Since launching their first cloud offering in 2006, Amazon has paid surprisingly little attention to its competitors. While Marc Benioff was shouting “cloud computing” from the Salesforce mountain top in 2007, Amazon seemed not to have noticed. When Microsoft started aggressively marketing Azure in 2009, Amazon reacted as though it was in a distant market. When Rackspace sought to disrupt AWS with OpenStack in 2010, there wasn’t even a tremor in Seattle. And for those of us in Las Vegas for re:Invent last fall, the plastering of every city bus with IBM SmartCloud ads barely warranted an Amazon mention.
But when Google announced a dramatic price drop end of March in San Francisco, Amazon immediately followed suit the next day. While the announcement seemed planned and well-ordered, many Amazon customers noticed an interesting oddity in our statements this month: it took over a week and a half for our bills to include the new pricing. In reaching out to Amazon support, I was told (paraphrased): “We know and are working on a fix.”
So why would Amazon announce a price drop that their billing infrastructure was not able to handle? Only one reason.
The genesis of Amazon’s reaction to Google may have its roots in 2003, when its stock price had dropped 12%, and it was feeling the negative effects of being an internet retailer on the bad side of the Dotcom Boom. Its primary competitor, eBay, enjoyed a market capitalization three times that of Amazon, and the new Silicon Valley darling, Google, had a pre-IPO valuation four times Amazon. To maker matters worse, Amazon and eBay were fighting for real-estate on Google Adwords, putting more cash in the Google growth engine. The low margin e-commerce market Amazon helped pioneer was being increasingly viewed as unattractive in comparison to the high-growth, highly profitabile technology engine of Google.
Brad Stone’s The Everything Store details Jeff Bezos’s response to the Age of Google. Starting in 2003, Amazon made investments to shift toward being a technology company first, an internet retailer second. He recruited top computer scientists, increased investments in technology, and pioneered new technology-driven features and services. These investments eventually led to their innovation in the cloud.
No one today would argue that Amazon is not a technology company. They have innovated on everything from e-commerce, tablets, television, music, and the cloud. They have driven through the cloud computing market like a Sherman tank, leaving the rest of the market having a long and sustained Jan Brady moment (“Marsha, Marsha, Marsha!”). And they are beginning to demonstrate that the depth / breadth of their cloud platform is enabling the delivery of incredible new PaaS innovation (e.g. Kinesis, RedShift, WorkSpaces).
So they are on top of the world, enjoying 45%+ CAGR, and with only one thing to fear: an innovative technology company performing at the top of their game.
As much as I like the research that comes out of IBM, it is a services company. Rackspace: a hosting provider. HP: I’m not sure what they are any more. Microsoft: while they have finally awoken from their long Balmer slumber, they're fighting from disadvantage in almost every market. But Google? Google is a top technology company, in peak fighting form, with a motivation to knock Amazon from their lead role in the cloud.
Amazon is right to fear Google.