Updated The moneymen have finally looked up from beneath their golden canopies and noticed, hovering above them, a cloud named Amazon that is putting traditional IT companies in the shade.
Amazon's cloud poses a major threat to most of the traditional IT ecosystem, a team of 25 Morgan Stanley analysts write in a report, Amazon Web Services: Making Waves in the IT Pond, that was released on Wednesday. Brocade, NetApp, QLogic, EMC and VMware are said to face the greatest "challenges" from the growth of AWS,
"The AWS offering now spans compute, storage, data management, networking and application platform markets. Vendors in these segments are contending with a flexible, pay-as-you-go, subscription model from a company sustaining non-IT operating margins," they write.
The Morgan Stanley soothsayers reckon Amazon will go from making around $2bn in 2012 (as predicted by El Reg), to over $24bn within a decade. Much of this growth will come from the cannibalization of other traditional IT services, as people flee from expensive, old-style IT into roughly equivalent but cheaper technologies offered by Amazon.
"Hardware companies are most at risk" from growth in AWS rise, Morgan Stanley says. This is because when developers rent compute and storage from Amazon, they're leading to Amazon spending more on commodity server equipment assembled by Wistron, Quanta, and the like.
That trend is already causing major changes in the server industry, as the number of units shipped by fringe vendors climbs and traditional OEMs like HP see their share plummet, as reported by Gartner.
Enterprise software vendors and IT service suppliers are also in the headlights. This is because Amazon has produced various in-house technologies that cannibalize spend on software from traditional providers. For example, if you keep your data in Amazon's NoSQL, SSD-backed DynamoDB database, then you might not consume Amazon's SAP or SQL Server offerings. And if you use some of Amazon's higher-level platform services, such as OpsWorks, then you're cutting into the revenues of traditional systems integrators.
Workloads are flying into AWS for several reasons, and Morgan Stanley believes the most compelling ones are:
- No upfront investment
- Pay for Only What You Use *
- Price Transparency
- Faster Time to Market
- Near-infinite Scalability and Global Reach
- Leveraging Scale – as AWS Grows Pricing Keeps Coming Down
Translation: Rule 1 of IT club is you don't talk about prices. Amazon has broken that rule in a rather spectacular manner, and now there's hell to pay.
Traditional vendors still don't disclose pricing because – they really do argue this – keeping pricing private allows them to better serve the needs of customers. This is a pricing strategy known as "how much can my punter afford" and is never good for the buyer.
Unfortunately for traditional OEMs (and fortunately for IT buyers), Amazon is bringing a retail mentality to the IT market. Though this is a boon for cloud-happy developers, it leads to a necessary cannibalization of the parts of the IT market that were particularly price sensitive.
The companies most at risk are those who will have trouble selling to Amazon or selling in a market where Amazon has grown. According to Morgan Stanley's report, if AWS experiences widespread adoption, the companies most likely to be put at risk are, in order, VMware, NetApp, Brocade, QLogic, and EMC. If adoption is mostly among SMBs, on the other hand, Morgan Stanley says NetApp, VMware, Brocade, QLogic and EMC are most at risk.
Why these companies in particular? NetApp and EMC depend on data existing onsite and living in expensive hardware with pricey management tools. Much of Brocade's business comes from deals with traditional server OEMs. VMware's hypervisor-plus-complementary-software model is being broken up by Amazon's hypervisor-agnostic, Xen-based infrastructure. And QLogic's dependence on widespread use of Fibre Channel (and to a lesser extent, FCoE) uptake goes against industry trends.
"Incumbent competitors can compete on performance, but very few can compete on scale – in the long run, we believe scale wins because AWS performance will catch up once pricing comes down but barriers to scale are more sustainable," Morgan Stanley says.
Dell junked its public cloud last week after trying and failing to build up a data center estate large enough to credibly take on Amazon. Meanwhile, VMware is enlisting the help of telco partners to run its public cloud. If Morgan Stanley's report is remotely correct – and we think it is – then it's going to be an Amazon-led world for some time yet. ®
* Thanks to reader Nate Amsden for pointing out that Amazon's model is 'pay for what you provision' rather than 'pay for what you use' for some key services. This means that if you don't run at full capacity utilization – and pretty much no one does – you'll be paying for what you use, plus spare capacity.