THE biggest challenge for Amazon.com Inc’s next leader, Andy Jassy, may come from the business he knows best: cloud computing services.
Starting next week, and for the first time in the Internet giant’s 27-year history, someone other than its exuberant founder, Jeff Bezos, will make the decisions as he steps aside to make way for the current Jassy, head of Amazon Web Services.
Jassy has a very high bar. Bezos generated US$1.7 trillion (RM7.08 trillion) of value for investors by creating new products, including Kindle and Alexa, and by being at the forefront of vast new growth markets in e-commerce, online marketplaces and services on the web. cloud.
However, before Jassy can think of matching the inventiveness of his predecessor, he will have more immediate concerns.
The transfer of power comes at a critical time for Amazon. It faces increasing scrutiny from regulators for its business practices. At the same time, Congress is considering a series of antitrust laws targeting its vast empire. And its e-commerce sales will decline relative to the breakneck pace seen during the pandemic.
However, these issues are minor versus one key concern: Can Amazon Web Services (AWS) maintain its leadership in the cloud computing space? About that, I’m not so sure.
Analysts agree that AWS is the company’s most important and valuable business. The unit’s high profit margins and growth prospects have been the main driver of return for shareholders in recent years. And the future opportunity for the business, which leases processing capacity to startups and companies, remains enormous. According to Wedbush Securities, global spending on cloud services will approach US$1 trillion (RM4.16 trillion) over the next decade as companies continue to shift spending to cloud service providers.
But there are signs that Amazon’s dominance is waning. A Gartner report released on Monday revealed that AWS’ growth rate was significantly lower than its peers last year. The unit’s 29% increase in cloud infrastructure services revenue in 2020 compares with a 41% expansion for the entire market and approximately 60% growth for Microsoft Corp’s Azure and Alphabet’s Google Cloud Inc, according to the report.
(Note: Gartner’s definition for cloud infrastructure services may not perfectly match corporate definitions.)
While AWS still has significant leadership in cloud services, the competition is catching up. The reality is that the market has turned into a three-player race. There are reasons why customers choose to go for AWS competition. Microsoft, for example, offers better integration with ageing office servers, in addition to the comprehensive relationship for corporations already using their business software. Google is gaining share for its prowess in artificial intelligence tools and capabilities that use open source free software technologies, including Kubernetes, that enable companies to better expand and manage applications in the cloud.
However, the biggest difficulties for Amazon may come from its growing competitive presence in almost every sector of the economy. Amazon is already a powerhouse in retail, entertainment, logistics and advertising, and experts predict it will expand into new areas, including healthcare, grocery and financial services. This is increasingly pitting her against her corporate web services clients, and the US business sector is catching on.
In April, Target Corp chief information officer Mike McNamara told Protocol that after Amazon bought the grocery store Whole Foods four years ago, the large retailer decided to leave the Amazon platform. The executive confirmed that they no longer use AWS and that they have replaced the provider with Google Cloud and Microsoft Azure. Other companies will no doubt follow in Target’s footsteps, hurting Amazon’s prospects.
Bezos has frequently repeated the story behind the success of AWS, citing the “business miracle” of how his peers did not compete in the cloud services market for seven years after its launch, calling it the biggest stroke of luck in business history. In a sense, what it does is rub it in the faces of Microsoft, Google and others for not having understood in a timely manner the importance of the new cloud market. Now, as the race narrows between cloud service market participants and the threat from rivals increases, it will take a lot more than luck to stay ahead. But that must be solved by Jassy.
As Bezos prepares to fly into space, Amazon’s golden goose is threatened like never before. Unfortunately for the new CEO, the competition is on full alert. — Bloomberg
Tae Kim is a Bloomberg Opinion columnist covering technology. The views expressed here are the writer’s own.