Amazon Firing On All Cylinders As Cloud Computing Soars

Ten years ago Amazon (AMZN) launched Amazon Web Services, one of the earliest experiments with cloud computing that Chief Executive Jeff Bezos recently described as the planting of a “tiny seed.”

That seed has turned into a giant beanstalk. Sales for the unit, known as AWS, now are on pace to reach $12.5 billion for the year, based on first-quarter results.

And thanks to its early entry in the business, AWS is now the leader in cloud computing, with a market share of 31%. The next closest competitor is Microsoft (MSFT) with 9%, followed by IBM (IBM), Alphabet’s (GOOGL) Google Cloud unit, and (CRM).

“This year, Amazon became the fastest company ever to reach $100 billion in annual sales,” Bezos said in his April 6 letter, reflecting on the 2015 fiscal year. “Also this year, Amazon Web Services is reaching $10 billion in annual sales, doing so at a pace even faster than Amazon achieved that milestone.”

AWS is a collection of services, including storage, networking, application services and other features businesses pay to use on an as-needed basis via the cloud. It’s a business that Bezos says has been built organically without significant acquisitions.

‘Gem In The Haystack’

In the first quarter, the unit had sales of $2.56 billion, up 64% year over year, compared with 28% growth in total company sales. AWS comprises 15% of total sales for the period, up from 11.7% a year ago.

“The reason to hold Amazon stock is AWS,” said Dan Morgan, senior portfolio manager at Synovus Trust Co., which owns 41,802 Amazon shares. “AWS is the gem in the haystack.”

Microsoft and Alphabet, in particular, are being aggressive with increased investments in cloud technology, said Morgan, which could create some risk of future pricing pressure. But it’s not a big concern in that Amazon has demonstrated the ability to weather price wars in times past, he said.

AWS was a big reason Amazon reported its highest sales growth in nearly four years when it posted first-quarter earnings on April 28. The e-commerce powerhouse swung to a first-quarter profit of $1.07 a share, which crushed the consensus estimate of 58 cents, and swung from a loss of 12 cents a share a year earlier.

Revenue jumped 28% to $29.1 billion, ahead of the $28 billion view. Amazon sees total second-quarter revenue of $28 billion to $30.5 billion, with the midpoint 26% above Wall Street forecasts of $28.3 billion.

“Amazon has, in a lot of ways, become a part of everyday life,” said David Smith, a vice president and analyst at research firm Gartner. “It’s not just through the purchase of goods and entertainment. Even with AWS, people are in contact with Amazon in ways they don’t even know.”

Raising The Stakes

Amazon received several price upgrades following the earnings report. One came from John Blackledge, a Cowen analyst, who upped his price to 830 from 750. Another was from Shebly Seyrafi, analyst at FBN Securities, who raised his price target to 800 from 685, with a research note titled “Hitting on All Cylinders.”

“This was a very strong report from Amazon,” Seyrafi wrote, which he said was the result of strong top- and bottom-line growth, strong gains with AWS and international growth, which rose 26% to $9.6 billion. There is “ample room ahead” for continued growth in its core retail business, he wrote.

That primary source of Amazon’s revenue is the sale of a wide range of products and services to customers through its website, both in the U.S. and abroad. Revenue from this category, referred to in its earnings reports as electronics and other general merchandise, rose 31% in the first quarter to $20.55 billion.

Growth was fueled by the increasing number of annual subscribers to Amazon Prime. Initially a free-shipping service, Prime’s membership base has been a source of extensive and envious consumer loyalty for Amazon. The membership now includes access to Prime Video, a Netflix-like service, Prime Music, which provides free music streaming, and unlimited photo storage with Prime Photos.

Nomura analyst Robert Drbul says Prime has helped Amazon in several ways.

“We believe Amazon has established significant brand equity here in the U.S. and that its leadership position remains quite secure.” Drbul said in a research note after first-quarter earnings. “While the size of its Prime base remains undisclosed, we believe the loyalty rivals that of the Costco Executive Membership base.”

Willing To Experiment

A part of Amazon’s success is its willingness to experiment in many ways with new products and services, something that Bezos says has been essential to the company’s success.

“To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment,” Bezos wrote in the shareholder letter. “We want to be a large company that’s also an invention machine.”

Some experiments have flopped, like the Amazon Fire smartphone, while others have become unexpected hits, like the Echo, an in-home, voice-activated device that connects to WiFi. On request it plays music, read books, provides traffic and weather, helps people order pizza or request service from Uber, among many other features.

