail giant Amazon manages to maintain an air of mystique. As R "Ray" Wang, an analyst with Constellation Research, puts it: "Whatever you think Amazon is, it's almost certainly something different."

While many people regard Amazon as a mighty online retailer that has forced many traditional businesses to rethink their business models, few think of it as a mainstay of enterprise IT - but it is, and has been for many years.

Amazon Web Services (AWS) underpins a huge number of cloud-based enterprises and services, and there is also an ecosystem of cloud-based suppliers that offer value-added consultancy services around Amazon's infrastructure to businesses looking to build a cloud presence.

Instagram, Pinterest and Netflix are just some of the highest-profile names based on Amazon, and when the cloud infrastructure giant suffered an outage in its US datacentre over the first weekend in July, they went offline for a period.

But social platforms and nimble start-ups are not the only organisations that use Amazon; the company offers federal government services, and the alpha and beta versions of the UK's GOV.UK were built on AWS.

So in many ways Amazon is the dark horse of enterprise IT, and it is also a significant player in the hardware space.

This summer, consumers in the UK may finally be able to get their hands on Amazon's Kindle Fire Tablet. This could prove to be the tipping point for Amazon, where the wraps finally come off its stealth move into the very heart of enterprise IT: a low-cost tablet, with a deep-rooted connection to enterprise services, retail and apps.

To understand the potential impact of Amazon in the enterprise, it's necessary to look at how the company operates, says Wang. Some may simply assume that Amazon emerged as the scourge of bookshops by chance.

"When you think about it, books aren't an obvious item for an e-commerce site. But it's symptomatic of how Amazon builds its strength by picking something incredibly difficult and learning to master it. It pushes out incredibly disruptive business models, then goes really deep into it."

Having earned its e-commerce spurs with books, Amazon grew to become a retail powerhouse, going on to offer consumer electronics, toys and garden furniture among other product lines. And if Amazon itself doesn't stock it - one of its partners will. But being an e-commerce titan has done little to quench Amazon's thirst for new opportunities. It started out with distribution services, before extending itself again as a supplier of computer services.

Vendor watch: Amazon - A gift for disruption

Having transformed the way we buy books, and then consumer goods in general, Amazon is now blazing a disruptive trail through enterprise IT

It was here that Amazon first made its presence felt in the enterprise, thanks to its pioneering Amazon Web Services platform. But in the main, Amazon has chiefly flown under the radar in the enterprise - AWS might be the first choice for skunkworks projects or used by discrete functions, such as marketing or accounts, but fewer well-established firms rely on it (short-lived test projects notwithstanding) for their IT.

Even so, as history has showed us, with the phenomenal success of software-as-a-service company Salesforce.com, IT companies that grow up in the shadows can easily become so useful that the IT function is forced to engage with them, says Laurent Lachal, an analyst with Ovum. “But given the traction it’s gained in pockets of the enterprise, Amazon is pushing IT towards decentralised applications in a way that nobody else is doing,” says Lachal. “As a CIO, you can’t ignore that.”

Coming out of the shadows

And that presence looks as if it will be even harder to ignore once Amazon’s second-generation Kindle Fires arrive in the UK. This will give the company not only a wealth of infrastructure and development tools but will be combined with a tightly integrated end-user device priced at a fraction of the cost of an iPad.

“The Kindle plus AWS? That’s a powerful combination,” says Wang.

Of course, the new Kindle Fire will be entering a crowded market. Google’s newly unveiled Nexus tablet is the most obvious competitor, with a similar neat 7in screen and comparable price tag. Meanwhile, Microsoft too is lining up a business-oriented tablet, hoping its Surface can steal a march on rivals. With its native Office apps, Surface is a tablet that will appeal to many from the IT function.

But it’s far from certain that Office apps alone will be enough of a pull, says Wang. “What we’ve seen from the whole bring-your-own-device (BYOD) movement is that users are putting an emphasis on usability.”

Amazon, meanwhile, appears to understand one facet of the tablet market that was missed by the first round of would-be competitors to Apple’s blockbuster tablet, the iPad, and that is price. While HP, RIM and a host of Android-based rivals shipped out iPad clones at similar prices, Amazon’s low-cost Kindle Fire emerged as the only competitor to dent Apple’s market share when it was launched in the US in November 2011.

Amazon itself has been remarkably reticent to break out figures, but according to market watcher IHS Suppli, the Kindle Fire accounted for 14 per cent of total tablet sales in the first quarter its was available. It estimated Amazon sold 3.9 million units in just six weeks.

Analyst firm Gartner is betting that Android-based tablets will continue to provide the main source of competition to Apple (see table below). Amazon’s Kindle gets lumped in with the other Android devices because it is essentially based on Android, albeit with most of the close integration with Google’s services hacked off. And while Gartner isn’t breaking out how much of the Android market it thinks Amazon will snaffle, there looks to be a big opportunity to exploit.

