Amazon at the Crossroads

As things stand today Amazon, with its very popular Amazon Web Services suite of products, is the largest and most successful of the cloud computing companies. In fact, they may be the only cloud provider company making money in the cloud business as this is turning out to be a tough market. (Disclaimer: I am using public/private cloud vendors to mean “cloud” for this article and specifically excluding SaaS vendors that like to call themselves “cloud”).

Unlike the 1995 Web 1.0 bubble where anyone that could hack HTML and Perl could start a million dollar company, cloud is proving to require an order of magnitude more skill and financial resources in order to be a player. Companies are having to invest significantly and show patience as this cloud market slowly rumbles to life. The stakes may never have been so high and it has brought out the worst in the market players so far.

But why is Amazon who have a four year lead on ATT, IBM, Microsoft, HP et al in anything less that a perfect postion? If Amazon plays its cards right, it would seem,  it could use its chronological and technology lead to cement itself as the next big IT platform leader. Cisco, VMware, BMC and other traditional enterprise vendors are all deeply concerned with the notion that Amazon wants to be the World’s Datacenter.In fact, Amazon is wildly popular with small, start up companies which is interesting given that market’s infatuation with open source and freemium business models since Amazon’s web services are neither Free or Open (a fact the incumbent players whine about constantly).

The problem for Amazon is they are traditionally a consumer company. They sell stuff on the web. Amazon has little experience dealing with big business as a customer and far less still in building the ecosystems of partners and resellers it takes to become successful in the enterprise arena. The question is, then, will they try to be like Microsoft or will they try to be like Apple?

Recent history may hold the answer.

Microsoft built its market share largely through monopolistic business practices in the Eighties and Nineties. This meant that, to be a Microsoft ISV, you were getting into bed with a very dangerous potential competitor. As a Microsoft ISV pre-antitrust you had to have your product running on Windows, but in doing so you risked having Microsoft steal your idea and either embed your functionality in its OS or get into the application business and compete directly against you. Many a well funded and otherwise successful ISV succumbed to the Microsoft “ecosystem” approach. No need to list the victims like Netscape, Lotus and Word Perfect here. They are well known.

Apple, on the other hand, with it’s wildly popular new Apps store, has taken another tack. Although its implementation has been a bit hamfisted so far, its market approach to developing an ISV ecosystem has resulted in 200,000 ISV applications and a billion application downloads in only a year or so of operations. To be sure there are other problems with the iTunes model such as store overcrowding and the Voodoo like application selection process but those will be resolved once Apple reconciles the resources it has on the app store with the demand for inclusion in it. The point is that ISVs have little worry that Apple will take their idea and compete with them.

This raises the question of the future of Amazon’s AWS platform. The short history of AWS is one that has it’s origins in a purely Infrastructure as a service model. This was very attractive to entrepreneurs who saw loads of opportunity to build value on top of the platform and were willing to risk investing in a small but potentially high growth market. The present Amazon is migrating to a PaaS model and, in the process, killing off it’s fledgling ISV ecosystem

But over time AWS has added functionality that seems to compete with the budding AWS ISV ecosystem players. Features like the AWS Management Console, Elastic Map Reduce and CloudWatch monitoring compete directly with companies like RightScale, Concurrent, Ylastic and Hyperic (representing over $25 million in venture capital investment) At the same time Amazon has done little in the way of ISV ecosystem development. It’s partnership programs are “place holder” at best. Their AWS business development strategy seems to be an ad hoc, tactical effort.

This is not the kind of ecosystem one would expect from a serious platform contender.

So, will Amazon think that it can and must build everything in order to attract the Enterprise customer, or do they intend to develop and nurture an ISV market like virtually all other successful platforms? Will Amazon open the door for Google and Microsoft by killing off its nascent ISV market? Does Amazon, until now a consumer company, even realize how their actions are impacting their budding ISV ecosystem? My guess is it’s more a function of inexperience than monopolistic intent but the impact may very well be the same.