Eventually, some analysts think Amazon could elect to get into the shipping business, much as it entered cloud computing services business with AWS. Like Amazon’s growing delivery capacity, AWS began out of necessity as the company built up its infrastructure to fulfill its own growing needs and expanded to serve other companies from there.

There’s evidence already that Amazon is on the road to compete with the likes of FedEx (FDX) and UPS (UPS). For one, the company has announced the purchase of a fleet of trucks to ferry goods between fulfillment centers. Plus, Amazon announced an agreement to lease up to 20 Boeing 767s from Air Transport Services Group, in an effort to expedite delivery of goods.

Amazon has said the additional shipping capacity is especially helpful during peak delivery times, which other shippers are overloaded.

“This gives us extra capacity and we think it’s good to be able to deliver to customers,” Phil Harden, Amazon director of investor relations, said on the company’s earnings call, “and we think it makes sense over the long term.”

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Three Cloud Trends to Watch Through 2020

UK-based research company Technavio has looked into its crystal ball to come up with three key emerging trends that will impact the growth of the enterprise cloud services market over the next four years.

None of the trends are particularly ground-breaking, but they do offer some insight in terms of what your customers may be considering for the first time or as part of their cloud roadmap.

“Cloud computing services enable rapid deployment and provisioning of IT infrastructure based on changing needs. Enterprise needs to meet day-to-day computing requirements encompass rapid scalability and deployment. The availability of a number of applications to meet end-user needs is another factor driving the adoption of private cloud services,” Technavio lead analyst for cloud computing research Amit Sharma said in a statement.

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The three enterprise cloud trends identified by Technavio are as follows:

  1. Growing adoption of hybrid cloud services

Hybrid cloud services have been pitched as the best way for an organization to meet regulatory compliance while benefiting from the scalability of the cloud. Hybrid cloud environments also make it easier for organizations to bring their existing infrastructure into the equation by not requiring a total rip-and-replace approach.

Service providers will be critical supports in helping organizations adopt hybrid cloud services. According to a recent report by SolarWinds, only 27 percent of organizations have adequate resources to manage a hybrid IT environment.

“The demand for hybrid cloud has been gaining popularity, particularly among midsize enterprises, including manufacturing companies, regardless of their expensive nature,” Technavio said in a statement.

  1. Rise in adoption of BYOD policy

More and more devices blur the line between personal and professional use, in part because of the flexibility of cloud services, and for this reason organizations should be implementing BYOD policies now.

By having policies in place, organizations protect themselves and their proprietary data.

Shadow IT continues to be an issue for enterprises as employees download cloud applications without the approval of IT. A recent report by Blue Coat’s Elastica Cloud Threat Labs team found that one in 10 documents shared at an organization contain data that is subject to compliance regulations, such as Protected Health Information and Payment Card Industry data.

Being realistic about what cloud apps are in-use at an organization can help create a BYOD policy that protects sensitive data while enabling employees to be productive. Having a BYOD policy framework that can be updated as more and more devices are added to the mix over the next several years will help put organizations in a solid place.

SEE ALSO: Shadow IT: Embrace Reality – Detect and Secure the Cloud Tools Your Employees Use

  1. Emergence of cloud service brokerages

As the options for cloud services increase, so too will the need for service providers who can help organizations decide which cloud services are best for them and guide them through implantation. This is where a cloud service brokerage comes in.

While cloud service brokerages (CSB) have been around for a few years, bigger companies have stepped into the marketplace more recently, including Accenture, which acquired Cloud Sherpas earlier this year to boost its cloud consulting business.

According to a report by Markets and Markets, “the cloud service brokerage market has been witnessing extensive growth in recent years due to the advancements in integration of various services on hybrid cloud deployment model.”

“Furthermore, the increasing adoption of integration of big data, BYOD, and mobility services on cloud is also encouraging the growth of CSB.”

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Is Cloud Computing Right For You?

Cloud computing is a hot topic right now but there’s a real lack of clarity surrounding the solution. Before you sign on the dotted line, there are a whole host of business considerations that you need to make. We’ve collated the most important business considerations to help you identify which option makes more business sense.


Understandably, one of the main concerns when picking a cloud computing solution is performance. You obviously want high-speed delivery but this is sometimes easier said than done. It is a multifaceted challenge that requires an end-to-end view of your request–response path.

So it’s worthwhile talking to your potential vendor about how they plan to combat any potential issues. Performance problems can be caused by the geographical proximity of the application in relation to the end user, network performance and access speed.