Stealing a march on rivals

And unlike Google and Microsoft, Amazon now has experience in making tablets and is believed to have new models on the way. So while Google and Microsoft have garnered plenty of attention with their forthcoming lines, Amazon is one generation ahead of its competitors. The differences between Apple’s first and second-generation iPad suggest that firms can learn a great deal in that time.

Another area where Amazon has an edge is that its Kindle is a tablet designed for cloud, says Wang. “Ultimately, every tablet needs to be connected to something,” he says, but from a business perspective, there’s a world of difference between a device built solely to connect to the wireless internet and one designed for cloud.

Vendor watch: Amazon - A gift for disruption

Having transformed the way we buy books, and then consumer goods in general, Amazon is now blazing a disruptive trail through enterprise IT

One of the most obvious manifestations of its cloud DNA is the Kindle’s controversial Silk browser. It’s designed to intermediate all internet activity, routing traffic through Amazon’s EC2 servers - ostensibly to provide a more efficient way to browse. According to Amazon, the number of different hosts being contacted to load a web page adds delay. Its Silk browser goes to Amazon’s servers to retrieve and cache all the necessary page elements.

Not everyone is convinced that this makes for speedier browsing, and some firms may have security concerns about users’ every web request going via Amazon. But it does neatly demonstrate how Amazon’s tablet and its cloud services dovetail beautifully - an appealing proposition for those hooked on Amazon’s AWS infrastructure-as-a-service platform.

Amazon Web Services is now a decade old, having launched as an internal system of distributed computer resources. It wasn’t until 2004 that one of Amazon’s engineers identified the opportunity to sell AWS to other users, and in 2006 the first commercial services became available with its Elastic Compute Cloud (EC2). Once, again, Amazon had identified a massively disruptive business model and set about building its domain expertise.

The low-cost, pay-as-you-go model has appealed to millions of firms across the globe, prompting some market watchers to mull whether Amazon would be best served by spinning off the unit. And not everyone is convinced that AWS is capable of delivering enterprise-grade IT.

Will CIOs learn to love AWS?

Amazon may well be wildly successful selling computing infrastructure in to large companies, but it’s never going to be selling to the CIO or the IT organisation, says Frank Gillett, a principal analyst with Forrester Research.

“Amazon’s offerings are very good for session – web, collaboration – and compute-intensive workloads, but not as much with typical transaction workloads that are typically the core focus of the IT organisation,” he says.

This view will be reinforced by recent service outages, which affected AWS customers including Netflix, Instagram and Pinterest.

To date, functions such as marketing and engineering have embraced Amazon, without necessarily bothering to check with IT, says Gillett.

“CIOs don’t like unpredictable pricing and budget impact, so pay per actual use is not very appealing,” says Gillett.

It is true that long-established large enterprises may be reluctant to bet the business of AWS, says Wang, but for tomorrow’s firms Amazon has become the go-to choice.

“Where you have a lot of legacy infrastructure, it perhaps doesn’t make sense to just throw that out and go to Amazon. But for start-ups, they just fire up an Amazon instance without thinking about it,” he says.

But while AWS may be beloved by the start-up community, it doesn’t mean that the service is just for small fry. Global media streaming firm Netflix has long been an AWS convert. Others, such as photo-sharing service Instagram – now owned by Facebook, but still based on Amazon – have proved that it is possible to build a billion-dollar business on the back of Amazon’s cloud service. And, as we have already seen, an organisation as huge as the UK government has – wisely or not – based part of GOV.UK on Amazon throughout its development and testing stages.

And Amazon has gradually been fleshing out the core virtual infrastructure and storage service to include features that will appeal more to the IT function. These include its AWS Storage Gateway, which provides users with a cloud-based disaster recovery service. More recently, it introduced its high-performance computing services to Europe, with its Cluster Compute Eight Extra Large instance firing up in its Dublin datacentre. This is an instance with more than 60GB of RAM and 3.4TB of attached storage – and is targeted at industries such as financial services, energy and life sciences. As a statement of intent, it’s pretty clear that Amazon doesn’t intend to stay on the enterprise sidelines.

It cannot, however, be assumed that Amazon will get a free run at the enterprise. Google, it seems, has finally awoken to either the opportunities presented by the combination of an infrastructure-as-a-service platform allied to a low-cost tablet – or it has cottoned on to the threat Amazon poses.

In late June, Google unveiled both the Nexus, and its own IaaS offering, dubbed Compute Engine. Clearly, the deep-pocketed Google represents a formidable challenger for Amazon, but as yet, there is no information on when Google’s Computer Engine service will be generally available. And as other competitors have found out to their cost in the past, it doesn’t pay to be playing catch-up with Amazon for too long.