Amazon ahead in the cloud

04:06, May 31 2013
Werner Vogels
HEAD IN THE CLOUD: Amazon Chief Technology Officer Werner Vogels.

United States online giant Amazon has been accused of laying waste to high-street retailers around the world; now it is threatening to have same impact on information technology providers.

The company is almost synonymous with online retailing, but chief technology officer Werner Vogels forecasts the company's revenues from selling cloud computing services to businesses will eventually be of the same order of magnitude.

Amazon Web Services (AWS), a division of the United States retail giant, has established several massive data centres around the world, including one completed in Sydney in November, with which it aims to commoditise the market for business computing infrastructure.

Vogels was the keynote speaker at a seminar on AWS' services organised by its New Zealand partner, Wellington technology company Fronde, on Thursday, which attracted about 700 representatives from across the Kiwi information technology industry. Even after the venue was  moved from the Auckland Hilton to the larger the Aotea Centre, there was standing-room only.

Vogels says AWS is following the same mantra as Amazon's retail business with its "high volume, low margin" philosophy.

The number of businesses AWS is serving across Australia and New Zealand had increased from 10,000 to 14,000 since it opened its Sydney data centre, he said. Kiwi clients that are using AWS to run at least some of their computer systems include the Metservice, Snapper and online retailer Fishpond.


Datacom, IBM New Zealand, Gen-i and its new acquisition Revera are in the midst of spending a few hundred million dollars refreshing and kitting out new state-of-the-art data centres. As Vogels touched down in New Zealand, Gen-i settled on Popes Road in Takanini as the site for a new facility in Auckland that will be shared with Revera and provide space for 1200 racks of computer servers in four separate server rooms when completed next year.

Gen-i spokeswoman Kate Woodruffe said the site was chosen because of its location upstream from the Otahuhu substation, low tsunami risk and and good road and telecommunications links.

But Fronde's northern region manager James Valentine said that given AWS' scale, that was not where he would be putting his money. "You are going to have a pretty unique point of difference to be able to compete."

Australia's Macquarie Capital estimated AWS probably had revenues of US$2.5 billion in 2012 and could be worth US$19 billion by 2015.

Earlier this month, opening its new $30m data centre outside Hamilton, Datacom chief executive Greg Davidson acknowledged AWS was "gobbling up market share in the US". But he said Datacom had deliberately chosen to focus on the "high-end" of the market, catering for clients who needed highly reliable infrastructure and extra services.

Vogels insisted it was a myth that AWS was focusing on serving price-sensitive small businesses and internet businesses and said it had the whole market in its sights. "[Online businesses] are of course an important segment for us, but we are targeting traditional enterprises just as much.

"Our global economies of scale and our focus on relentlessly driving costs down helps customers get scalable IT resources at a price point they would not be able to get anywhere else," he said.

"We have lowered our prices 31 times since 2006 without any competitive pressure. I think over time there will be fewer and fewer data centres owned by individual companies."

Clients could choose whether to have their systems run solely out of Sydney, in which case their company data would not leave the region, or have it backed up in Singapore or the US. They could also choose the levels of service they paid for, or buy insurance in case of losses caused by any outages at AWS.

Metservice chief information officer Alistair Vickers said he thought there would always be a market for Kiwi providers, and for organisations to run their own infrastructure, while services like AWS did not have an operational presence in New Zealand.

Issues that Kiwi firms may need to balance against AWS' low prices include both the extra latency caused by hosting services overseas and the possible legal issues involved in sending  their data outside New Zealand.

Vogels said the extra distances involved in locating cloud computing services in Sydney, which created a 20 to 30 millisecond lag, did not significantly reduce performance for Kiwi clients.  But he did not rule out Amazon building a data centre in New Zealand some time in the future.

Fronde chief executive Ian Clarke said AWS' size had benefits for customers beyond its economies of scale. Firms and government agencies that found their websites subject to denial-of-service attacks from hackers could use AWS' massive server farms to immediately scale-up their infrastructure and fend off attacks, for example.

Snapper chief executive Miki Szikszai said the Infratil subsidiary had been using AWS since 2010 and had switched its website to the service this year. He estimated it would have cost twice as much for Snapper to maintain its own infrastructure or have it hosted by a local provider.

But he said it was the flexibility AWS' scale provided that was the key, and which local providers would somehow need to match.

Along with the likes of Google, Apple and Starbucks, Amazon has been accused of using aggressive tax avoidance strategies to minimise its tax bills. Vogels said the company "complied with all laws".

The Dominion Post