By Jay Greene and Laura Stevens
It is with a certain dread every autumn that some companies
described by Amazon.com Inc. as its technology partners gather at a
Las Vegas convention and find out if Andy Jassy has new plans to
encroach on their turf.
These firms run their software on Amazon's vast array of servers
-- part of what is known as "the cloud" -- and from there sell use
of their programs to others. Over nearly three hours, the boss of
the Amazon Web Services unit walks the stage, revealing a road map
of brand-new features Amazon itself plans to offer, a few of which
inevitably compete with partners.
Last November, Emil Eifrem, one of roughly 100,000 people
watching Mr. Jassy's keynote in the hall or remotely, braced for
what he expected to be one of the announcements, a data-graphing
service. Mr. Eifrem's company, Neo4j Inc., says it defined the
technology, which allows customers to analyze data on Amazon's
platform and others. Two years ago, as it researched the market,
Amazon visited Neo4j asking for help building a similar product,
said Mr. Eifrem, Neo4j's chief executive. Neo4j declined.
Mr. Jassy did announce Amazon's competing service in Las Vegas
and made it widely available this week. "When Amazon launches in
your space, you're stupid if you don't get scared by that," Mr.
Eifrem said, "because they do tend to outcompete everyone."
Amazon's web-services business has been blazingly successful,
and a look at how that came to be stands as a master class in how
Amazon wins -- and why now it has become a political target. The
unit has become the Seattle company's cash cow, providing 73% of
its operating income, or $1.4 billion, on about 11% of its $51
billion in total revenue it reported in the most recent
quarter.
Mr. Jassy made $194,447 last year, the second most among
Amazon's top officers after CEO Jeff Bezos, who made $1.7 million.
In 2016, Mr. Jassy received shares that were then valued at $35.4
million, in addition to his salary -- the most any top Amazon
executive received that year.
A web-services platform such as Amazon's lets businesses and
other entities rent computing resources at giant server farms,
allowing them to do computing tasks in the so-called cloud rather
than buying their own servers and software. Amazon was early to
build such a platform, and in doing so it upended the
information-technology industry, pressuring incumbents that sold
hardware and software.
Mr. Jassy's strategy echoes one Amazon employed in retail.
There, it built a dominant platform and became a powerful ally to
brands and vendors of goods sold on its website. Then Amazon also
began selling its own brands and goods that competed with some of
its vendors.
In its cloud services, Mr. Jassy built a platform that can weave
a multitude of programs in a seamless web of offerings, its own as
well as partners'. And Amazon then began selling its own services
that compete with some.
"On top of everyone's mind is this black-widow behavior," said
Bill Richter, chief of Qumulo Inc., a Seattle startup that offers
data storage and management on Amazon's system. Amazon doesn't
compete with his company, but every year, he said, "we pray there's
not some big announcement" of an Amazon service that will.
There is growing concern in Washington and abroad about the
dominance of giant tech firms such as Alphabet Inc.'s Google and
Facebook Inc. Amazon, too, has come under attack from right and
left. President Donald Trump in March tweeted that it is "putting
many thousands of retailers out of business!" Sen. Bernie Sanders
in an April Facebook post raised concerns about Amazon's
"extraordinary power and influence."
Mr. Bezos, at Amazon's annual meeting Wednesday, answered a
question about the mounting criticism, saying all large
institutions "deserve to be inspected and scrutinized. It's
normal."
Much of the ire focuses on Amazon's retail heft, but the story
of Amazon's web services helps show how far the company is
spreading its tentacles, with huge success. Mr. Jassy has turned
the world's largest online retailer into a dominant source of
corporate technology online.
Amazon is market leader, reporting $17.5 billion in web-services
sales last year. No. 2 Microsoft Corp. had $5.3 billion in revenue
last year from its cloud-infrastructure business, estimates
investment firm Stifel Nicolaus & Co.
The rising concern is over how Amazon's dominance may give it an
advantage in new businesses. None of the Amazon partners The Wall
Street Journal spoke with would say publicly that new Amazon
competition damaged its business. Privately, some said they worry
Amazon's encroachment may do damage eventually.
