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Amazon To Cloud Rivals: Try To Catch Us

Amazon Web Services VP Adam Selipsky sits down to talk about's DNA and its low-margin approach to cloud services vs. competitors.

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Adam Selipsky, VP of marketing and product management at Amazon Web Services, is tired of seeing headlines that announce another competitor has emerged to challenge Amazon. Selipsky won't name specific competitors, but in a recent interview with InformationWeek, he didn't hesitate to lay down the gauntlet to them.

"Many old guard companies" are now talking about cloud products and cloud services. These are the same companies that are "threatened by the model we've brought to market" of low-cost compute cycles distributed from cloud data centers and charged for by the hour, he said.

The old guard might be Oracle and IBM. It might also be Microsoft, which recently announced its Azure revenues had passed the $1 billion mark and said as it offered infrastructure as a service in March that it would match Amazon prices. Competitors have begun to put pressure on the uniqueness of Amazon's offerings. Selipsky visited InformationWeek in part to reassert Amazon's claims to market leadership.

[ Want to learn more about how AWS fits into the parent company, See Amazon Unlikely To Spin Off AWS Cloud Unit. ]

Amazon "is keeping up a rapid pace of innovation" by introducing a more complete set of services than competitors, he said. Last year it added Glacier low-cost storage and RedShift data warehousing, as well as new instance types.

As a result, it is more frequently serving as an extension of enterprise IT as well as a frequent infrastructure for startups. It's hosting the customer analytics of News International, the London-based branch of News Corp. One third of the servers needed by News International are now provided by Amazon's EC2. It's also frequently used as a platform by Bristol Myers Squib and other pharmaceutical companies as they use complex patient data to design new drug trials. Bristol Myers reported that such a design can be executed in 1.2 hours on an AWS server cluster, compared to the two days it previously took in-house. That's saved work time for the scientists, pointed out Selipsky.

But most of all, according to Selipsky, the comparisons between AWS and its competitors fails to see the high-volume, low-margin retailer's roots behind Amazon Web Services. Such an approach is not characteristic of the technology industry. On the contrary, he says he reads earnings reports from companies that say they are looking for a higher margin strategy, one that yields 70% or 80% margins more to their liking. "Frankly, I think many customers have been ripped off for decades," he said.

"It's important to have a cloud provider that has a history of lowering prices when they lower costs," Selipsky said. "We intend to run a high-volume, low-margin business," as Amazon has done in retail, and Amazon has lowered prices 31 times since launching its service, he said.

Prices, of course, are lowered in new or lesser used services more frequently than they are lowered in Amazon's core compute services. Nevertheless, Rackspace, Google and Microsoft have been at pains to keep pace with Amazon's moves and all three lowered storage prices when Amazon did last fall. What about Microsoft's declared intent to match Amazon pricing?

"It's easy for a company to drop prices," responded Selipsky. "The hard thing is being able to afford to drop your prices."

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User Rank: Strategist
5/16/2013 | 7:55:34 PM
re: Amazon To Cloud Rivals: Try To Catch Us
Open source code makes it possible to do both: offer low margin compute cycles and innovate on the types of services available..Rackspace understood the tie as well as it tried to expand cloud services, hence, the vigorous OpenStack Project. Red Hat understands it.HP understands it. But does Microsoft? VMware? VMware will answer that question May 21. Charlie Babcock, editor at large, InformationWeek
User Rank: Author
5/15/2013 | 9:40:23 PM
re: Amazon To Cloud Rivals: Try To Catch Us
This retailer's low margin mindset shouldn't be underestimated, it is foreign to tech rivals. But it's not enough. Dell once had a similar mindset around PCs -- avoid high margins and instead use that margin to beat pricier rivals. But in tech customers expect innovation as well. So far, Amazon has been an innovation leader in cloud as well as a low-price setter. Can it continue to do both?
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