If you use Slack at work, Zoom for school or binge watch Netflix at home, guess what? You’re also using Amazon. Amazon Web Services currently controls 30% of the cloud computing market. The fourth installment in our series The Prime Effect goes inside AWS, one of the biggest parts of Amazon you may have never heard of.
Guests
Tim Bray, senior principal technologist, then VP and distinguished engineer at Amazon Web Services from December 2014 to May 2020. He quit Amazon due to moral concerns about the treatment of warehouse workers. (@timbray)
Michael Cusumano, SMR distinguished professor of management and deputy dean at the MIT Sloan School of Management. Author of “The Business of Platforms.”
Also Featured
Werner Vogels, chief technology officer at Amazon.com. (@Werner)
Rep. David Cicilline, he represents Rhode Island’s 1st congressional district. Chair of the House subcommittee on Antitrust, Commercial and Administrative Law. (@davidcicilline)
Interview Highlights: Tim Bray And Michael Cusumano
On how Amazon got into cloud computing
Tim Bray: “Amazon has always been a very opportunistic company and looked for opportunities across many sectors of the business space. So in connection with keeping Amazon.com on the air, they had obviously had to become very, very expert at building out lots of computing infrastructure to support the website. Computers running code, storing data, transmitting data, transforming data, doing machine learning, all that stuff had to be built. And, you know, they noticed after a while that they were getting pretty good at building this. And well, maybe they could try selling it. … And in fact, they did.”
AWS right now has about 30% of the cloud computing market. Is that a number to be concerned about?
Tim Bray: “I think the number may actually be higher than that. And it’s really hard to discover how big the cloud computing market actually is because, you know, what’s cloud computing? Is Outlook email cloud computing? Is Google Maps cloud computing? And there are other vendors such as Oracle and IBM who are trying to get into cloud computing and making large inflated claims about how much revenue they really have. But it’s pretty clear AWS is the biggest chunk. You know, it could be as high as 50%, but 30% sounds plausible to me.
“Perhaps the thing to be worried about is that in terms of real credible vendors, there are only three. Which is AWS, Microsoft Azure and Google Cloud platform. And three is a little bit small to have a happy, healthy, thriving marketplace. And it’s not clear we’re going to get that many more, because it’s awfully expensive to get into this business. You’re looking at tens and hundreds of billions of dollars of capital spending to build all those data centers and network infrastructure and so on and so forth. So, yeah, there are areas of concern.”
On potential security issues of AWS
Tim Bray: “We should definitely be concerned about Internet security. The net is full of extremely bad people trying to do bad things. And also, people screw up sometimes and make security goofs. So it’s a thing that we should all be concerned about. So does cloud computing make it better or worse? You know, a very wise person once said, Well, when you want to guard something closely, you can put your eggs in different baskets so you can put them all in one basket and guard it really, really well.
“My personal belief is that the use of cloud computing generally increases, improves Internet security. Simply because companies like AWS and once again, the competitors, Google and Microsoft, can afford to put together these huge elite computer security groups that, you know, a typical company would just never have a chance to hire that scale and talent level. So I think that, by and large, if you take your existing infrastructure and you move it onto the cloud, you’re probably going to come up with a better security story. Doesn’t mean Internet security problems are going to go away. But I think that the clouds are a force for good in that respect.”
Why do you think AWS should be broken off from Amazon?
Tim Bray: “The top line is that Amazon is too big and too powerful, just like the other big techs and they need to be split up. So, you know, just good civic policy. … You can make a case in the case of AWS in Amazon’s own interest. Right at the moment, AWS has like a 30% profit margin. So if you’re a typical business spending, well, say $10 million on computing with AWS, you’re sending $3 million dollars of profit off to Amazon.
“And there’s a good chance these days that Amazon is competing with you, because Amazon seems to be competing with anybody. So, you know, that actually is a pretty significant headwind, I would think, in AWS’s growth. So you can make a pretty strong case that AWS would do better if it were not joined at the hip with Amazon. So I think there are a lot of good reasons to split AWS up, and it’s something that I think is very likely to happen.”
On using Microsoft’s antitrust battle as a way to think about Amazon as a monopoly
Michael Cusumano: “Microsoft was absolutely affected by the antitrust trial. So the outcome of the case was that Microsoft should be broken up into an operating system and an applications company, they appealed, they won on appeal, and then they had to proceed with a number of years under monitoring by a special master. But they definitely became much less aggressive, much less inclined to abuse their Windows position.
