Is This a Fight Amazon.com Can Win?

Apparently, what happens in Vegas doesn't always stay in Vegas. Andy Jassy, senior VP of Web Services for Amazon.com (NASDAQ: AMZN  ) , is in Sin City hosting an AWS tech conference. Over 6,000 attendees were on hand as Jassy put on the gloves, laced 'em up tight, and then proceeded to throw punches at some of the tech industry's heaviest of heavyweights.

Why would he call out the likes of IBM (NYSE: IBM  ) , Oracle (NYSE: ORCL  ) , and $10 billion data warehousing provider Teradata (NYSE: TDC  ) , among others? Because Amazon is heading full steam into cloud computing, and Jassy wants the world to know he's going to attack the fast-growing industry, and nothing, or no one, is getting in his way .

Some background
Amazon.com's AWS unit has been around for years, and is reasonably successful. The data storage and remote computing services AWS provides already generate about $2 billion in revenue annually. And, if some analysts are to be believed, Amazon.com's cloud computing services could grow as much as 45% per annum, eventually becoming a $20-billion-a-year, revenue-generating machine.

AWS sales primarily come from small and medium-sized businesses, Amazon.com's cloud computing sweet spot. There are notable exceptions, including the likes of Netflix and Samsung, but most consider AWS and Amazon.com's low-cost cloud alternatives best suited to the "little guy." What Jassy did in Vegas on Nov. 28 was let the world know the days of AWS playing solely in the small-business sandbox are over.

The plan
Amazon.com's goal for dominating the cloud computing universe is simple: Undercut pricing of remote location tech solutions from IBM, Oracle, and Teradata, and anyone else who wants to go a few rounds. According to Jassy, the average cost of the big boys' cloud enterprise solutions' is around $20,000 per terabyte, per year. Jassy's contention? That's way too much, and Amazon.com has the solution.

In contrast to the big-ticket solutions from the IBMs and Oracles of the world, Amazon.com is rolling out its Redshift data warehousing service. Thing is, IBM, Oracle, and Teradata have a slew of cloud computing solutions, and their stockpile of alternatives is growing. As coincidence would have it, Oracle just announced its CloudWorld solution. So, what's the big deal about Amazon.com's Redshift?

According to Amazon.com, Redshift will change the cloud playing field in two ways: No. 1, it's priced at $1,000 per terabyte, per year -- about a 10th of what others charge. As CEO Jeff Bezos stated in the Amazon.com's recently released Q3 earnings report, "Our approach is to work hard to charge less. Sell devices near breakeven and you can pack a lot of sophisticated hardware into a very low price point."

No. 2, Redshift is ready for take on large, enterprise data storage and computing needs, meaning Amazon.com can break away from the notion that it's only a cloud provider for the "little guy." Lending credence to Amazon.com's assertion that Redshift is for everyone, Netflix, NASA/JPL, and Schumacher Group, are a few of the beta testers.

So what?
As one of the first to get on board the cloud, Amazon.com's done well to expand beyond its unrivaled position as the king of online retail. Its Kindle line of tablets remains an unbridled success in an increasingly competitive field. Prime Instant Video is expanding almost exponentially. Additionally, increasing its number of distribution centers will ensure the most recent 27% jump in revenue in Q3 will continue.

If you're looking for a fundamental basis to invest in Amazon.com, you won't find one. Amazon.com is a bet on Bezos, Jassy, and the future. The cost of opening 19 new Amazon.com fulfillment centers by year's end is taking its toll on current financial results, but with a little patience, the payoff could be big. With that said, calling out IBM, Oracle and Teradata, all firmly entrenched in enterprise cloud computing, is a gutsy move. For Amazon.com shareholders, let's just hope Jassy didn't just bring a knife to a gun fight.

Amazon is the big, bad wolf in the online retail world, but at its sky-high valuation, many investors are worried. In addition to cloud computing, we'll tell you what's driving its growth, and how to know when to buy and sell Amazon in our new premium report. Our report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.


Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 30, 2012, at 2:22 PM, junkdata wrote:

    In the interst of full disclusure I am a consultant and have a vested interest in this space but... I am afraid there is more hype than reality here.

    At $1,000 per terabyte it will take a million terabytes of data to reach $1B. Even large customers are using about 50TB which means Amazon will need 200,000 large customers for each $1billion of revenue - and they think they are going to grow from $2 billion to 20 billion?

    These same large customers are faced with meeting HIPAA, SOC2, and PII standards for all their data infrastructure - International certification are even more difficult. Redshift is silent on these difficult certifications and while they may have large customers, I doubt they are using Redshift in a production evironment, Addiitonally, there is nothing said about Amazon Redshift's ability to get the data model built, the data transported to the cloud and the BI reports available - who is going to do all of these items?

    Lastly, Redshift is based on ParAccel technology which is not a huge winner in the market today - changing the name might help but eventually poeple will figure it out.

    Having said all of the above Amazon will no doubt be able to provide high end hosting services that are easy to provision and low cost and I think they will drive a lot of revenue - but I think it is a stretch to call them a full service Data Warehouse vendor

  • Report this Comment On December 01, 2012, at 8:13 AM, timbrugger wrote:

    junkdata,

    Great points, all. A minor clarification, it was an Amazon analyst who suggested its cloud computing would be a $20 billion a year business down the line. Though, I'm with you, regardless of redshift's (and any other solution in the pipeline) success, that's quite a leap. But, analysts are analysts.

    Thanks for the post and the insights. Tim.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2132439, ~/Articles/ArticleHandler.aspx, 8/22/2014 7:39:01 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement