Dispatches from Cloud Connect 2012: AWS under attack

I heard lots of presentations at Cloud Connect last week, but one theme stood out: Amazon’s cloud business is under attack. It’s no surprise. Amazon is the market leader in cloud computing, and various sources put its revenue at anywhere from $500 million to $1 billion annually. But competition is creeping up on Amazon and it is interesting and telling to see where it is coming from.

Believe it or not, private clouds got a huge boost at the show this year. Public cloud purists argued for a long time that there was no such thing as the private cloud, and they said clouds were about infinite scale, commodity components and standardized infrastructure and that only the webscale companies — Google, Amazon, Facebook and maybe the big telcos — could build and operate clouds. As evidenced by last week’s event, they were wrong.

Allan Leinwand, the CTO of Infrastructure Engineering at Zynga, used his keynote at the event to show off Z Cloud, Zynga’s private cloud. In early 2011 80 percent of Zynga’s daily user base was on Amazon and 20 percent was on Z Cloud, according to Leinwand. By the end of 2011 those numbers had flipped: Now 80 percent of Zynga’s users are on Z Cloud and 20 percent run on AWS. That is a huge chunk of business that has just shifted in-house, and Leinwand’s view is that once Zynga can predict its workload, owning the space will be cheaper than renting it from Amazon. It wasn’t just a cost decision, though. He mentioned several times at the event that Zynga had better control over its games running on Z Cloud than on AWS, which makes sense. When you own the infrastructure you can do what you like with it.

However, he was also quick to add that Zynga’s decision wasn’t a knock on Amazon, which it will continue to use for new games when it can’t predict the spikes in users and the capacity to meet that demand. But this could be the start of a trend we suspect will be the way most enterprises use public clouds in the future: Rent for the spike, not the long haul. And for Amazon, this means that the temporary spike in revenue while companies need its services is followed by a precipitous drop when they move workloads back in-house. This pattern doesn’t make for a very Wall Street–friendly graph and I’d be curious to see how Amazon explains. Currently the company hides its AWS revenue under “other” in its earnings releases and chooses not to explain it. You could argue that Zynga is the exception, not the norm when it comes to its cloud operations and therefore not a good indicator of what others will do. I believe it will be the norm, but right now Zynga has the luxury of no legacy infrastructure and can simply move faster than everyone else.

Moving up the stack

Amazon plays at the infrastructure level. But there was a lot of talk at the event about Platform-as-a-Service (PaaS) offerings, where cloud folks think the real action will ultimately lie. VMware’s Cloud Foundry and OpenShift by Red Hat are the two big guns here in terms of portability. There are also Microsoft Azure, Google App Engine and Salesforce, with Force.com. Yes, these are all public clouds, but again, the conversation seems to be shifting to private PaaS over the public services. Diane Mueller, a cloud evangelist at ActiveState, the makers of a PaaS offering that runs on private or public cloud infrastructure, said during a panel at the event on PaaS adoption that enterprises are eager to use PaaS as long as they can operate and run it themselves. This is because enterprises are not willing to give up security and control but still want the improved developer productivity, project agility and reduced administrative overhead that PaaS offers. Amazon doesn’t have a PaaS offering, public or private, to meet this need.

Openness and transparency

Another knock against Amazon’s cloud came from a debate around openness. Many companies are claiming their cloud software or service is more open than the next, making it easier to integrate with other products and services. CloudScaling and Citrix, with its CloudStack software, are the latest to push the open message. But all vendors like to point the finger at Amazon for being the least open of all, since it hasn’t opened its APIs.

Its not clear to me yet that companies really want openness. They want to be able to move workloads around, but there are many Amazon EC2-compatible private cloud software providers out there that let users move workloads in-house or back to the cloud, Eucalyptus being the most popular. What enterprises care more about is transparency: When there is a problem, they want to know what, when and why, how it happened and what is being done to fix it. That is different from providing an open architecture that lets users integrate whatever they like with AWS. So it is unclear where the openness debate will go, but I don’t believe it is hurting Amazon yet. The transparency issue is a different story.

S3 is not the only object store and definitely not the cheapest

In the storage space, a bunch of ankle-biters are claiming they can undercut Amazon on pricing. SpiderOak and BackBlaze both claim they can offer a cheaper way to archive data. And SoftLayer just came out with an object store for its cloud based on the OpenStack swift project. This is open-source software that allows the creation of redundant, scalable object storage on clusters of standardized servers.

There is no chance any of these new cloud storage providers are catching up with Amazon S3 anytime soon. Amazon recently announced that S3 now houses 762 billion objects. But it also announced a pricing cut, which is perhaps an acknowledgement of the creeping competition nipping at its heels.

All in all, the pioneering cloud provider has companies of all sizes chasing after its business. Then there are trends on the enterprise side around security, control and transparency that are pushing many organizations toward private cloud deployments. My sense is Amazon’s cloud business will need to shift to address the needs of the private cloud user and to connect its public cloud business more seamlessly to those customers. It has already started down this path with the launch of the AWS Storage Gateway, a service that connects an on-premise software appliance with cloud based storage – a step in the right direction.

Question of the week

Is Zynga ahead of the game in moving to private cloud?
Relevant analyst in cloud computing
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