Amazon Web Services (AWS) posted an impressive 78 percent year-to-year growth rate in 3Q15, generating $2.1 billion in the quarter. After massive price cuts in April 2014 slowed growth to the ~40 percents for a few quarters (still very good), the business unit is back to high double-digit growth and shows no sign of a slowdown. Typically as companies grow to this volume, growth rates will begin to decelerate; AWS defies this trend, which indicates that the public cloud IaaS is still in early days and presents massive opportunity.
What is more impressive is AWS’ operating margin of 25% in the quarter is the highest since we’ve been following the business, nearly doubling that of the year ago quarter (even amid eight price cuts since April 2014). TBR believes margin growth is mostly driven from technical efficiencies in AWS’ data centers.
At scale cloud business like AWS have the luxury of customizing and provisioning pieces of their server farms for specific tasks and services, creating efficiencies and lowering costs. AWS has also invested in chip technology through its partnership with Intel and its acquisitions of Israeli startup Annapruna labs earlier this year. Also playing a factor is the market in general; with enterprises more ready and willing to adopt cloud, AWS is already top of mind and there are a number of C&SI partners to ease the process, shortening both the sales and implementation time, and lowering S&M and professional services costs per customer.
Partnering with top tier C&SI and technology vendors, and continued investment in its developer ecosystem and partner marketplace has made AWS the de facto platform among startups, and a highly viable option in the enterprise. While AWS may no longer be the lowest-cost of most flexibly priced option, its toolset and number of services is the broadest, and investments in security and global expansion are growing. These factors, along with an $8.4 billion run rate and high operating margins give AWS quite the runway; AWS will continue taking advantage of the gap between itself and competitors in 2016 through continued rapid portfolio expansion, selling across business segments, and customizing for certain industries (through partners).
A joint AWS-Accenture business unit will drive AWS deeper into the enterprise market
As a growing number of enterprises demand cloud, the need for consulting, systems integration and management of these environments grows even faster. In October, AWS and Accenture announced a deepening of their partnership in the form of a virtual joint business unit, Accenture AWS Business Group. The co-business unit will share resources to jointly develop solutions, and go-to-market campaigns targeting enterprise customers and specific industries.
The public cloud market has seen a lot of investments from C&SI vendors this year, and we expect partnerships and acquisitions to continue in 2016. For example, aside from Accenture AWS Business Group, Accenture acquired Salesforce, Google and ServiceNow SI vendor Cloud Sherpas in September, UK-based Salesforce SI vendor Tquila in May, and has partnerships with most popular public cloud vendors including Microsoft (through Avanade). These C&SI-based partnerships and acquisitions have positively impacted the market’s perception of public cloud, and Accenture’s support will drive bigger deal sizes for AWS, positioning the business as a core piece of enterprise’s digital transformations.
Legacy IT vendors like Dell are also partnering with AWS through a brokerage and managed services model. Yesterday, HP announced it would broker and manage AWS, following Rackspace’s AWS managed services announcement earlier this month. We expect more of these relationships to form as well over the next twelve months as a growing number of vendors shift their cloud strategies away from their own branded public cloud IaaS.
AWS puts the pressure on legacy database vendors Oracle and Microsoft by easing migration to AWS, and offering fully dedicated cloud servers
In combination, AWS’ database migration services and EC2 Dedicated Host offering automate database migration from legacy vendors, and if legacy contracts are not up, allows users to host their databases on fully dedicated and isolated servers. The latter is a stepping stone to fully move to AWS databases once the legacy contract is up.
AWS’ database products have seen the fastest growth in the business, proving the market is ready for cloud database options. AWS’ launch of AWS Database Migration Service helps customers move to AWS databases such as Aurora and RedShift from legacy database platforms Oracle and Microsoft SQL (among others).
This service paired with additionally launched AWS Schema Conversation Tool, automates (AWS claims) an estimated 70% of the migration process for customers to move from legacy to AWS databases. AWS also announced relational database support for open-source database MariaDB.
Also at re:Invent AWS’ announced EC2 Dedicated Host physical servers that will enable customers to have fully dedicated AWS instances. Catering to enterprises that have already invested in licenses for traditional databases, AWS makes it simple to host these existing resources on AWS. Because Dedicated Hosts will provision isolated and fully dedicated servers, they provide additional control beyond EC2 Dedicated Instances, enabling enterprises with industry-specific or local security regulations to effectively customize the service to meet their compliance needs. A number of other services were announced at re:Invent and covered in TBR’s Event Perspective.
