Amazon’s recent earnings release is the talk of both the cloud computing world and Wall Street. It tells the amazing story of a company well on its way to the type of monopoly that hasn’t been seen in several decades. After analyzing the numbers, I’m more certain than ever that it is Codero’s duty to have a viable alternative to Amazon’s cloud.
Most people know about Amazon’s Prime services and its massive, recognizable ecommerce business. But when you look at Amazon’s latest earnings announcement, the story is its Amazon Web Services (AWS) product. It’s amazing that AWS brings in over half of Amazon’s total profits, making it the most important factor in the company’s overall profitability. To generate these profits, Amazon has leveraged operations, aggressive pricing moves, and an extensive and ever-complicated product set.
AWS – Profit, Surplus, Surprise?!
For years, Amazon has reported the profit it made with AWS under the infamous “other” category in its financials. The magnitude of AWS’s financials was subject of much mystery and debate. In January 2015, however, that all changed – and now we know why.
- Amazon earned an operating income of $500 million on revenues of $2.1 billion from AWS during Q3.
- AWS made up only 8% of Amazon’s revenue last quarter, but 52% of its operating income.
- Low operating expenses are critical to the profit margins that AWS is seeing.
- The cloud business’s profit was bigger than the rest of the company combined.
- The net worth of Amazon CEO Jeff Bezos increased by $5 billion following the announcement.
The Cloudopoly Monopoly
AWS runs a high-margin, low-cost machine that continues to consume and dominate the market. At this point, there’s no hiding it. It’s time to face the fact that AWS is well on its way to becoming a monopoly, as both HP and Rackspace have conceded the race. Before anyone mentions Azure, note that Azure’s current standing does not come close to AWS’s position. Azure’s cloud is beholden to Microsoft’s ecosystem, and it does not have the versatility or usage that AWS has.
The AWS margins shown here in its latest report are near monopolistic. With that description comes impunity and arrogance. Monopolies are not friendly to the end user because they are insulated from what the free market offers, both good and bad. Ultimately, customers get roped into paying for products they don’t need because their provider is the only alternative. History is filled with examples: Standard Oil, U.S. Steel, AT&T (Ma Bell), cable companies, and more. This is where AWS is headed, and there are signs of this price disparity already.
With Rackspace and HP throwing in the towel on the cloud race, it’s imperative that AWS be kept in check for the sake of customers and IT users at large. The fact that AWS has a huge following so far is beside the point; Walmart has a massive following, but that does not mean it is something good for consumers. Just as Coke has Pepsi and Uber has Lyft, Amazon (and especially AWS) needs an alternative.
Amazon vs. Amazon’s People vs. You
When these monolithic companies rise to power, consumers find themselves at the mercy of these giants with no real alternative. These companies can extract massive profits from its customers at will. They can sell low quality products and price gouge its customers, and its customers have to accept it because there’s no other game in town.
It’s not like Amazon’s own employees or customers fare any better. Starting with a recent article in the New York Times, a number of articles and publications have covered Amazon’s mistreatment of its employees. It’s also widely known how poorly Amazon treats its most profitable customers: Netflix, Spotify, and Dropbox; Amazon competes with them and tries to take them out of business!
At the World Congress of the International Trade Union Confederation (ITUC), Bezos was named the World’s Worst Boss. Sharan Burrow, the General Secretary of the ITUC, said, “Jeff Bezos represents the inhumanity of employers.” In his book “The Everything Store: Jeff Bezos and the Age of Amazon”, Bloomberg Businessweek journalist Brad Stone exposed so much about the path to dominance at Amazon that Bezos’ inner circle came to his rescue by saying the book “has too many inaccuracies” and is a “misrepresentation of the culture at the world’s largest online retailer.”
“You walk out of a conference room and you’ll see a grown man covering his face … Nearly every person I worked with, I saw cry at their desk.”
These glimpses behind the scenes show conflict, turmoil, people crying on the job, people overworked, and AWS customers put out of business through Amazon’s predatory practices on its customers, all for the bottom line and for the growth of Amazon itself. Amazon’s customers have created a monster.
Looking at the Profit
As we follow the breadcrumbs, we find a trail to profit that tells the story of bait and switch. AWS’s profit is not tied to Infrastructure as a Service at all. Amazon continues to lower its gateway price to lure customers in and get them on the AWS platform. Once a customer is in, Amazon begins to overcharge for services like bandwidth, storage, network, and databases. Amazon’s pricing is no longer rational, and customers get burned by this pricing system all the time. After paying through the nose at AWS, customers come to a full-service platform like Codero to save money and have a predictable bill.
A Better Value
On Codero’s Cloud Hosting page, there is a direct comparison between the pricing of the Codero Cloud and the equivalent Amazon AWS instance. The Codero Cloud provides an overall and monthly pricing advantage over AWS:
Apples to Apples Comparison?
Comparing the wares of AWS to Codero is a tricky proposition. Is it apples to apples? How does Codero compete against such a giant? The answer no – it is not a fair comparison.
- Codero offers support. It is interesting that the “S” in AWS stands for service, because service is NOWHERE to be found for AWS customers.
- Codero offers a hybrid platform, which AWS cannot.
- Codero offers better performance suited for every customer.
Codero is a superior solution to AWS. In the big picture, the comparison is not even close.
Taking on Goliath
Taking on a giant is not for everyone. David took on Goliath with a sling, a rock, and faith – faith in himself and in the belief that he would win. Like David, I can tell you that Codero doesn’t fear AWS because we have our equivalent of his sling, rock, and strong faith in our mission. Our “sling” is our customer focus and customer obsession in everything we do. Our rock is our automated hybrid infrastructure, and we are aiming straight at AWS’s eye. Ugly giants are taken down at their very foundation of massive size and arrogance: two qualities AWS certainly has.
The companies that need to be afraid of AWS are hosting companies that make neither the necessary investments in automating their infrastructure to differentiate themselves nor in a high customer service culture. Codero did and continues to do so every day. Codero plans to be the alternative that the industry needs. As such, we know Codero will compete and win against Amazon in both the short and long term. To AWS, we say, “Bring it!”