AWS is profitable: What this means for the data centre business model

AWS has finally come out and started reporting its revenue and income figures separately from the rest of Amazon. In itself this hardly constitutes a major seismic shift in the IT world, but the apparent surprise from analysts at its profitability will probably spark a round of reassessments about what this means for cloud and IT infrastructure players.
The realisation that AWS IS profitable, with surprising margins, will pour a bucket of cold water over those who hoped that investors would tire of the high levels of capital investment and low, or non-existent returns from Amazon as a whole. The reality is that AWS is here to stay and intends to extend its reach much further.
Data centre operators in particular need to have coherent strategies and well segmented offers to deal with the potential threat from Amazon. There has been a general perception that AWS is all about the public cloud, and that private and hybrid cloud environments would continue to be an area of differentiation where AWS wouldn’t, or couldn’t play.
It is true that AWS has focused on public cloud where it has a clear lead over its main competitors. However its assiduous courting of dev-ops teams, its growing eco-system of partners and its range of strategic technology acquisitions is making it a viable alternative across a range of increasingly large enterprise deployments, as IBM found out to its cost at the US Department of Defense. Just last week AWS announced the small, but possibly very important acquisition of ClusterK . This gives AWS the ability to automate spot pricing of EC2 instances and drive much lower compute costs.
The challenge and the opportunity for data centre operators is to get a clear understanding about the changing IT workloads of their customers , understand what they provide that is compellingly differentiated, and help those customers navigate through all the difficult architectural decisions they have to take. It is not, as has often been the case in recent years, a matter of understanding their vertical business issues and providing vertical solutions.
The point is that most in-house IT departments and their executives are struggling to understand how to re-engineer their IT to take advantage of new technologies and new deployment models. The recent acquisition of Nimbo by Equinix was a good example of an operator spotting that they were struggling to engage effectively with their customers, because their customers weren’t clear how to re-architect the IT environments and where and how to deploy new workloads. Nimbo gives Equinix an ability to advise their customers in a way their existing sales teams and architects have found quite difficult.
Some datacentre operators have decided to move up the IT stack, offering a range of hosted and managed services, often enhanced by some form of IT consultancy, whilst ensuring they have built the direct links to the various public cloud offerings. Others rely on their eco-systems and marketplaces to bring together all the solution elements that are needed to deliver the solution the customer needs. Different market segments will naturally drive different engagement models. However, Cloud in general and the relentless drive of AWS means that the focus of attention needs to be on helping the IT Director or CIO work out where and how to best deploy their workloads rather than focusing on vertical market issues.

This post first appeared on the old Cassini Reviews website.