A couple of weeks after Amazon Web Services beat out IBM for a prized $600 million CIA cloud computing contract, the Seattle-based vendor held its second annual AWS re:Invent conference in Las Vegas.
The timing was fortuitous, coming just after a knock-down, drag-out eight-month legal battle in which IBM's legal team tried every tactic in the book to get the government to reopen bidding for the CIA cloud contract after the agency picked Amazon.
The CIA deal was, in many ways, Amazon's biggest cloud win since launching Amazon Web Services in 2006. Not only did Amazon prevail over IBM -- which for years has been synonymous with big enterprise and government IT deals -- but it later emerged that the CIA felt the AWS cloud was technically superior to IBM's. As enterprise IT wins go, they don't get much bigger than this.
The CIA, one of the world's most secretive organizations, isn't just putting its data in the AWS public cloud. AWS is building a replica of the AWS cloud that will run inside the CIA's data center -- which sounds like a private cloud, an area of the market where AWS previously hasn't played.
That's why AWS re:Invent, which has an overriding theme of showing that the AWS cloud is enterprise-ready, would have been a great place for AWS executives to share some insight into their plans for tackling additional private cloud opportunities, and getting into the wheelhouse of competitors such as Microsoft, VMware and IBM.
Instead, conference attendees heard the same message they always hear from AWS executives: that private clouds are unnecessary and overhyped and are a concept created by old-school enterprise vendors that want to keep customers away from the public cloud because it threatens their traditional revenue streams.
The way AWS sees it, public cloud can handle everything enterprises need, and chief among its many benefits is letting customers slash capital expenditure. "Over time, we think very few companies are going to own their own data center, and ones that do will have a small footprint," Andy Jassy, senior vice president, Amazon Web Services and Amazon Infrastructure, said in his AWS re:Invent keynote.
Later on in a press conference, Jassy said the CIA deal does not represent a shift in Amazon's thinking, although he did leave the door open to more CIA-type deals.
"We think the most cost-effective and scalable option for the enterprise is public cloud. But there will be a small number of organizations that want private because they're unable to use public cloud," Jassy said in the press conference. "If they want to have a conversation about doing something in their data center, we're willing to have those conversations."
Terry Wise, director of business development at AWS, had a similar take in an interview with CRN at the conference. "We recognize that large customers may have unique requirements, and we will listen to them. If we feel we can serve those with a great degree of operational excellence, and a low price point ... we'll take a look at it," Wise said.
AWS executives have steered clear of calling the CIA deal a private cloud. But in an interview with "60 Minutes" that aired Dec. 1, Amazon CEO Jeff Bezos confirmed that AWS is indeed building a private cloud for the CIA.
"We're building what's called a private cloud for them ... because they don't want to be on the public cloud," Bezos told CBS News correspondent Charlie Rose, according to the interview transcript.
With that unambiguous description, Amazon's cloud plans came into their sharpest focus yet. Whether or not it's labeled private cloud, AWS is going after all sorts of enterprise opportunities that blend elements of private clouds and public clouds. And the reasons are simple: Enterprises are eager to tap into the economic benefits of public cloud, but it's going to be some time before they're willing to give up their on-premise hardware. This hybrid approach is the primary way enterprises are adopting cloud, and Amazon -- never one to ignore a market opportunity -- is giving them what they want.
Of more than a dozen sources CRN interviewed for this story, most spoke on condition of anonymity. Some did so to avoid damaging their relationship with Amazon, which has an Apple-like obsession with secrecy. Others didn't want their traditional enterprise partners to know they were working with AWS.
AMAZON WEB SERVICES' STEALTHY ENTERPRISE OFFENSIVE
IBM's response to losing the CIA cloud deal was to launch a print, online and outdoor advertising campaign extolling the superiority of its cloud over Amazon's. While AWS executives like to say they don't think about the competition, Jassy couldn't resist taking a jab at IBM in his AWS re:Invent keynote.
"Some of the old-guard tech companies are getting a little panicky" at the rapid growth of the AWS cloud, Jassy said of IBM at the event. "They seem to be pretty worked up about AWS."
The "old-guard" enterprise vendors have good reason to be worried. The CIA deal gives AWS a ready response to the oft-voiced criticism that its public cloud isn't secure enough for storing sensitive data. While the CIA won't actually be using the AWS public cloud, it did choose AWS in part for scalability reasons, and that's a valuable endorsement that matters to enterprises.
"We won based on technological superiority. If that doesn't show that we're enterprise-class, I don't know [what does]," AWS' Wise told CRN in an interview at the event.
Asked about critics who claim Amazon isn't ready for the enterprise, Wise shrugged. "Just look at the enterprise customer roster we have," one that includes Samsung, Nokia and Unilever, among others, he said. "They're using us to run mission-critical apps in the front office and back office." Many AWS customers also feel that it improves their security posture, he said.
AWS actually was going hard after enterprise customers even before the CIA deal came to light. There was a big enterprise sales hiring push earlier this year -- Business Insider in February reported there were 75 open AWS sales positions listed on LinkedIn. As of late November, AWS had five open enterprise account engineer positions listed.
"They have dedicated enterprise account reps in the Bay Area targeting the big guys, so they are definitely investing into that market," one source familiar with Amazon's hiring push told CRN.
AWS rose to popularity as a way for developers to rent on-demand access to compute and storage resources over the Internet, and later as a place for startups to run their IT operations. But developers and startups' needs are very different from those of enterprises, which demand service-level agreements, attentive support, and data security that meets regulatory compliance mandates.
To establish a foothold in the enterprise data center, Amazon is getting into private cloud opportunities, according to several sources with knowledge of the matter. "They are definitely going that route. They see opportunity in the private on-premise business," one source familiar with AWS' plans told CRN.
