Cisco President: AWS Model Is A 'Gamble' And A 'Hiccup' Away From Bankruptcy

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Solution providers betting on Amazon Web Services are risking their future on a financial and partnering model that is a "hiccup" away from bankruptcy, said Edwin Paalvast, president of Europe, Middle East, Africa and Russia for Cisco Systems.

"AWS is a gamble," said Paalvast, when asked directly what he thought of the financial model behind AWS during a Q&A session with Canalys CEO Steve Brazier at the Canalys Channel Forum on Oct. 4 in Spain. "If you really look at their financials, they lease everything out. If they keep on growing like they're doing today, they'll win. If they get a hiccup, they're bankrupt. But that's the new world."

He said San Jose, Calif.-based Cisco, in contrast, is focused on teaming with partners to deliver new applications that will help customers become "more agile" and competitive in the Internet of Things market.

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"What I'm more worried about is, is the technology we deliver something that partners can resell and actually make money with and do it in a sustainable fashion?" said Paalvast.

Paalvast, a 17-year Cisco veteran, decried the "commodity-everything" IT environment. "It's all nice to talk about these technologies, but what I heard all today is just commoditizing everything. Then we won't make any money if that happens, but the partners will certainly also not make money," he said.

Paalvast's comments come as AWS is growing sales and operating income at a staggering rate.

Seattle-based AWS reported operating margins of 30 percent on a whopping 58 percent increase in sales to $2.88 billion for its second quarter that ended June 30.

AWS, which has a revenue run rate of nearly $12 billion, finished its most recent fiscal year with operating income of $1.86 billion on sales of $7.88 billion, compared with operating income of $660 million on sales of $4.46 billion in 2015.

Paalvast said AWS' business model is vastly different from the channel model that has catapulted Cisco to the No. 1 position in the networking and unified communications market, while also surging in other markets such as security.

"We actually have to show money and most [channel partners] actually need to turn a profit, and that's not what Amazon's business model is built on," said Paalvast. "If interest rates stay low, they might actually win the whole pot, but it's a model which is not open to everybody. And if the sentiment changes -- boom, it's gone."

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