What we can learn from Amazon’s cloud model

How the ecommerce site has turned its own infrastructure into a lucrative revenue source – and what it traditional storage vendors can learn from Amazon’s cloud model.

In these early days of cloud computing, I’m seeing an interesting trend emerge as companies look for business opportunities presented by this new model. It seems that the businesses that are most successful are the ones that are already operating in the cloud in some manner or using a non-traditional service model, regardless of whether or not it has anything to do with IT. On the other hand, organizations that have been selling IT solutions and services via the traditional on-premise model appear to be having the greatest challenge in finding viable business models to expand their business into the cloud.

Clear? Perhaps not, so let me offer an example – buying and provisioning storage.

Today, traditional storage vendors (HP, IBM, Hitachi, NetApp, etc.) are set up to provide storage devices and install them in your datacentre, either directly or through their reseller partner channels – it’s how their businesses were built and how they make their living. Alternatively, you can simply pick up your phone or click your mouse to contact Amazon Web Services and buy online, cloud-based storage or compute resources and have them provisioned securely for you in a matter of minutes.

The question I find interesting is how Amazon–an online book and e-commerce business–is able to do this? And why aren’t traditional storage vendors doing it? The answer may be simply about ‘barriers to entry’.

In Amazon’s case, the firm is already adding more storage almost daily to meet the growing demands of its online e-commerce business. They are already working in a business model that requires them to be able to click and provision additional storage quickly to support their massive datacentre operations. As a result, entering the cloud storage business is simply a matter of offering their existing rapid and highly available storage provisioning capability to other companies–no need to re-invent themselves to offer cloud storage services, but rather a case of deriving new revenue streams from costs they’re already incurring. You can almost hear the CIO at the Board meeting saying:

“I have this great business idea to make more money by selling what we’ve already invested in.”

But if you’re the CIO at an HP or an IBM, that conversation is more likely to sound like this:

“I have this great idea to make more money, but we have to divert our focus from how we’ve always made our money, and invest a whole pile of money to take advantage of the ‘cloud opportunity’ by doing business a totally different way, and building the necessary storage infrastructure and management systems to support it.”

Was that a pin I just heard drop?

The barrier to entry may seem too high for cloud storage to be a viable business opportunity for traditional storage vendors. But there is more here than first meets the eye.

Large companies like Amazon are filling their datacentres with infrastructure for their own use and to support customers moving to cloud-based infrastructure.  They are buying this infrastructure from somewhere.  If traditional infrastructure vendors can adapt quickly and define new roles for themselves, they will be very busy serving this new and changing market.

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