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Thursday, August 31, 2017

AWS could pay a price for Amazon’s broader ambitions

When Amazon decided to buy Whole Foods, it seemed simple enough. A huge company sees an opening and spends a sum of money to gain an advantage with a brick-and-mortar company, but the deal could have had unintended consequences for AWS, Amazon's cloud cloud company.

While Amazon has had a huge impact on retailing overall, causing disruption in the industry as a whole, so far it has largely disappeared from the offline world - emerging stores, other experiences aside.

When Amazon took the purchase of Whole Foods seriously, it seemed to light a fire under rivals like Walmart, which did not enjoy Amazon's bodybuilding in its bread and butter bricks and mortars. This bothers them so much, in fact, they began to pressure their technology partners to abandon AWS, citing Amazon as a direct threat to their business.

Walmart is also expected to create its own data centers using Nvidia GPUs, which could be tied to the acquisition of Amazon-Whole Foods. Anyway, building your own data centers is a very expensive venture, especially with high-speed GPUs.

While all this seemed unlikely to have a significant impact on AWS for the short term, other retailers could follow suit. This week, Target announced that it was leaving AWS because it also believes that Amazon's membership of retailers is a direct competitive threat. Could others continue?

Rivals have to lick their ribs in the perspective of companies emerging from AWS, which has a huge advantage in the cloud infrastructure market. In fact, Ray Wang, founder and senior analyst at Constellation Research, says his company is starting to see such an exodus.

"We see that retailers are setting up an anti-Amazon strategy and Microsoft, Google and Oracle make it easier. No one wants to fund AWS when the other side of the house outperforms them," Wang said.

If Wang is right, business decisions made on the Amazon side of the company could have a significant impact on AWS net income, but John Dinsdale, chief analyst at Synergy Research, a company that monitors Nuke, sees it a little different. It thinks that each company in this space has its own competitive crosses to support and could find itself with a similar situation.

"One of the main dynamics of the cloud market is that major operators have become the cloud from very different starting points, and most of their revenue comes from other businesses - Amazon and Alibaba Electronics, Microsoft and Oracle software , Google search and IBM IT services. They will all face bizarre competitive situations in specific areas of the industry, "he said.

In addition, Dinsdale says that AWS leadership in this space is so important, it does not see that this has a significant impact on its business in the cloud. "Walmart and Target are two big companies, but in all things, they are just the players in a single vertical industry. AWS is now well penetrated by a variety of vertical sectors of industry and the public sector," he said.

Although Dinsdale make a fair point in the AWS market, it is quite possible that we see defections can start with something more important, and AWS could end up supporting the weight of the Amazon acquisition strategy.