Is AWS Gonna Get Squeezed?


By: R. Scott Raynovich

At its annual re:Invent conference, AWS laid out some incremental service improvements and focused on some new data services to become a big data pipeline enabler, but it was pretty quiet about how it can enable hybrid cloud. After viewing some of the keynotes and reading many news articles, it’s left me with some questions about Amazon: Is it about to get squeezed on margins? AWS has fat margins in many of its data-processing and compute services. Some financial analysts have estimated 61% gross margin for AWS.

With tech spending slowing and organizations watching their costs more closely, AWS services may come under some pricing pressure -- with alternatives growing, including multicloud and hybrid. Of course, the market is aware of this. Amazon shares have lost 42% of their value this year. Microsoft is only down 24%. Google is down 30%. Who has the best cloud play going forward?

Who's Best Positioned?

Amazon's biggest competition right now is Microsoft, which is the more diversified of the cloud players, with a robust Office 365 enterprise applications business in addition to its Azure cloud. Microsoft has also focused on helping enterprises with open-source networking solutions to enable hybrid and multicloud. Google’s cloud business is growing fast, but the parent company Alphabet is still mostly an advertising company. Amazon is split between AWS and its e-commerce platform. In the macro slowdown, Amazon's been hammered on both sides of the business with retail slowing and cloud growth slowing. It is laying off 10,000 employees, mostly on the side, with indications that it had over-hired.

Another mounting concern in the industry, according to our work, are cloud costs. With a slowdown in tech spending in play, the costs of the major infrastructure-as-a-service (IaaS) offerings are going to be under a microscope. To this point, they have enjoyed robust margins and relative stickiness.

The question is: How fast can cloud bounce back -- or is this the beginning of a longer trend where AWS customers look at alternatives, including hybrid and multicloud, which would present more competition with AWS. As a new crop of multicloud tools come to market -- as we have been covering in our Hybrid Cloud Automation and multicloud networking reports -- it's going to become easier for enterprises to build their hybrid and multicloud strategies. That could result in a squeeze for Amazon and other cloud providers that don’t rapidly enable multicloud services.

At re:Invent, AWS was as usual very coy about mentioning hybrid cloud or multicloud, and instead chose to focus on how it could expand with new data pipeline services. Much of the focus was on incremental improvement to AWS services as well as the introduction of some interesting data portability products to target the boom in companies building robust data pipelines and analytics to accommodate digital transformation projects.

AWS Execs Talk Up Data Pipelines

Of course, this doesn’t mean AWS is close to going out of business. The cloud business has an astounding run rate approaching $80 billion right now and is still growing more than 40% per year. But with the challenges mentioned above looming, AWS CEO Adam Selipsky has his work cut out for him.

We got some clues on strategy, as Amazon executives talked about new offerings and the direction they might go in to enable digital transformation and hybrid.

As usual, there was super geeky esoteric stuff that I might not even try to bother to understand. Like “Amazon Document DB Elastic Clusters.”

One thing is clear: Data, data integration, data security, and compliance was a big topic.

In one quote on data analytics, here’s what AWS CEO Adam Selipsky had to say:

“In time we’ll stop talking about people who have the word [data] analyst in their title. Rather, we’ll have hundreds of millions of people who analyze data as part of their day-to-day job, most of whom will not have the word analyst anywhere in their title. We’re talking about graphic designers and pizza shop owners and product managers… and data scientists as well.”

Some other things Selipsky said about data:

“If you have data in one place you shouldn’t have to move it every time you want to analyze that data.”
“Data governance is a huge issue. Really what customers need is to find the right balance for their organization between access to data and control.”

re:Invent Wrap, Including Partner Announcements

In summary, it looks like AWS does have a strategy to enable hybrid data services, which is where it will try to fend off possible leakage into hybrid. But the other cloud players have data pipeline services as well, so it may come down to who is the best at partnering up and delivering hybrid data services with big data dogs like Snowflake and Databricks.

Let’s look at some of highlights of re:Invent, along with some links:

  • Sustainability. Calling sustainability “the issue of our generation,” Selipsky announced AWS’ commitment to 100% renewable energy by 2025.
  • A focus on data pipelines and integration. But don’t you dare call it hybrid or multicloud! Amazon announced integrations between popular data services Aurora and Redshift, as well as Redshift integration with Apache Spark.
  • Zero ETL. Several of Amazon’s talks focused on easing the pain of “Extract, Transform, and Load” (ETL), processes involved in cleaning up data for processing. Selipsky talked about efforts toward a “zero-ETL vision.”
  • Cloud security. AWS announced the “Amazon Security Lake,” which automatically collects and aggregates security data for AWS partner solutions, including ones from Cisco, CrowdStrike, and Palo Alto Networks. It also lets teams add their own data sources, such as from internal applications or infrastructure logs.
  • Supply chain. AWS Supply Chain is a new cloud-based application that helps supply chain leaders mitigate risks and lower costs to increase supply chain resilience.

Here are some announcements from some partners we watch: