If you want to understand just how powerful Amazon has become by turning the $3.5 trillion global IT industry on its head, here’s a clue.
In October, Amazon threw its third annual re:Invent conference in Las Vegas for its Amazon Web Services customers.
One of the highlights was a two-hour keynote from Andy Jassy, the senior VP in charge of AWS. His message to big companies was clear: come use Amazon, we’re finally, really ready for you.
And the highlight of that keynote came 1:08:47 in when Jassy stood in front a slide that listed 19 large well-known companies who are going “all-in” on Amazon.
“All-in” means they have made the gutsy decision to shut down all of their own private data centres and instead run their companies on the rented computers, storage, software and other services served up by AWS. Check out the companies on the list:
Notice anything? The companies come from all over the business world, including the tech industry.
“When the data center comes up for lease, what people are doing is looking at, ‘I could spend a big pile of money to refit it, or I could replace it with an AWS account’
We talked to the folks responsible for the “all-in” AWS projects at three huge tech companies: Netflix, accounting software company Intuit, and networking giant Juniper, about why they chose to turn to Amazon.
They all believe that they are role models and that, over the next decade or so, more big enterprises will do the same.
“When the data center comes up for lease, what people are doing is looking at, ‘I could spend a big pile of money to refit it, or I could replace it with an AWS account’,” explains Adrian Cockcroft, formerly Netflix’s cloud architect, the man who oversaw Netflix’s use of Amazon through 2014. He is now a Technology Fellow advisor for VC firm Battery Ventures.
(Netflix declined comment for this article, although it does talk publicly about its use of AWS at Amazon’s re:Invent conference.)
The implications are clear. If these tech companies can unplug all of their data centres and switch to AWS, any company can do the same.
“I think in some ways AWS is helping to redefine the industry. That’s one of the reasons we’re happy to be partnering with them in this, because we think we’re riding with one of the leaders in the industry,” says Intuit’s Michele Iacovone, SVP and Chief Architect.
Netflix: “A shark swimming in a paddling pool”
AWS didn’t start out as a force in enterprise for cloud computing. Quite the opposite.
AWS launched in 2006, and by 2009 it was mostly used by startups, who liked its dirt-cheap prices.
When Netflix started using AWS not many other enterprises were even considering it.
And for good reason. AWS wasn’t very good.
“In 2009, when Netflix first started, Amazon was a very crappy data center,” Cockcroft remembers.
“It was small. It was unreliable. All kinds of things weren’t there. We were basically helping create what’s there now by making it clear to AWS ‘if you do this, this will work’ and ‘this doesn’t work’ and ‘we need this feature’,” he says.
Netflix was so much more demanding on AWS than its other customers, mostly startups, it was like “a shark swimming in a paddling pool,” he says.
“There were times when when Netflix figured out it was biggest users of some Amazon feature because we kept breaking it,” he told us.
Netflix would even get others to use some of those features to get more people to complain to AWS that the feature needed fixing.
Despite those headaches, Netflix was determined to make it work
But Netflix didn’t want to get stuck running their own data centres, Cockcroft says.
“Was that a competitive advantage for Netflix? And the summary from on down was, if we could offload that to somebody else, we will. We want to own the software, because that’s key to us. But we don’t need to own the hardware,” he recalls.
In 2010, Netflix started talking about the decision to go all-in on AWS, published a blog on it.
The entire IT industry thought Netflix was nuts.
“I did a talk at a conference at the end of 2010 to 100 people or so. The reaction of the audience: ‘you guys are crazy.’ No one in the cloud computing community were doing anything as ambitious as what we were doing on AWS,” Cockcroft laughs.
(Side note: one of the Battery Ventures partners attended that talk. And, years later, that partner offered him his current job at Battery.)
But no one is laughing now. In mid-2015, after more than five years of work, Netflix closed its last major data center.
Analysts expect Netflix to report around $6.78 billion in revenue for 2015, up from about $5.5 billion, when it releases it earnings on January 19. Cockcroft credits much of its growth to not spending millions on data centres.
“Netflix has a very different business model,” with almost all of its revenue invested in licensing and creating movie content. It spends on marketing and salaries, “but the proportion Netflix spends on IT is relatively low,” he says.
Intuit: “It wasn’t all roses at the beginning”
A funny thing happened along the way. As the startups on AWS grew up, including Netflix, so did Amazon.
Instead of ditching Amazon for their own data centres, the reverse started happening. More and more giant enterprises started using AWS as a way to ditch their own data centres.
Even with Netflix leading the way, it wasn’t easy for any of the early companies using AWS. Amazon at first didn’t really get them or their plans, and didn’t make itself easy to work with, remembers Intuit’s SVP and chief architect Michele Iacovone.
Intuit chose to go 100% into AWS because, thanks to some acquisitions, it found itself loaded with a bunch of small data centres on top of its two main ones for its core business.
Meanwhile, it was revamping its own software to run on the cloud and it wanted its programmers working in the cloud, too. Work went faster when not waiting on an overloaded IT department to buy and provision servers and software.
When Intuit did a pilot with Amazon, AWS still “wasn’t ready for enterprise,” Iacovone tells us. For instance, Amazon didn’t have things like enterprise-grade computer security (super important for a financial services company like Intuit, which makes software for taxes, bookkeeping, loans). And AWS couldn’t do the kind of tracking/auditing Intuit needed.
Still, Intuit decided to try AWS anyway. It found an application to could use as a test, a self-help app called Live Community, where power users of Intuit’s tax software answered others’ questions.
Intuit’s developers shocked themselves at how fast they moved the app to AWS: a little over two months, instead of the expected half a year, Iacovone says.
For tax season, they put the app on a big bunch of AWS servers. Suddenly, the app could stretch to handle the giant volume of questions that hit it during tax season, cutting Intuit’s customer support calls by half.
When tax season ended, Intuit simply “decommissioned” most of the servers and gave them back to AWS. The project took “1/5 the effort” and cut infrastructure costs by 20%, and cut Intuit’s overall costs “by 6x,” Iacovone describes.
Intuit decided to go all-in with Amazon.
Intuit promptly hit more brick walls
AWS’s contract at the time reflected a consumer company’s ignorance of enterprise IT. “Things like indemnification and standard enterprise clauses were foreign to Amazon,” he says. “It took a long time to work through it with them and make sure we had a contract that made sense.”
Once that was done, Intuit pressured and worked with AWS to build the kind of security, auditing, and other features they needed.
“It wasn’t all roses at the beginning,” he laughs.
But it’s gotten much better. Intuit has since moved “50 or 60 or so smaller apps and projects,” to Amazon and at least one huge one, Mint, the SaaS personal financial app it bought in 2009 for $179 million.
Iacovone expects it will take Intuit another 2 to 3 years to get the rest of their apps into AWS.
Juniper: Saving money is a byproduct
None of these three “all-in” companies are moving to Amazon just to save money.
Juniper VP and CTO Gary Clark led the decision to go all-in on cloud computing about four years ago, and about three years ago, he chose Amazon as his go-to data center for all of Juniper’s home-grown apps.
And just a few days ago they closed their 17th data center, and only have one left, Clark told us.
“We’ve gone farther, faster than many. There’s been some bumpy roads for sure. But we’re in way better position than we were three years ago,” he tells us.
For instance, Juniper badly needed to update a sprawling war chest of some 300 software apps spread across the 18 data centres.
So about four years ago, Juniper’s IT department did an exercise they called “let’s move to the cloud” where they imagined not having any data centres.
After taking inventory of their apps the company, half of them could be replaced with SaaS versions that “offered some pretty good value,” Clark said. With SaaS, apps always stay updated, no need for the IT department to deal with that.
“I thought, if you can move it to SaaS, why the heck aren’t you doing it?,” he said.
So Juniper signed up for apps like Microsoft Office 365, Salesforce.com, Concur for expense management, and ServiceNow for the helpdesk.
The problem child was the decade-old Oracle ERP application (the financial and supply chain management app) that badly needed updating.
So Clark and team embarked in a three-year project to move to a cloud-friendly ERP system. Just a few days ago, his team officially launched it new SAP ERP app this month. (It is not running on Amazon, he says, but on a service offered by the partner that helped build it.)
Finally, there was another group of 150 other apps that did “all this other stuff.” These were the custom apps running various parts of Juniper’s business, like getting quotes from partners, etc. And all of those are being moved to AWS in a project that started three years ago.
Juniper, a company that makes computer network equipment, had one big technical advantage. It built a brand new network that lets it access all its apps as fast as if they were still its own private data center, he says. That’s one of the reasons it could move so fast.
Still, the upshot is in three years, Juniper moved from less than 1% in the cloud to 85% of its IT in the cloud and from 18 data centres to 1.
While Juniper didn’t “save money” per se, Clark says that as Juniper’s business has grown, his IT budget and headcount has stayed the same, about 300 people.
“And we’ve improved service delivery dramatically,” he says with everyone experiencing a lot less downtime.
Google and Microsoft are in the chase
While Amazon is leading this “all-in” revolution, everyone is watching two potential competitors: Microsoft and Google.
“Google has made some very interesting advances,” says Intuit’s Iacovone. “And Microsoft Azure if you have a large Microsoft footprint is compelling,” he says, adding that Intuit is not a big Microsoft user.
Iacovone remains committed to Amazon, but every six months, his team takes a serious look at the competition.
Former Netflix cloud architect Cockcroft also thinks that Microsoft is hot on Amazon’s heels.
“Microsoft is a pretty complete cloud platform and it’s more business friendly than AWS and in more locations worldwide,” he notes. Physical location of cloud players is increasingly important for global enterprises, as many countries have laws that forbid data from being stored in other countries.
Meanwhile, he likens Google to about where Amazon was five years ago.
“Google is interesting,” he says and “it knows how to run stuff at scale.” He says. But Google’s cloud is small, and they “don’t have an enterprise sales and support force in place, like Amazon five years ago. They don’t have the corporate culture for it.”
He thinks that’s why Google hired board member Diane Greene to run its new cloud unit and create some enterprise DNA.
Big IT companies have een put on notice
Meanwhile the growing list of Amazon “all-in” companies should really terrify the big IT hardware giants, like Hewlett Packard Enterprise, Intel, Dell and its soon to be subsidiary EMC, Cisco, and even Oracle.
This is the beginning what’s sure to be a long and potentially devastating trend for them, Cockcroft says, who describes these companies as “sinking ships.”
“One by one, companies are shrinking their data center footprint,” he says.
Meanwhile, Amazon doesn’t buy loads of commercial servers and storage equipment from those companies. It mostly builds its own. (Amazon now even owns its own ARM chip company, though that may more about building mobile devices than AWS equipment.)
Same with Microsoft and Google.
While sales of servers, storage, and other data center equipment to enterprises will never dry up, Cockcroft believes cloud vendors generally, and Amazon in particular, will devour a bigger chunk of it faster than pundits predict.
“Amazon is only few percentage points of the total data center spend. So they don’t have a big percentage of the market, yet. By 2018, they will have a larger multiple,” he says. He points to AWS’s 78% overall growth rate and says he believes AWS is growing its revenue from enterprises even faster than that.
The main reason: Companies can’t afford to build for themselves the state-of-the-art data center that matches what AWS has built, he says.
In the meantime, thanks to help from early adopters like Intuit, Juniper and Netflix, Amazon is no enterprise neophyte anymore.
It now has an abundance of enterprise-grade features and appropriate contracts, sales and support. Plus, it’s adding new enterprise features at a blinding pace. Discount retailer that it is, it also continually cuts prices. Earlier this month it announced its 51st price cut since AWS launched.
All of that makes the companies who have gone “all-in” feel content with their choice.
Juniper’s Clark believes Amazon still offers the best bang for the buck.
“We went to Amazon because its leadership in the marketplace was clear to us,” he says, and its constant stream of new features proves it isn’t “stuck” in the past and letting others leapfrog it.
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.