“So most of the activity we see in antitrust and the thrashing of teeth … it’s really around the Internet players and social media. So its attention has shifted to Google and to some extent Apple, Facebook and their acquisitions. So Microsoft got off easy in some ways. But it more or less focused on what it was good at, its core business, enterprise computing. And now it’s finally there in a big way in the cloud. It really missed mobile. It made some desperate acquisitions there like Nokia, but its behavior definitely became muted. And that probably will happen to Amazon, as well.”
Interview Highlights: Rep. David Cicilline
The House committee that Cicilline chairs passed a package of six antitrust bills onto the full House last week.
There six bills amount to the most significant update to federal antitrust regulation in a generation. If these bills get passed, would that necessitate the breakup of a company like Amazon?
Rep. David Cicilline: “The legislation that you’re referring to is Ending Platform Monopolies Act. And that basically recognizes that certain platforms, if you’re a covered platform — and that’s determined by the market cap value of the company, the number of monthly users, and whether you’re a critical trading partner. Amazon clearly meets all three parts of that test. And so they would have to make a choice. You can either be the marketplace, in which you provide an opportunity to sell goods and services, and control and write the rules of the marketplace. Or you can be a seller of goods and services, but you can’t do both.
“Because what we learn during the course of the investigation is that Amazon favors its own goods and services. And it’s collecting all of this information from its sellers. And then they use that to inform the decisions they make to compete directly with those sellers. And consumers don’t know that. They think, Oh this appeared in the buy box. This is some objective analysis that this is the best toaster. When in fact, it’s a product of some business relationship with the seller, or Amazon’s own product. That’s an irreconcilable conflict of interest. You ought not to be able to do both. And so that piece of legislation would require the breakup of Amazon.
Why break up the company when what they’re able to provide is great service at scale?
Rep. David Cicilline: “This is a classic argument of a monopolist. Jeez, we’re doing it big. Just let us continue to do it. And part of that is because Amazon is doing two things at once. It’s collecting all of this data that it uses then to inform decisions it makes to compete directly with those sellers. So nothing would prevent Amazon from continuing to provide all those services to their customers, to be a marketplace.
“They just can’t at the same time be taking that very same information that they’re collecting to design and market their own products, and promote them in an unfair way. And you would make space for other entrepreneurs and innovators to enter the market to sell those goods and services. So consumers would end up with more choice. And that’s why breaking them up is essential if we’re serious about restoring competition.”
Some recent concern about the antitrust bills are coming from fellow Democrats, particularly California lawmakers, who are concerned about the economic impact that antitrust actions on these big tech companies would have on their districts. What would you say to them?
Rep. David Cicilline: “The whole purpose of competition, the reason we have as a country been so determined and insistent on protecting competition, is because we all recognize that with competition, you get more innovation, more entrepreneurship, new ideas, more jobs, more companies. And that’s the whole idea. And so I recognize there are some people who think this will have some short term harm to a company in my district. I don’t actually think that’s true.
“I think if you talk to people at Microsoft, they would tell you that they are a better company today as a result of the antitrust investigation and action that the federal government undertook. I think what I would say to my colleagues is competition is good for the economy. It’s good for companies. It’s good for small businesses and entrepreneurs. More competition brings more innovation and more jobs. And the idea of protecting these big, large monopolies as a way to protect jobs is, I think, shortsighted.
“And the best way we can ensure that we continue to grow jobs in this sector and in this country is by restoring competition in the digital marketplace so we can make space for the next great Google or Facebook or Amazon that can compete successfully. But as long as these monopolies exist, they make no room for the next innovator, the next great American company. That’s bad for the country, bad for our economy, and it’s also going to be bad for their district.”
Interview Highlights: Werner Vogels
On whether AWS has monopolistic power
Werner Vogels: “This question of a spinoff has been raised a number of times now. But I think if you look at reasons why companies actually spin off subsidiaries, it’s either because they want to get that company off the financial statements, because it’s not doing too great. Or they just can’t afford [to] fund a new business the way these companies, these subsidiaries need to be funded. That’s in general, I think the most reasons why these spinoffs happen. And I think that at AWS neither of these are true. Now we have absolutely no plans to spin off the AWS business now.
