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On the road with AWS: if this is Tuesday, we must be in Paris !



Amazon Web Services (AWS) kicked off the European leg of its worldwide whirlwind tour - the “2015 AWS Summit” - in London and Stockholm and hit Paris on June 23rd. The whole team – including AWS CTO Werner Vogels and French boss Miguel Alava - was wearing bright orange sneakers, which made them easy to recognize in the crowd of well over 1500 participants.

While there was plenty of technical content throughout the day, the morning keynote provided an opportunity to understand the value propositions that AWS is making to different categories of potential customers and the major messages it is delivering to the market in 2015.

For the inevitable question of “how is the business doing?”, the keynote did provide some interesting global usage figures for the technology platform (EC2 instances, data transfers, etc) but – to our great regret – no revenue or growth breakout for large European markets such as France.

Without being exhaustive, this article will simply hit the high points.

“Cloud is the New Normal”

The public cloud as the “new normal” was the overall theme of the 2015 AWS Summit worldwide. Before making any remarks, let it be said that coming up with a strong global theme as a “communications umbrella” for this sort of event is not an easy job... and whatever the result, “everyone’s a critic”.

That having been said, we do have some issues: the expression “new normal” is an overused cliché, it doesn’t mean what AWS seems to think it means and, even if it did, is an entirely debatable claim.

In late 2009, Bloomberg chose “new normal” as the “most overused expression of the year”. Instead of fading out as might have been expected, the cliché became even more popular in the following years, peaking in 2013 (see chart) a year it was used nearly 100 times per day in US mainstream media.

The original meaning is completely different from the Summit Keynote usage. According to Wikipedia, “New Normal is a term … that refers to financial conditions following … the 2008–2012 global recession" It underscored the mistaken “belief of economists and policy makers that industrial economies would revert to their most recent means post the 2007-2008 financial crisis.”

Academic specialists in disasters and catastrophes started using the term in 2010. Many of them had thought that the long run of disasters between 2000 and 2009 was something exceptional and that, after that "decade from hell" things would get back to normal. Unfortunately, things promptly got worse in 2010, leading them to see disasters as the "new normal".

In short, a “new normal” is a new situation – following a disruption like a financial crisis or something like climate change – that is considerably worse than before, which is presumably not what AWS had in mind.

Even admitting (for the sake of argument) the AWS usage of “cloud is the new normal” as a positive, post transformational situation, the claim is entirely debatable. While growing very fast, the public cloud is still only a small piece of the IT market and most IT is still on premises or hosted in a traditional way. Brandishing the dreaded "L word" - in other words Legacy IT that is doomed to disappear and the faster the better - doesn’t change that entrenched reality.

To finish with this point on a positive note, French AWS boss Miguel Alava got closest to the truth when, speaking in French, he called cloud computing "la nouvelle norme", which translates as "the new standard". Framed like that, the claim is considerably more precise (if less punchy) and absolutely correct. Another IT revolution has indeed begun, and cloud computing has become the undisputed design point for modern information systems moving forward. Amazon Web Services is at the forefront - as the 2015 Summit once again confirmed - but the cloud revolution is still a work in progress.

"Startups build from scratch in the Cloud”

In the 1990’s, startups had to buy and run IT infrastructure to get their businesses up on the Web, and buy more if the business took off. Today’s start-ups can – and massively do – choose to rent the virtualized infrastructure they need when they need it and to build their applications from scratch in the Cloud.

Internet startups are a nearly perfect use case for Amazon. These are companies in a hurry, working long hours to build (and endlessly update) their applications, with little time and even less inclination for the nitty gritty work of physical infrastructure. They do however have strong technical skills, making them a natural fit with Amazon’s “do it yourself” public cloud. Starting from scratch, they are ideally positioned to take full advantage of the company’s rapidly growing set of advanced features – everything from DevOps to Database (SQL / NoSQL) to Big Data to Mobility – “built for the cloud” and sold as a service.

Even so, some caution is in order. Start-ups designing their applications to get the absolute most out of what the AWS cloud can do - and it can do quite a lot - are implicitly making a trade-off between clear benefits today and possible platform lock-in tomorrow. The potential “lock-in” is not contractual but technical. To be fair, the same thing is true in most of the main competitor environments including Microsoft Azure, VMware and IBM Softlayer. In fact, most applications do tend to run on the cloud where they were born, because moving elsewhere is seldom trivial.

For Internet startups with global ambitions and a realistic shot at hitting the symbolic billion dollar valuation threshold – the rare 1% or so of young private companies that veteran VC Aileen Lee of Cowboy Ventures in late 2013 famously called “unicorns” – platform dependency could be an issue. At some point, that sort of company might want to diversify its cloud providers, perhaps putting its application up on a Chinese public cloud.

