In Gartner’s latest report on public cloud computing adoption, entitled “Forecast Overview: Public Cloud Services, Worldwide, 2011-2016, 4Q12 Update Published: 8 February 2013,” we learned that cloud computing is growing, and much of this growth is coming from the IaaS portion of the market.

The numbers continue to rise.  Gartner predicts that IaaS will achieve a CAGR of 41.3% through 2016, which is the fastest growing area of public cloud computing the research firm tracks.  Indeed, last year I would have said that PaaS was looking like the fastest growing sector of the public clouds, but IaaS has continued its momentum.

The largest IaaS player, by a huge margin, is Amazon Web Services (AWS).  Despite a few well-publicized outages, the growth of that division of Amazon has outpaced most expectations.  AWS is becoming such a powerhouse in the industry that, while there are dozens of other IaaS players, I see AWS on projects about 90 percent of the time.  AWS is certainly not a monopoly—yet.  However, they want to be the “defacto standard” for IaaS cloud, with none of the competition coming close…even the bigger players such as IBM, Microsoft, Google, and HP.

As reported by GigaOM’s own Barb Darrow in January, Amazon’s cloud is bigger, and more profitable than we think.  Indeed, in a report, Macquarie estimates that the overall cloud market will hit $71 billion in 2015, and pegged AWS’ addressable part of that market at $38 billion. These are bigger than Gartner’s previous estimates of $56 billion for the overall cloud market size and $28 billion for AWS’ portion of that market.  Thus, AWS could now be worth $19 billion as a standalone entity, based on a 5X multiple.

Macquarie’s Schachter is estimating that AWS’ addressable market was $11 billion in 2012.   Also,  the unit delivered actual revenue of about $2 billion. In 2013, Schachter estimates that AWS will have revenue of $3.8 billion (See Figure).

While many people point out what’s wrong with AWS, for the most part the growth has been well earned.  Innovation around the concept of an IaaS cloud has been largely defined by AWS, and they were in the game well before other large players who, frankly, entered the IaaS space after AWS defined it for them.

I think the success of AWS can be attributed to a few key factors:

First, they hired the right people at the right time.  Doubling down on talent before the market emerges is a good idea, but one that is often rejected by corporate leadership.  AWS placed some well-defined bets, including building and enhancing their IaaS service well ahead of the rise of the cloud computing hype, and the demand.

Second, they focused on the technology.  There has not been a lot of marketing hype out of AWS as the cloud market emerged.  They always relied on the technology selling itself, and thus focused on creating the best cloud services that they can.  The tradeoff is that many still don’t understand exactly what AWS does, considering that the API accessible services are complex and highly technical concepts.

However, the worst position to be in as an executive is to be either on the very bottom, or the very top.  AWS, while clearly at the top of their industry, still has a fight on their hands as cloud computing continues to change from an emerging to an established technology space.  In other words, it’s only the first quarter, and there is plenty of time on the clock for the competition to catch up.

I believe there are three things that AWS should be considering in order to maintain their lead.  These include:

1. Becoming more focused on humans.  AWS is focused on the technology and not customer service.  The one complaint I consistently hear from my clients that leverage AWS is the difficulty in getting assistance from AWS staffers when occasional issues arise, or even when they are trying to become a customer.  For the most part, AWS is a company that’s best understood by developers.  However, AWS needs to adjust their internal processes as more within enterprise IT need to interact with them.  Large enterprises, for instance, will insist on phone calls and even in-person meetings before they toss millions at AWS.  The other large enterprise players already understand this market, and how to define and drive human relationships.  AWS has some clear challenges here.

1. Shoring up operations.  The AWS outages have been too frequent and too well publicized.  While some outages are expected, to those on the outside, it’s clear that AWS needs to improve on internal operations of cloud computing centers.  It’s helpful that they are typically forthright about providing information when outages occur, but the fact that they occur in the first place is causing many larger customers to rethink the migration to AWS, for now.

1. Separating from the traditional Amazon business.  While this may be a big “no-no” internal to the Amazon empire, the link with the traditional retail business is still confusing.  Market analysts have to do mathematical voodoo when attempting to separate AWS revenue from the traditional business.  Moreover, I have the “this part sells book, and this part sells cloud services” discussion a few times a week.  The market likes clean, single-purpose technology companies.

In 5 years I think the market will look much as it does today, only much bigger.  AWS will be a large player, but it will be interesting to see if they are still as dominant as they are today.  I suspect they will be, if they keep to the strategy and make a few changes.