A number of services like Cloud Sleuth and CloudHarmony have started measuring the performance of cloud providers from different locations. Before you decide on your vendor, it’s worth testing the solution using services like the ones above. That way you can see how it performs in a variety of different locations.


When we talk about outages, it’s often thoughts of backup and recovery that come to mind. However, it’s also worth noting that outages are going to have a knock-on effect on your internal and external SLAs. Without a reliable connection you’re going to struggle to operate your business. So when choosing your cloud computing solution, make sure that you have a robust connection to support it. Without this, your files will struggle to be backed up.

Be realistic, though: your connection will occasionally lose connectivity. Therefore, it’s also worth physically backing up critical data just in case. Some vendors do offer fail-safe features that allow you to carry on unaffected by the time-out.

Some cloud providers offer guarantees of higher levels of service to make them stand out from the crowd. However, it’s worth investing the time in testing the software before committing to it. SLAs are merely an indication of the consequences of a service failure; they don’t account for how reliable the service actually is. To get a more transparent view of the service’s reliability and availability, take a look at customer testimonials and comparison sites.


Another key consideration to make when selecting your cloud provider is the application programming interface (API) it provides for accessing your infrastructure and performing certain tasks such as provisioning and de-provisioning servers.

If you have an API that is supported by a number of providers and vendors, this can reduce lock-in. This is because migration from one provider to the other requires fewer changes to the application.

If your API is supported by a group of developers and vendors, the service will be protected by an entire ecosystem.

These kinds of APIs are provided by Amazon Web Services (AWS) and various VMware cloud providers.

Cloud offering differs from one provider to another: some provide automatic file syncs, while with others these will need to be performed manually. Evaluate your business offering and then decide if it’s large enough to warrant automatic syncing. Manual uploads might not sound that bad but when you come to move something really large across your network you may suffer from buyer’s remorse.
It’s also worthwhile having another method of moving your data in case the cloud is temporarily unavailable. That way, productivity remains high and service can continue unaffected.


Two of the main concerns for businesses when considering cloud computing are security and compliance.
With any storage backup, the data can be accessed by more than one party; that’s what makes it such an effective solution. But you don’t want your data to fall into the wrong hands, so if you decide to store it on someone else’s software, make sure it is secure and private. You can do this by limiting access to the cloud storage and granting access only to key members of your organisation.

Another privacy consideration to bear in mind is that when you upload data to the cloud it will remain there. Sounds great, right? Well, yes and no. Even if an item has been deleted, copies will still remain, so talk to your potential cloud provider about this.

Security may be of paramount importance to businesses, but so is their ability to remain compliant with security-related standards. Many cloud providers have taken measures to provider another layer of security in their offering, like SAS-70 Type II audits and security white papers.


Every now and then, you are going to need to share data with a third party, whether this is another business or a client, so it’s essential to check that the cloud storage solution you go for is compatible with their systems – otherwise, transferring data can become a chore.
You can always block a certain part of your cloud account so visitors can see only what you permit them to.

Moving Platforms

A number of cloud providers focus their service on a certain software stack. This ordinarily moves the data from an infrastructure like a Service (IaaS) providers to platforms like a Service (PaaS). As you would expect, the different stacks align with designated clouds and so work with the most popular stack software.

If your application has been built using one of these stacks, cloud computing could work well for you. The stacks can provide invaluable savings, including on time and expense, while helping you avoid dealing with low-level infrastructure setup and configuration.

However, it’s worth noting that these types of cloud solutions often require the assistance of developers to help with the overall architecture of the application. This therefore creates a higher level of vendor lock-in.


You would think that an effective way to compare different cloud providers would be cost. However, it’s not that simple. The reason for this is that each provider will offer a variety of resources including virtual machines (VMs) that offer a wide range of memory capacities, differing CPU clock speeds and other valuable features.

It can therefore be hard to pit one provider against another. The best way to gain a reliable indication of the different clouds’ performance is to carry out an experiment: load the same application using multiple providers and then analyse the results. You’ll then be able to identify the one that performs the best and spot any potential issues early on.


This useful guide should help you answer those all-important cloud computing questions and enable you to make the best decision for your business.

Cloud computing is designed to make life easier for you, after all, so it’s all about choosing the right option for you and safeguarding your company against potential threats.

Launched in 2003, TechBrain is an IT support and managed services company located in Perth. It provides IT support and managed services to businesses that are big enough to have an IT problem but too small to have their own IT Department.

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