Amazon’s Cloud: Five Layers of Competition

Most people would agree: Amazon Web Services is crushing their competition. Their innovation is leading edge, their rate of introducing new products is furious and their pricing is bargain-basement low.

This is a tough combination to beat! How do they do it?

The Power of Permutations

Amazon’s offering takes a layered approach. New solutions are introduced at any of the Five Layers and are then combined with the other layers. By creating solutions with interchangeable parts, they’ve harvested the power of permutations via configurable systems.

Platform

Take an example starting with a new platform. Let’s imagine that Amazon were to offer a new Data Analytics service. They’d likely consider the offering from two angles: 1) How do we support current analytics platforms (legacy)? and 2) How do we reinvent the platform to take advantage of scale-out, commodity architectures? Amazon typically releases new platforms in a way that supports current customer needs (e.g., support for MySQL, Oracle, etc.) and then rolls out a second way that is proprietary (e.g, SimpleDB, DynamoDB) but arguably a better solution for a cloud-based architecture.

Data Center: When Amazon releases a new offering they rarely release it to all of their data centers at the same time. We’d expect them to deliver it in their largest center: the AWS East Region where it would be delivered across multiple availability zones. After some stabilization period, the offering would likely be delivered in all US regions, or even globally. Later, it would be added to restricted centers like GovCloud. Amazon is careful to release a new offering in a limited geography for evaluation purposes. Over time, the service is expanded geographically.

Virtualized Infrastructure: The new service would likely use hardware and storage devices best suited for the job (large memory, high CPU, fast network). It’s common to see Amazon introduce new compute configurations that were driven by the needs of their platform offerings. Over time, the offerings are extended to use additional support services. This might include things like ways to back up the data or patch the service. Naturally, we’d expect that as even newer infrastructure offerings became available, we’d be able to insert them into our platform configuration.

Cross-Cutting Services: For every service introduced, there are a number of “crosscutting services” that intersect all of the offerings. Amazon’s first priority is usually to update their UI console, which enables convenient administration of the service. Later, we’d expect the service to be added to their monitoring system (Cloud Watch), their orchestration service (CloudFormation) and ensure that it could be secured via their permissions system (I&AM). These three crosscutting services are key enablers to the automation story that Amazon offers.

Economics: Perhaps the only thing Amazon enjoys more than creating new cloud services is finding interesting ways to price them. For any new offering, we would expect  Amazon to have multiple ways to price the offerings. If it was for a legacy platform, we’d expect to be billed by the size of the machines and the number of hours that they ran, and the disk and network that they used. If it was a next-generation platform, we’d expect to be billed on some new concept – perhaps the number of rows analyzed, or rows returned on a query. Either way, we’d expect that the price of the offering will come down over time due to Amazon’s economies of scale and efficiency.

The Amazon advantage isn’t about any one service or offering. It’s a combinatorial solution. They have found a formula for decoupling their offering in a way that enables rapid new product introduction and perhaps more importantly it offers the ability to upgrade their offerings in a predictable and leveraged manner over time. Their ability to combine two or more products to create a new offering gives them ‘economies of scope’. This is a fundamental enabler of product diversification and leads to lower average cost per unit across the portfolio. Amazon’s ability to independently control the Five Layers has given them a repeatable formula for success. Next time you read about Amazon introducing XYZ platform, in the East Region, using Clustered Compute Boxes, hooked into CloudWatch, CloudFormation and IAM, with Reserved Instance and Spot Instance pricing – just remember, it’s no accident. Service providers who aren’t able to pivot at the Five Layers may find themselves obsolete.