Although skeptics raised eyebrows over Amazon.com's decision to provide hosted IT infrastructure services, the e-commerce giant remains firmly committed to this business, as it increasingly courts CIOs and IT managers.
Amazon.com officially entered this market in March 2006 when it launched its Simple Storage Service (S3) and the Amazon Web Services (AWS) subsidiary, which today provides a suite of Internet-based IT infrastructure services.
"We're trying to provide an end-to-end suite of services that together form a platform for outsourced IT infrastructure," said Adam Selipsky, vice president of product management and developer relations for AWS. "We want our customers to be able to run their IT infrastructure in our cloud. Whatever that means to them is what it will end up meaning to us."
So far, AWS services have been mostly targeted at and consequently embraced by startup companies and small development teams seeking inexpensive and flexible computing resources for Web applications. However, AWS has its sights set on large companies and their key technology decision makers: CIOs, CTOs and IT managers.
"Realistically, today AWS is more targeted at startups, but its ambition is to target the enterprise," said Lydia Leong, a Gartner analyst.
While enterprises are the smallest customer segment currently for AWS, it holds the potential for generating the most revenue, said James Staten, a Forrester analyst.
Selipsky said that AWS has had Fortune 500 customers from the beginning, but acknowledges that segment hasn't been its core audience.
"It's fair to say early on the majority of our usage was driven by startups and smaller companies. That's not terribly surprising. This is a different way to think about computing and application development," he said. "Small companies typically are more risk tolerant and they have fewer legacy apps to deal with."
However, interest from large companies is rising. "One surprise has been how quick enterprise interest has picked up," Selipsky said.
A reason behind this is probably the rising popularity and increasing acceptance of cloud computing in the past year, both for hosted infrastructure services like the ones AWS offers and for SaaS (software-as-a-service) products like Google's Apps communication and collaboration suite and Salesforce.com's business software.
"Amazon has clearly already begun to dominate the conversation, which is important. But at the same time, it's still at the beginning of offering something as opposed to done with offering something as it were," Leong said.
AWS also offers Elastic Compute Cloud (EC2) for computing resources, SimpleDB for database needs, Simple Queue Service (SQS) for passing data among distributed systems, the CloudFront content delivery service and Elastic MapReduce, which automates the use of Hadoop clusters for processing large data sets.
AWS has a few glaring gaps in its menu, though. "The biggest shortcoming is a third-party audit of their internal procedures, which would give enterprises comfort with how AWS protects the data and ensure availability," Staten said.
Another thing that AWS could improve is simplifying the way in which customers monitor their AWS hosted instances. "Amazon hasn't made that very easy," he said.
In addition, load-balancing capacity for applications remains a very manual process and AWS could automate this process more, said Staten, who expects AWS to address these three areas in the near future.
The list of potential new services and features that AWS could add is very long, Leong said. "They're at the very beginning of the curve. There are a zillion things that the customers want that they can't yet have," she said.
Software consultant Matt Passell, founder of Grove Hill Software near Boston, has been testing and evaluating AWS services like S3 and EC2 for potential recommendation to his clients since early last year.
"It's been a good experience. It's been great at the rate with which they have come out with new stuff and their response to developer requests," Passell said.
"Amazon didn't just set this up and sat on it. It's very clear they're being very active about enhancing AWS," he added.
Although AWS services may not be a good fit for all customer projects, they hit the sweet spot in a number of cases, such as when a company plans to launch a new Web site or online service, he said.
In that case, AWS may offer more flexibility for scalability needs and lower cost than setting up one's own servers on premise or in a collocation facility, Passell said.
Analysts praise AWS for offering services that are comparatively low in price and billed on a usage basis, without upfront or minimum fees.
"They have introduced a new business model and as a result everyone is chasing them. They've jumped to the forefront of the hosting business as a result," Staten said.
AWS competitors include GoGrid Cloud Hosting, Rackspace's Mosso, Joyent and Layered Technologies' Grid Layer, along with dozens of other players.
AWS also gets good marks for the uptime and reliability of its hosted systems.
"At this point it's pretty solid and stable," Staten said. "They've had a few outages here and there and some latency issues, but nothing that an enterprise wouldn't have experienced itself with its own on-premise systems."
Since Amazon's main business continues to be online retailing, the question about its long-term commitment to AWS is a valid one for CIOs to ask, but less so than three years ago.
"Amazon will tell you that they're very committed to making this business work," Leong said. "Yes, this is a drop in the bucket compared to Amazon's retail business, but it's a business they want to be in."
Selipsky said AWS gets this question less and less, since it now has an established track record as a provider of hosted infrastructure services. More than 490,000 developers have registered with AWS, a number growing between 30,000 and 50,000 per quarter. S3 has now over 52 billion files stored in it, up from 40 billion a quarter ago, he said.
"Internally we're committed to this business at the very highest levels of the company. We believe this can become a financially meaningful business for Amazon," Selipsky said, while declining to give revenue or profit details about AWS.
In the controversial issue of data and application lock-in in cloud-computing services, both Staten and Leong said AWS is better than most. "Amazon is pretty clean in this regard. Their API is completely open," Staten said.
"AWS doesn't have much in the way of lock-in at all right now," Leong said.
However, Staten warns that there is a degree of lock-in with SimpleDB, due to a specific database structure, as well as SQS and CloudFront.
Selipsky said AWS is committed to openness and interoperability, because it sees customer choice as key to its success. Regarding discussions about cloud computing industry standards, he said AWS believes they're needed. "The discovery of which areas require standards will occur over time and we look forward to being active participants in that discussion," he said.
With this market getting more and more crowded every day, the key for differentiating oneself is to stay in close contact with customers, Selipsky said.
"The first thing is to continuously innovate. We have a strong track record of releasing new features and new services. The other thing is to solve real problems for customers. All the features we've released after initial versions of our services have been in response to lots of in-depth customer conversations and requests for us to tackle additional issues," he said.
"As long as we're being innovative and helping customers with their problems, we should be adding a lot of value and shouldn't have any problem standing out," he added.