One reason there is angst but no visible pain when Amazon
suddenly competes is that there is plenty of business to go around,
said Tod Nielsen, CEO of a cloud-application company named
FinancialForce.com Inc. "The total addressable market is so big.
We're really in the early days of the land grab."
Mr. Jassy said in a November interview that Amazon is providing
services that customers are asking for. "You'll continue to see us
add services as customers tell us they make sense and they want
them from us." He declined this week to comment further. In a 2016
interview, he said: "In every one of the spaces where we have built
further up the stack, our ecosystem partners who've built
significant offerings on top of our platform have done just fine.
These are gigantic markets."
Antitrust questions
Amazon's position raises the kind of concerns seen years ago
over practices of companies such as Microsoft. That company's use
of its dominance in personal-computer operating systems to move
into others' turf lay at the center of the landmark antitrust case
against it.
Microsoft and the federal government settled in 2001, with
Microsoft agreeing to such business restrictions as not engaging in
some discriminatory practices. At the time, Microsoft founder Bill
Gates called the deal "a good compromise and good settlement."
Amazon could run afoul of antitrust law if it tied new services
to its cloud-infrastructure offering, making it less likely
customers would use rival products, said Herbert Hovenkamp, a
University of Pennsylvania Law School antitrust professor. Moves by
Amazon to require customers and partners to use its services,
rather than competitors', would also get regulatory scrutiny, he
said.
One difference is Amazon Web Services isn't as dominant as
Microsoft's Windows in the late 1990s, when Microsoft held more
than a 90% share of its market. Goldman Sachs & Co. pegged
Amazon's share of the so-called public-cloud market at 42% last
year.
Amazon views the market more broadly, including all corporate
tech spending in the cloud and in companies' own data centers. By
that measure, Amazon's share "represents a single digit
percentage," said an Amazon spokeswoman. Amazon Web Services, she
said, "competes with the largest and most successful technology
companies in the world in a market segment that's trillions of
dollars in size."
And Amazon isn't growing as quickly as Microsoft and Google in
cloud computing. Microsoft's revenue from the business gained 94%
and No. 3 Google's more than doubled in the most recent quarter,
while Amazon's climbed 45%, according to Goldman Sachs.
Some partners praised what they said is Mr. Jassy's ability to
straddle the line between ally and rival, including CEO Bob Muglia
of Snowflake Computing Inc., a data-warehousing service. It
competes with an Amazon offering that existed when Snowflake began
offering it on the platform. Mr. Muglia, speaking of his earlier
days running Microsoft's division that worked with developers and
corporate customers, said: "Andy has done a better job partnering
with companies he competes with than I did."
The data weapon
One Amazon weapon is data. In retail, Amazon gathered consumer
data to learn what sold well, which helped it create its own
branded goods while making tailored sales pitches with its familiar
"you may also like" offer. Data helped Amazon know where to start
its own delivery services to cut costs, an alternative to using
United Parcel Service Inc. and FedEx Corp.
"In many ways, Amazon is nothing except a data company," said
James Thomson, a former Amazon manager who advises brands that work
with the company. "And they use that data to inform all the
decisions they make."
In web services, data across the broader platform, along with
customer requests, inform the company's decisions to move into new
businesses, said former Amazon executives.
That gives Amazon a valuable window into changes in how
corporations in the 21st century are using cloud computing to
replace their own data centers. Today's corporations frequently
want a one-stop shop for services rather than trying to stitch them
together. A food-services firm, say, might want to better track
data it collects from its restaurants, so it would rent computing
space from Amazon and use a data service offered by a software
company on Amazon's platform to better analyze what customers
order. A small business might use an Amazon partner's online
services for password and sign-on functions, along with other
business-management programs.
Amazon said it doesn't peer into the sensitive data such as
customer records, corporate accounts and other data that its
business partners store on Amazon's servers.