Amazon's first move into the data center was the AWS Storage Gateway, a software-based appliance unveiled in January 2012 that connects a company's private cloud storage with the AWS S3 cloud storage service for file sharing, backup and disaster recovery. Amazon added gateway-cached storage last November and started positioning AWS Storage Gateway as an alternative to local storage arrays for storing customers' primary data.
But while the software-based appliance works for smaller organizations, it wasn't scalable enough for enterprises to use. AWS is now testing a purpose-built hardware-based cloud storage appliance that represents the next evolution of the AWS Storage Gateway, sources familiar with Amazon's plans told CRN in late November.
Amazon isn't manufacturing the hardware itself, but through a third-party white-box vendor, sources said. Once installed in a customer's data center, the hardware appliance acts as a bridge between an enterprise's data center and the AWS cloud. The idea is to let companies store some data in the AWS cloud, while keeping sensitive data and workloads on-premise.
"This is Amazon extending the reach and purpose of already a robust cloud offering," said one source with knowledge of the product. "The appliance is a means to an end to ensure that customers have different paths to the same destination, which is cloud adoption."
An Amazon spokesperson declined to comment on the cloud storage appliance, citing its policy of not responding to "rumors or speculation."
Amazon's white-box appliance is similar to products from startups Nasuni, TwinStrata and Panzura, which target enterprises with on-premise hardware that backs up data to AWS and other cloud storage services. However, Amazon's white-box appliance will only work with the AWS cloud, sources said.
Paul Smith, a partner at Datasmith, a Walpole, Mass.-based cloud solution provider, has not heard from AWS about the cloud storage appliance but said it would be a great fit for his company.
Datasmith, a VMware partner, has been helping customers move certain types of workloads from VMware-based private clouds to AWS to save on storage costs. But the process is time-consuming, as it involves converting their VDMK files -- VMware's virtual machine disk file format -- so they can be stored on AWS.
The AWS storage appliance would simplify the process, Smith told CRN. "The storage appliance would play well because Amazon is pretty complex. AWS has great products, but they can be hard to configure. There is a lot to know about how to convert your VMware customer environment into the AWS world," Smith said.
Enterprises like hybrid cloud because they can save money from using the public cloud for things like storage and bursting, while maintaining the control that private clouds offer. AWS is hoping to gain enterprises' trust with products such as the hardware storage appliance, which could later translate into more adoption of its public cloud.
"If you want to attract legacy enterprise customers, you're going to have to build tools that lower barriers to the public cloud," one AWS partner told CRN, speaking on condition of anonymity because he's not authorized to speak about company matters.
AMAZON TAKES ON ENTERPRISE GIANTS
Amazon Web Services has disrupted the enterprise IT market, and IBM, Microsoft and VMware all clearly have AWS on the brain. Which isn't surprising since AWS is treating the cloud market like its own personal playground.
According to figures from Synergy Research published in late November, AWS now has a 35 percent share of the Infrastructure-as-a-Service market, compared with 5 percent for IBM and 3 percent for all the other IaaS players combined.
VMware executives urged partners earlier this year to do everything possible to keep customers from moving workloads to the AWS cloud. VMware has AWS-focused marketing collateral on its partner portal, which one partner described to CRN as "talking points and FUD checklists."
Jamie Shepard, regional vice president at Lumenate, a Dallas-based VMware partner, thinks AWS is trying to build trust with enterprise customers by staking out a presence in the data center. Lumenate sells VMware vCloud Hybrid Service, and Shepard said AWS would need to enlist the aid of its channel to win share in this segment of the market.
"AWS will have a long way to go to be able to accomplish this. They will need architects in the field, real people, they will need the help of the channel allowing them to architect, sell and make good margin -- perhaps white-label themselves like we have done with others," Shepard told CRN.
Microsoft has vowed to match AWS' constant price cuts with Windows Azure IaaS. Microsoft was one of five vendors that submitted initial bids for the CIA cloud deal. Shortly thereafter, it filed a protest with the Government Accountability Office challenging various aspects of the deal's mandatory qualification requirements, but was rejected.
IBM, in its marketing campaign and elsewhere, is busily positioning SoftLayer, the cloud vendor it acquired in June for $2 billion, as more enterprise-ready than AWS. IBM next year plans to add some 100 products and 40 infrastructure services to the SoftLayer cloud, Lance Crosby, CEO of SoftLayer, told The New York Times in early December.
"It will take Amazon 10 years to build all of this," Crosby told The New York Times. "People will be creating businesses with this that we can only dream about."
AWS has managed to find one enterprise ally. In a partnership unveiled last November, NetApp has integrated its storage hardware with the AWS cloud, allowing data and workloads to pass securely back and forth from private clouds. The tie-up brought AWS access to the NetApp channel, and Avnet is handling pricing and distribution of the hardware. Partners must be certified with AWS and NetApp to sell it.
The AWS-NetApp partnership works because, other than storage, NetApp doesn't sell products that compete with AWS, one partner of both vendors told CRN. Plus, NetApp is well-versed in the delicate balance known as "co-opetition", as it already works with Cisco, HP and Fujistu, said the partner, who wished to remain anonymous because he was not authorized to speak about the partnership.
"NetApp is embracing and running toward AWS, while everyone else is running away and trying to compete," said the source. "While there are AWS partners that have closer relationships with the vendor, none of them have the data center focus of NetApp."
Amazon doesn't break out cloud revenue, and in general it's one of the most secretive companies on the planet. With a dominant share of the cloud market already, AWS is now going for the kill shot by getting enterprises to trust its cloud. That may be a long-term play, but Amazon -- as evidenced by Bezos' vision for flying delivery drones -- is definitely a company that likes to think ahead.
PUBLISHED DEC. 9, 2013