Killer cloud: report says Amazon Web Services threatens all IT incumbents

June 1, 2013 Leave a comment

Killer cloud: report says Amazon Web Services threatens all IT incumbents

By Barb Darrow | GigaOM.com, Published: May 31

Amazon Web Services faces growing competition from a dozen or more legacy name-brand IT giants. But instead of taking a hit, it poses a bigger-than-ever threat to the those vendors — all of which are building their own competitive clouds, according to new Morgan Stanley research.

Oh, and the researchers project that AWS will hit $24 billion in revenue by 2022. Amazon doesn’t break out AWS revenue, but most pundits figure it passed the $2 billion-a-year mark about a year ago.

The fact that AWS has a huge lead in cloud over the rest of the world is not news to anyone who’s been watching, but these projections could be a wakeup call to investors who think tech incumbents — companies like IBM, Microsoft, HP, VMware, Red Hat, as well as every telco and hosting provider — can challenge Amazon in cloud computing.

“Applying retail economics to the delivery of technology services well positions Amazon Web Services [to be] a Top 5 vendor within the $152 TAM [total addressable market], ” according to Morgan Stanley analysts Scott Devitt, Keith Weiss and team.Nobody’s immune

The move to cloud computing means fewer companies will buy huge numbers of servers and storage arrays for their own use. Over the next five years, Morgan Stanley’s expects that 3 percent to 17 percent of current spending could be sucked up by cloud-based IT service providers. AWS represents a key risk for infrastructure vendors EMC, Brocade, NetApp, VMware and Qlogic, in particular, according to the report.

Other key takeaways:

“We expect on-premise server growth to remain negative long-term on the back of smaller footprints post the adoption of server virtualization combined with new workloads moving to the cloud. Partially offsetting the decline is 20% growth in servers shipped to cloud providers, though some of the demand is fulfilled by whitebox makers like Quanta and Wistron.”

“Storage market at risk of decelerating growth that isn’t fully baked into expectations (unlike servers which already declined in 2012). We expect 0-5% storage revenue growth going forward, down from 5-10% historically. EMC and NetApp likely gain share from server vendors, like IBM. We downgrade BRCD to UW, given over 30% of revenue derived from server OEMs.”

AWS as enterprise software power

And then there is enterprise software, where Amazon threatens VMware and Red Hat in the virtualization market. And, as we’ve reported, Amazon is pushing hard for enterprise workloads with its DynamoDB NoSQL database and RedShift data warehouse. Those AWS efforts represent a long-term threat to Oracle, SAP and Microsoft. In content delivery, where Amazon’s CloudFront is a factor, Akamai faces a long-term threat.

Morgan Stanley isn’t the first analyst firm to up the ante on AWS expectations. In January, Macquarie Capital projected that AWS would account for $38 billion of an overall $71 billion cloud services market by 2015. If you don’t like Morgan Stanley’s take on AWS, hold on — there are bound to be others.

The growth of Amazon’s public cloud infrastructure and its push beyond startups into the enterprise,will doubtless come up at GigaOM’s Structure event, where Amazon CTO Werner Vogels will speak.

Filed under TMT Trends

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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