Amazon looks to widen lead in cloud computing

Aaron Ricadela
30 Apr 2010

Businesses are rethinking how they manage computing. Given the falling costs of transferring data over the Internet and companies' realization that managing complicated hardware and software building blocks is often a losing proposition, many are willing to outsource some of the job. In fact, some venture capital firms "have made it almost a precondition of investing in (startups)" that they use Amazon's cloud software, says Citigroup's Mahaney. The cloud can lead to sizable savings. InstaColl, a Bangalore (India)-based company that sells online productivity software, was able to save more than 60% on the cost of running the computing, storage, and networking behind its applications by using Amazon Web Services instead of having its own hardware, CEO Sumanth Raghavendra said. He said InstaColl's savings are higher than most companies would reap.

Large clients

Beyond small startups, Amazon counts larger organizations including Eli Lilly, Pfizer, NASA, Adobe Systems, and Netflix as cloud computing customers. On Mar. 23, it released a software development kit so Java developers could more easily write applications that take advantage of its computing services. An Apr. 15 deal with NetSuite lets customers of the online accounting software firm store their data on Amazon's computers. has always thought big. Since its founding 15 years ago, the Seattle-based company has grown to an expected $33 billion in 2010 sales and has a market value of more than $62 billion. Along the way, there have been detours. Bezos has dabbled in search engines and tablet computers, and Amazon operates an online grocery that's limited to Seattle.

Many of the company's side projects haven't panned out. A six-year-old search engine, A9, hasn't captured Web users' attention, and searches on Amazon sites have less than 1% market share, according to ComScore. The Kindle e-book reader is being challenged by Apple's iPad. And as consumers shift to downloadable books, music, and movies, Amazon's pack-and-ship retail model is feeling pressure. The company on Apr. 22 forecast second-quarter earnings that missed analysts' estimates.

Rivals gather

Moreover, Amazon's competitors are ramping up their own cloud computing operations. Microsoft has attracted customers including 3M and the Associated Press to Windows Azure, its software for building applications that run in Microsoft-operated data centers. Azure will also let developers write applications for Windows-powered smartphones, says Microsoft General Manager Doug Hauger. "It is now core to the work we're doing," he says.

IBM is also using cloud computing to try to become nimbler and more appealing to startups, which often eschew its pricey and complex software. On Mar. 16, it announced versions of its developer tools, middleware, and database software that programmers can access over the Web to build applications. They're designed to appeal to startups that often don't consider buying traditional business software. "If you don't have a cloud-based model for your software, then you just can't play with those companies," says Dave Mitchell, IBM's director of strategy and emerging business.