Amazon engineers are adding features and services at a rapid
pace, more than 1,400 last year. "They never let up on the gas
pedal," Mr. Bezos told shareholders Wednesday. "Our customers are
loyal to us right up until the second a competitor offers a better
service."
The day before his November 2017 keynote, Mr. Jassy previewed
his speech with venture-capital firms in a windowless Las Vegas
conference room, two attendees said. One venture capitalist asked
Mr. Jassy if he planned to launch services that could threaten
startups that built their businesses on Amazon's platform. Mr.
Jassy replied, they said, that any time Amazon moved into a market
niche, companies already there continued to succeed because the
markets are large and growing.
The notion that Amazon's entry in a market won't hurt new rivals
"doesn't quite pass the smell test," said one of the attendees, a
venture capitalist who said he worries about the threat to
companies in his portfolio.
"A lot of CEOs go into Andy's keynote saying, 'God, I hope
Amazon doesn't introduce a product that competes with mine,' " said
Snowflake's Mr. Muglia.
The introductions continue after Las Vegas. In December, Amazon
launched Single Sign-On, which manages access to Amazon Web
Services accounts, a move some believe will put it in competition
with Okta Inc., which offers a way for customers to sign on once
across multiple services. Okta CEO Todd McKinnon said his company's
product lets users sign in across a broader array of companies than
Amazon's. Still, "we're paranoid," he said, "so we're watching
them."
Inside job
Mr. Jassy is a 20-year insider, a Harvard M.B.A. who led Amazon
into music CDs and did a gig in the early 2000s shadowing Mr. Bezos
as his technical assistant. He has led Amazon Web Services, known
as AWS, since 2003.
The idea for the service, he said, was discussed at a 2003
brainstorming session in Mr. Bezos' living room. Participants began
looking into how Amazon, which had built data centers to manage its
retail operation, could turn that expertise into a business.
Early on, AWS focused on being a place where companies could
build code and store data, and from which they could offer services
to firms wanting to do business tasks in the cloud. The vision was
that "any individual in his or her own garage or dorm room," Mr.
Jassy said, "could have access to the same cost structure and
scalability and infrastructure as the largest companies in the
world."
"We thought we would have database services," he said, "but we
didn't anticipate building our own."
AWS appealed to startups, which, with just a credit card, could
buy the computing services they needed. Airbnb Inc., Lyft Inc. and
Pinterest Inc. are AWS customers. More-established corporations
came along later.
Initially, Amazon built a few massive data centers in the U.S.
It now has 55 collections of data centers globally.
Amazon's partners saw it becoming a rival in 2015, when Mr.
Jassy introduced a data-analytics tool, QuickSight, in his keynote.
That encroached on partners such as Tableau Software Inc.
QuickSight has gained some traction with small and midsize
businesses, while Tableau has had success with larger corporations,
said Stifel Nicolaus analyst Tom Roderick. The threat looms, he
said, that Amazon will pluck off those bigger customers. "The fact
is that Amazon is the bogeyman that can come at you in three to
five years."
Tableau CEO Adam Selipsky, a former AWS executive and a friend
of Mr. Jassy's, said: "There are tiny areas where the companies are
in competition, but it's really noise."
Companies happy with Amazon's web services despite competing
with Amazon include Netflix Inc., whose CEO, Reed Hastings, said
Mr. Jassy took a hands-on approach to securing his business.
"As Andy would say, we are particularly valuable because we
competed," said Mr. Hastings, saying he isn't concerned about
Amazon's move a few years ago to become a rival in video.
Amazon's decisions to move into others' markets are part of
doing business, said Barry Crist, CEO of Chef Software Inc., which
makes tools to automate developer tasks and has limited competition
with Amazon in the business of provisioning computing
resources.
"As a small company, you've got to be the minnow that swims in
and out of the mouth of sharks," he said. "If you get lazy, that
mouth might close on you."
Write to Jay Greene at Jay.Greene@wsj.com and Laura Stevens at
laura.stevens@wsj.com
(END) Dow Jones Newswires
June 01, 2018 05:44 ET (09:44 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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