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Amazon earnings numbers show AWS success, IaaS growth

Amazon finally broke out AWS numbers in its recent earnings report, quieting critics and proving it's a viable IaaS cloud provider for the enterprise.

The recent detailed Amazon earnings report finally put to rest many debates about whether Amazon Web Services, in particular, and the public IaaS market in general, are economically viable businesses. Now that AWS' revenues and profits have become public knowledge, you can expect the cloud computing market to grow at a faster pace.

It's only been 10 years since Amazon launched AWS and its first round of cloud services. At the time, Amazon executives claimed its initial goal was to resell Amazon's excess computing capacity to provide an e-commerce platform and simple data storage services to third-party companies. Amazon was also testing the scalability of its automated management processes to see if it could support the side business. Although I'm sure Amazon wouldn't have launched AWS if it wasn't confident it would succeed, I'm also certain the company had no idea it was creating a massive new business that would transform the computing marketplace.

Much like Salesforce.com's success demonstrated the viability of the software as a service (SaaS) subscription model in the enterprise application marketplace, AWS proved that computing power could also be sold on demand.  However, AWS took it a step further.

Companies subscribing to Salesforce.com applications generally must pay a year in advance on a per-user basis with very little price flexibility. AWS offered users the ability to acquire compute services by the million instructions per second (MIPS) in a variety of time increments. In other words, AWS was the first provider to make it as easy to turn off a service as it was to turn on a service.

AWS' calculated move into enterprise IT

Selling cheap compute power to startups was relatively easy; convincing enterprises that low-cost IaaS made sense for their needs was more difficult. But AWS borrowed a business trick from Salesforce.com and appealed to disgruntled individuals within a business who could make a unilateral purchase decision if the price point was below typical corporate procurement thresholds.

Salesforce.com applied this go-to-market strategy to the design of its CRM and automation software to appeal to the frustrated salesperson. And, other SaaS companies followed that lead to encourage the consumerization of IT trend.

Amazon had its e-commerce arm and consumer marketing skills in place to take this approach to a new level in the IaaS market. It appealed to enterprise software developers who were fed up with long wait times for new servers from corporate IT. Public cloud made it easy for those developers to use their credit cards to spin up virtual servers immediately.

AWS also accelerated the quarterly product rollout cadence of Salesforce.com and other SaaS vendors, introducing new IaaS offerings more regularly. This not only gave customers more options, it also made it more difficult for competitors to keep pace with AWS.

Although the rapidly growing assortment of AWS offerings can be overwhelming for many organizations, the vendor's financials clearly indicate that users are finding what they need and buying more services. This illustrates the classic "land-and-expand" customer penetration strategy of cloud vendors who are converting commodity services into a broader set of strategic products as they become more embedded in customer operations. And escalating demand for computing power to respond to a growing volume of big data coming from a widening array of connected things will fuel even greater interest in AWS offerings.

Even more compelling than Amazon earnings reports is AWS' growing customer testimonials and AWS success stories. Nothing sells the business benefits of public cloud services more effectively than a good customer case study.

At some point, the law of big numbers will slow AWS' growth rates. Amazon's earnings report also revealed that the company is investing heavily in its service delivery infrastructure. However, now that the Amazon earnings report has revealed the magnitude of its AWS business and has proven that IaaS can be profitable, more organizations will likely be willing to try IaaS -- from AWS and other prominent cloud service providers.

Next Steps

Which vendors can compete with AWS?

History lesson: Amazon's path into cloud computing 

What do experts say about AWS' future?

This was last published in April 2015

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