Thursday, October 23, 2014

Blue Ocean Strategy Amazon Web Services – Leading the Cloud Computing Red Ocean

Amazon started its cloud computing business Amazon Web Services in 2006, which that point was a disruptive innovation where in Amazon offered customers computing power and storage on demand at a low price. The Amazon Web Service (AWS) offering relies on company’s core technology infrastructure that was built to drive its ecommerce business and content business, also made cloud computing cheaper and more accessible at a very large scale. Jeff Bezos took a big risk in the year 2006 and utilizing Amazon’s vast experience in digital business, created a new business model for AWS and also created a first-mover advantage, and the high growth that goes with it, for the company. AWS offers its services at a drastically low prices and it initially targeted the startups that are highly price conscious, which proved highly successful as innovative web businesses like location-based social network Foursquare, document sharing site Scribd, crowd based review business like Yelp, etc. subscribed to AWS. AWS is based on Amazon strategy of not charging high initially for hardware but charge customers on long term use of the services (pay as per usage) which is a win – win for both the company and customers.

AWS has been a fast growing business within the Amazon business portfolio and it clocked revenues of $3.1 billion in 2013 and is expected to grow by 58% in 2014 according to a new estimate from Pacific Crest Securities. n a research note, Pacific Crest says it expects the business to keep growing at a clip, with revenue hitting $6.7 billion in 2015. Despite risks involved in cloud computing like cloud outages where in the websites of the companies that use AWS during outage will go down and do not function, still use Amazon’s web services clearly knowing risk involved, but the incentives of quick and inexpensive forcing smaller companies and startups to gamble rather than pay more high charges for a simple guarantee their services will never go down. AWS over the years has built a significant share in the cloud computing market wherein it even attracted the Fortune 500 companies and government departments to use its services. The reason behind the AWS success can be attributed to the low pricing that the company offers its customers. Amazon web services have lowered prices 31 times since it launched in 2006, including seven price reductions so far in 2013.

The price war highlights that the cloud computing market is a red ocean where in there is serious competition from major players like Google, Microsoft, Oracle, etc. and plenty of medium and smaller players. AWS is still leading this highly competitive market and building significant revenues from this business offering. Forrester Analysts forecast the public cloud market, the market segment AWS leads will grow from $4.7bn in 2013 to $44bn in 2020 as the market shifts towards replacement of current systems which also highlights the potential the AWS has in future. Amazon is further planning to reduce pricing but increase the performance and functionality of its offerings. Amazon has implemented a rich software infrastructure to allow users access to large quantities of computing resources at rock-bottom prices. Amazon Web Services accounted for 37% of the $9 billion infrastructure as a service (IaaS) market in 2013, according equity research company Evercore. The IaaS market is growing by 45%, but Amazon Web Services has a growth rate of 60% and it built a huge computational capacity. 

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