Home / Tech / Amazon's recent body language about its cloud business shows how seriously it's taking Microsoft's 'aggressive front' (AMZN, MSFT)

Amazon's recent body language about its cloud business shows how seriously it's taking Microsoft's 'aggressive front' (AMZN, MSFT)

Andy Jassy

  • Analysts say that Amazon Web Services’ conference AWS re:Invent shows that the cloud giant is more reactive than ever to competition from Microsoft and Google Cloud.
  • Although AWS is still well ahead of its competition, analysts say that Microsoft is putting on an “aggressive front” when it comes to partnerships.
  • While Amazon wants users to go all-in with its cloud, customers and partners alike may be wary of investing too deeply in AWS — after all, they could be competitors tomorrow.
  • One of the biggest announcements was AWS Outposts, a hybrid cloud product that allows customers to run their applications on both AWS and their private data centers using Amazon hardware. Outposts opens up a big new opportunity for Amazon.
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Amazon Web Services is still the biggest cloud around, and isn’t shy about making sure that its customers know it.

Still, experts say, Amazon is showing more signs than ever that it’s paying attention to the mounting threat posed by competitors like Microsoft or Google Cloud — despite repeated claims from AWS over the years that it pays more attention to its customers than to what the rest of the market is doing.

“I think that even though Amazon claims they’re driven by customer needs and not competition, I found they reacted more to competition this time than I’ve seen in the past,” Sanjeev Mohan, senior director analyst at Gartner, told Business Insider. 

At AWS re:Invent, Amazon’s biggest cloud conference held in Las Vegas last week, the cloud giant made several announcements in artificial intelligence, quantum computing, and other cutting-edge fields.

More than anything, though, AWS wanted attendees to come away with one message: “We’re better, we release things faster and have more customers,” says Ray Wang, principal analyst and founder of Constellation Research.

Indeed, according to Gartner, Amazon Web Services currently has 47.8% market share in the public cloud market. By comparison, Microsoft has 15.5%, Chinese cloud giant Alibaba has 7.7%, and Google has 4%. All of those companies allow customers to rent functionally unlimited computing power from their own hyperefficient data centers.

Despite Amazon’s dominance, however, those competitors have found ways to grow. Ray Wang, principal analyst with Constellation Research, says that Google has built a reputation as leading in artificial intelligence and machine learning, while Microsoft’s experience with enterprises gives it a strategic edge. 

“They’re building new industries along the way, and customers are still innovating with them,” Wang said. “The market is changing. Microsoft Azure is gaining market share and mindshare as well but it’s because there are a lot of pre-existing contracts. Google was seen as the place to go for AI and ML, but what Amazon has tried to do was narrow the perception.”

Through that lens, Amazon’s re:Invent announcements can be seen as a maneuver to show that it’s meeting or beating the expectations set by its leading rivals.

Microsoft’s ‘aggressive front’

AWS is still the top cloud in the market, but it needs to watch its back, analysts say. In particular, AWS will need to watch out for Microsoft, experts agree — especially in the wake of Microsoft’s surprise win of the $10 billion JEDI contract, a deal with the Pentagon to modernize its IT infrastructure by way of the cloud.

“The elephant in the room during much of re:Invent was Microsoft, which has made impressive strides in cementing itself as the No. 2 cloud provider and threw AWS (and the rest of the industry) for a loop with the JEDI win,” William Blair analyst Jason Ader wrote in a note.

Microsoft has been bolstering its growth by presenting an “aggressive front” when it comes to partnerships and acquisitions, Gartner vice president Sid Nag said, striking big deals in order to stay competitive with AWS. 

“I don’t think they’ll do major shifts in strategy but they need to make sure they stay ahead of the game,” Nag told Business Insider. “Microsoft’s strategy has been all about growing their business inorganically to compete with AWS. AWS has to keep up with that. Definitely this will help AWS keep that momentum going. Clearly they’re not slowing down.”

AWS is currently challenging Microsoft’s win by way of a lawsuit, even as AWS CEO Andy Jassy has already started to strike a “combative tone” when it comes to Microsoft, as Ader wrote. At re:Invent, Jassy criticized Microsoft’s price increases and highlighted the fact that customers use AWS to run Windows in the cloud. 

Going all-in

Another takeaway from re:Invent, experts say, is that AWS hopes to give customers an incentive to go all-in on its cloud.

Although AWS is announcing a host of new features to make it more rounded-out as a platform, Wang says customers will still look to use multiple clouds – something that AWS historically hasn’t encouraged. Complicating the issue is that some customers might be wary of turning to AWS, when they might compete with its retail or other businesses at the same time.

That dynamic has also come to the software industry itself. In a report after the event, Ader wrote that AWS’s goal to become a “one-stop shop” has “ruffled more than a few feathers,” as partners like MongoDB, Redis Labs, and DataStax both work with and directly compete with AWS. 

Some of these vendors have even gotten closer to Microsoft and Google because they’re seen as more partner-friendly, Ader wrote.

This all adds up to an environment where customers and partners are both worried about investing too deeply in AWS, at the expense of their freedom to try to the others.

“That’s really going to be the nature of what’s happening,” Wang said. “Every cloud vendor we talked to was scared of cloud lock-in. They are so scared they will make those same mistakes.”

AWS Outposts

One of the biggest new products announced at the event was AWS Outposts, which AWS announced last year and launched into general availability this year. It’s a hybrid cloud product, which allows customers to run their applications across both the cloud and in their private data centers using AWS hardware. That’s a big shift for Amazon, which for a long time discouraged that kind of hybrid scenario.

“AWS has always been a public cloud provider,” Nag said. “They didn’t really have a strong hybrid story. For the foreseeable future, hybrid is going to be the most relevant model for cloud. They’ve been lacking on that front.”

Hybrid cloud is something that customers have been asking for, as many choose to keep using private data centers for reasons that might include regulatory compliance. That means that Outposts represents a possibly huge new opportunity for Amazon.

“Outposts is huge,” Wang said. “Part of the reason why that’s so important is because customers want hybrid. That was one of the big items. It was good to see they talked about it and good to see them delivering on it.”

Microsoft has long had its own hybrid cloud product on the market. Still, analysts say there is still space for both cloud giants.

“Ultimately, given the still-early stage of cloud adoption, we believe there is plenty of room for both AWS and Microsoft to be successful, and we expect them to be the top two cloud providers for many years to come,” Ader wrote.

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SEE ALSO: Here are 19 of the most important executives leading Microsoft’s cloud business as it takes on Amazon Web Services

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