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Amazon Moves Into Germany

On the heels of a losing third quarter, AWS opens a new data center in Frankfurt, Germany -- and the global stakes are high.
Tech In Far-Flung Settings
Tech In Far-Flung Settings
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Amazon Web Services is launching cloud services from a new European data center in Frankfurt, Germany. The new facility is the company's second European computing center; the other is in Dublin, Ireland. The two represent a separate European region in what is now a constellation of 11 AWS facilities.

With its new region, Amazon is bowing to two new realities. One is that Microsoft, AT&T, CenturyLink, Verizon, VMware, and other public cloud suppliers are building global networks of data centers, since cloud data centers that are closer to customers offer better response times. To maintain its position as the cloud market leader, AWS must pick up the pace of going global. It fell behind Microsoft last year in China, with its service there still in "limited preview."

The second reality is that many European companies no longer want their data on cloud servers based in the US following Edward Snowden's revelations of NSA spying. Germany would scarcely be Amazon's first choice for a new location, given its ongoing difficulties with German trade unions as it attempts to build retail distribution facilities there. But Amazon had little choice in the matter. Germany boasts Europe's strongest economy, and German law states that whatever data originates there must remain within its borders.

[Want to learn more about Amazon's "limited preview" in China? See Why Amazon Faces Challenges In China.]

Both land and office space are in short supply in Germany, and they come with high price tags. Parent company Amazon.com could hardly have welcomed the bills coming out of Germany this past quarter as it lost $170 million on the beleaguered Amazon Fire Phone (currently rated at two stars out of five on Amazon.com). The company's total loss for its third quarter -- $437 million -- was larger than analysts expected when it reported results Oct. 23.

Amazon's competition is getting savvier as well. Earlier this month Microsoft announced a new D series of big-memory virtual machines, outpacing Amazon's own lineup. Microsoft's new VMs offer more power CPUs and twice the memory of the largest Amazon Web Services virtual machine, according to Scott Guthrie, Microsoft's executive VP for cloud and enterprise. Sensing an Amazon weak point (AWS charges for high rates of I/Os), Microsoft also threw in a storage option with its D series that guarantees 50,000 I/O operations a second.

In addition to increasing the server stakes, Microsoft, Google, and CenturyLink also pledged to match Amazon's pricing, tarnishing its longstanding position as the industry's price leader.

Meanwhile, low-end suppliers offer a host of different challenges. Both DigitalOcean and Atlantic.net are offering virtual servers that power up quickly and execute high speed I/Os, in part thanks to the solid state disks assigned to them. Amazon will have to do some retooling to compete on that front as well.

Amazon's telecom rivals, such as CenturyLink, NTT, Verizon, and AT&T, are beginning to understand the advantages of owning a global network of private lines and are offering them as secure means of access to their data centers. AWS has offered DirectConnect through Equinix and selected other data centers, but its points of access are outnumbered by the extensive resources of the telecoms. To fight that, Amazon has had to enter an agreement with competitor AT&T.

But the main reason AWS is now in Frankfurt was highlighted by Helmut Krcmar, chair of information systems at Technical University of Munich, whose department frequently works with German international companies. "Many have been holding off moving sensitive workloads to the cloud until they had computing and service facilities on German soil," Krcmar explained, "and this [new region from AWS] could help them comply with their internal processes."

This attitude may dictate additional European regions, depending on how much business AWS wants to do with security-minded French, Italian, or Spanish companies. Amazon is still a dominant player in cloud services and a formidable competitor to its challengers. But its margin for investment is narrowing, while the stakes needed to play on a global scale continue to increase.

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