“And I think our customers definitely don’t want this distraction to happen. They’re happy with how we are serving them. And so our customers want more capabilities. I mean, we delivered well over 2,000 new features or services last year. Customers want us to speed this up. They have an incredible hunger for having more and more of their IT problems solved by us. Our customers are not worried about this, or they are more worried that it may happen and that it will distract us from serving them.”
Are you concerned about the security risks of providing services for so many different companies?
Werner Vogels: “Security will be forever a No. 1 priority. It’s a No. 1 investment area, and will forever be not only from a financial point of view, but also from an intellectual capital point of view. And actually, in the early days, we would ask our customers, for example, enterprises or banks or things like that, why are you moving to AWS? They would tell you things about saving costs, getting more flexibility, improve developer productivity. If you ask customers today, the majority of our enterprise customers, why are they moving to AWS? They will tell you security.
“Because, you know, different models have changed dramatically over the past few years. And many of these companies start to realize that they cannot actually make those kind of investments that AWS is able to make for them. And we’re able to build tools using machine learning and things like that to protect our customers that they never will be able to do before.
“… Now we have 25 regions around the world and I think 81 availability zones. So our customers who work continuously with our customers, customers like Zoom or Netflix and others to make sure that they’re built in such a way that even if we lose a complete region, their servers can still be continue to run. Now that’s a business decision you make. … I think we’re pretty far ahead of the curve there [in] sort of serving our customers with technology that they would never have on premise.”
The next CEO of Amazon is Andy Jassy, who ran AWS for a long time. What insights can you give us about him?
Werner Vogels: “It’s not just that Andy Jassy ran AWS, I mean, he’s been at Amazon for 24 years. … He has a very strong look into the Amazon culture. And so I don’t expect terribly much change will happen when Andy takes over from Jeff Bezos. Andy is probably one of the most customer obsessed leaders that I’ve ever met. And so I believe he’s the ideal person to lead the company going forward.”
On the future of AWS’s ‘scalable infrastructure’
Werner Vogels: “The massive rise of startups that we’ve seen across the world, I’m very proud that we actually have contributed to that. And imagine, you know, your company like Dropbox, you know, you go talk to an investor all day long with your idea and you say, I need $100 million to build out the data storage data center. There’s no one that’s going to give you.
“However, if you start building this on AWS, you can prove to your investors that you have a viable business and then, you know, then the investment will go live. And then you’re on a platform that will allow you to scale that. Now, look at Zoom. … Before the pandemic, I think in December of 2019, on a daily basis, Zoom had about 10 million participants per day. Three months later, they had 300 million participants per day and they were offering their services for free to 130,000 schools in the U.S.
“Now, that only works if you have an extremely scalable infrastructure. Because if not, ordering hundreds of thousands of servers to support this is not going to arrive next week. Now, a year later and as such, you know, we’ve created a platform in which everybody can scale up, which was important for many of these businesses that became very, very crucial during the beginning of the pandemic. Or, scaled down to minimize your cost line in the hospitality industry or in the airline industry.”
From The Reading List
Seattle Times: “In the 15 years since its launch, Amazon Web Services transformed how companies do business” — “It enables glitch-free Netflix streaming. It hosts digital drug-design tools of the kind that led to Moderna’s COVID-19 vaccine. The Seahawks use its computing power to analyze game data. It stores a digital repository of King County’s archives.”
Tim Bray’s GitHub: “AWS Becomes ‘A-Cloud,’ an Independent Entity” — ” Today, at AWS re:Invent, Jeff Bezos and Andy Jassy jointly announced A-Cloud, a new Delaware corporation which will assume ownership of Amazon Web Services’ assets and become the employer of existing AWS employees.”
Protocol: “AWS has avoided antitrust scrutiny. That could change.” — “The days of AWS flying under the antitrust radar are over. Cloud computing has grown at a dizzying speed since 2006, when AWS launched its first cloud service.”
Seattle Times: “Get to know Amazon’s new cloud-computing chief, ‘water skier, wine guy’ Adam Selipsky” — “Amazon’s main money-spinner has a new boss. Ex-Tableau Software CEO Adam Selipsky returned to his old stomping grounds at Amazon Web Services this month — this time at its helm.”
This article was originally published on WBUR.org.
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