What Will Stop the Amazon Cloud Juggernaut?

Love ‘em or hate ‘em, you’ve got to give Amazon.com credit. Not only is Amazon Web Services (AWS) the undisputed leader in the Infrastructure-as-a-Service (IaaS) market, they are moving faster than their competition. Try as their competitors might, they all appear to be losing ground to this Cloud juggernaut. Amazon’s low-cost Wal-Mart strategy of continually lowering prices as they achieve ever-greater economies of scale is squeezing the profitability of direct competitors, forcing most of them to look for niches Amazon hasn’t targeted…yet.

In fact, Amazon has built a classic virtuous cycle. They got IaaS to work, disrupting the pre-existing data center outsourcing market. They achieved market dominance, enabling them to be the low-cost leader. And they figured out how to scale, facilitating unlimited growth. This lethal combination of market forces positions them to grow ever larger as they squash competitors like bugs under their sandals. But such growth and market dominance cannot go on forever, can it? What—if anything—has any hope of stopping, or even slowing down, the Amazon Cloud juggernaut?

In the Other Corner: The Contenders

The first place to look for an AWS-killer, of course, is the competition. And perhaps the one adversary that has a real shot at dethroning Amazon is Google. They are the only competitor that understands infrastructure at scale as well as Amazon does. They also have a trusted, well-established brand, and they’ve shown they’re willing to take risks and provide market leadership. Expect better than an AWS clone from Google.

However, even with the recent release of the Google Compute Engine to the public, none of Google’s Cloud offerings have a barrier to entry against Amazon. Sure, Google offers sub-hour billing, shared core instances, and persistent disks up to 10 terabytes in size. But Amazon could copy any of these product differentiators if they felt like it. Remember, Amazon’s pattern is to roll out new services in the face of substantial customer demand, while Google loves running ideas up the flagpole to see what works. Amazon is perfectly happy to let Google innovate on its behalf.

What about the old standbys like Microsoft, SAP, or Oracle? Though they’ll never admit it, these vendors are scrambling. They’re each solidly in revenue-protection mode, trying their best to maintain their customer base in the face of dramatic shifts in their respective markets. In other words, each of these dinosaurs is somewhere on a long, slow death spiral. The best they’ll be able to do is keep their heads above water, but they’ll never be a true threat to Amazon.

You might think that Enterprise Public Cloud Vendors (including IBM with the recent SoftLayer acquisition) have a shot at unseating Amazon. True, targeting the high end of this market by offering enterprise-friendly capabilities like robust governance and auditability, enterprise-centric purchasing processes, and support for hybrid and private Clouds gives them a solid market niche with solid value propositions, reasonably differentiated from AWS.

For now. But Amazon is going after the enterprise market with a vengeance, and they’ve already made substantial progress penetrating multiple verticals. There’s money to be made in the Enterprise Public Cloud space to be sure, but in the end, these vendors are tilting at windmills by thinking they can catch up to Amazon.

Then there’s OpenStack, or other open source Cloud orchestration platforms like CloudStack or Eucalyptus. On the surface it might appear that OpenStack is gunning for AWS. However, it’s important to remember that open source isn’t a business model in its own right. An open source strategy can only support a business model, which might be value-added services for some vendors or a commercial product upsell for others. So, will any OpenStack-enabled competitor ever catch up to Amazon? Not likely. OpenStack is built by committee, while Amazon has complete say over the inner workings of AWS. Committees will always move more slowly than proprietary vendors, especially when the proprietary vendor already has a multiple-year lead.

Can Market Forces Stop Amazon?

Maybe we’re going about this question wrong. It might not be a competitor at all that takes AWS down a notch. It might be some kind of marketplace pressure, for example, supply constraints. What if Amazon runs out of processor chips for their blades, say, or hard drives, or network equipment? True, a shortage of these core components of the Cloud might slow Amazon down. But such constraints always prove to be temporary, and Amazon can always respond by increasing prices if they desire.

On the other hand, what if they run out of smart people to hire? It’s reasonable to assume that as they continue to grow, at some point they’ll have already hired everybody good. What will happen then? As a matter of fact, they’ve already figured this problem out, by continually improving their automation even as they scale. The number of S3 objects or EC2 instances per Amazon employee, for example, continues to explode, with no end in sight. Remember, part of their scalability is avoiding the human bottleneck. If anything, Amazon will continue to suck available talent away from already struggling competition.

Of course, if all else fails to stop Amazon, there’s always governmental anti-trust action. Before Wal-Mart there was Rockefeller’s Standard Oil, who used even more aggressive pricing techniques than Amazon’s to put all their competition out of business. The US Government had to break them up, as it did Ma Bell. If Amazon is truly a juggernaut, then perhaps anti-trust action is the only thing that would ever stop them.

Fortunately for Amazon, a truly monopolistic dominance of the marketplace is still many years off, and Amazon has plenty of time to position themselves as non-monopolistic in the meantime. It’s not like their lawyers haven’t already thought of this problem and instituted proactive steps to avoid such issues. And in any case, Amazon is no Standard Oil: they have never shown a penchant for acquiring struggling competitors, which is how Standard Oil became a monopoly. In other words, if Microsoft got away with market dominance that smacked of anticompetitiveness, Amazon will have no problem either.

The ZapThink Take

Yes, we do see one force that may eventually unseat Amazon’s Cloud market dominance, although this force also takes years or even decades to take full effect. Today Amazon is the market disruptor as they have been for their entire history, and not just with Cloud. But eventually they will mature, and reach a local optimum, where further innovation becomes more about minor improvements than further disruptions.

At that point, someone else in some yet-to-be-defined market will become the disruptive innovator, creating entirely new opportunities no one—even Amazon—has dreamed of today. At that point, such a contender will have a shot at finally knocking Amazon off its throne–the classic Innovator’s Dilemma.

But don’t hold your breath.

Image credit: Sharon Mollerus