Even so, for a young founder working 16 hour days – maybe on the Silicon Roundabout in London or in the Silicon Sentier in Paris – who doesn’t even know if her company will be alive two years down the road, technical lock-in is likely to be a minor concern, assuming she has time to think about it, which she probably doesn’t.

The Cloud is a natural option for many mid-market organisations

The public cloud can represent an attractive value proposition for mid-market organisations, including “Small and Mid-sized Enterprises” (SME’s) as well as what the French call “intermediate size companies” (with staff ranging from 1000 to 5000 people). It was not surprising that two of the three customer testimonials in the morning Keynote came from French mid-market organisations – Les Restaurants du Cœur (a smallish but well known non profit) and Vente.privée.com (an e-commerce veteran). In fact, a sizeable proportion of the company’s references in France are in the mid-market category.

Mid-market organisations have many of the same “digital” opportunities and challenges of larger companies but have to face them with tightly constrained resources. In addition to financial limitations, IT staff are seldom numerous and often have generalist skill sets, at a time when specialized expertise is essential to put new technologies to work for the business.

Business continuity issues may also come into play, especially when outdated computer rooms are located in the same building as workplace offices, exposing companies to increased risk in the case of fire, flooding, electrical failure or any other disruptive incident. Outsourcing the IT infrastructure to a public cloud can make sense, if only to reduce headaches.

Unlike large corporations which often still rely heavily on previous generation platforms, many mid-market companies (especially SME’s) have already moved to industry standard X86 servers (increasingly virtualised) to run their main business applications, which means that transitioning to a public cloud is easier. Some intermediate size organisations do, however, have more complex IT infrastructures that need to seen through the prism of “hybrid IT” (see below).

Of course, high volume, self-service public clouds such as AWS and Microsoft Azure are not necessarily right for everyone. Customers who want to delegate most of their IT infrastructure management and get lots of “high touch” customer support may well prefer a “managed cloud” provider such as, for example, Rackspace in the US or Orange in France.

This is why the company’s ecosystem of service partners is a key part of the mid-market value proposition, to help these customers build and run applications on the AWS cloud. Twenty two partners participated in the AWS 2015 Summit in Paris. We chatted on the exhibition floor with a few of the services partners – Edifixio, Claranet, Oxalide and Sopra Steria – as well as with security technology partner Trend Micro. All of them were enthusiastic and upbeat, happily hustling for new business.

Mid-market organisations are natural candidates for public clouds, but services are crucial. AWS does seem to understand that continuing to win business in this important segment, in European countries like France, Germany and Italy, will depend as much on its local services ecosystems as on its global technology platform.

Big companies and Hybrid IT: “Moving to the cloud is not a binary decision”

Coming from a company that fervently believes in the absolute inevitability of the public cloud, the admission that a great many big companies will opt for “Hybrid IT” came as a refreshing dose of reality.

In the financial sector, big banks and insurance companies still run their most important, core applications on IBM mainframes. Large industrial concerns typically run their main ERP modules (demand planning, manufacturing, supply chain, orders, billing, accounting…) on large UNIX systems. On a risk-benefit basis, moving these business critical applications to a public cloud makes about as much sense as the “downsizing” fad of the 1990’s.

There are other factors slowing pubic cloud adoption by big companies in Europe. The largest companies, especially financial institutions, have a wealth of IT expertise and are big enough to achieve attractive economies of scale on their own, and so many have chosen to invest in private clouds. In addition, many companies remain concerned about US claims to jurisdiction over data stored in the European facilities of American providers, as in the still unsettled case of Microsoft vs the US over emails in Dublin.

Even so, the public cloud seems at last to be making headway in some big French corporations. A good example of how this is happening was supplied by the testimonial from VEOLIA EAU, a 3 billion euro company that is part of the much larger worldwide VEOLIA group. In the context of its strategic transformation plan, VEOLIA EAU has chosen a “bimodal organisation”, managing most existing applications as efficiently as possible in their current environments while at the same time developing new applications with maximum agility in the Amazon cloud, taking full advantage of numerous AWS services.

In this sort of context, a very fast and highly secure Direct Connect (i.e. no exposure to the public Internet) is critical. A highpoint of the Paris Summit was the announcement, by CTO Werner Vogels, of a partnership with Orange, the leading French telco, to provide its well respected Business VPN Galerie for direct connection of customer data centers with AWS facilities in the EU, the US and APAC. While Orange is a competitor (albeit in the “managed cloud”, a different market segment), Hybrid IT inevitably pushes the players into co-opetition, in which companies both compete and cooperate for customer business.

To conclude the Hybrid IT discussion, Werner Vogels added – of course - that “Hybrid IT is part of the journey, not the destination”. That predictable opinion may be debatable, but the important point is that some big and important companies in Europe, including France, have indeed gotten started.

“The rapid pace of innovation”

Amazon invented cloud computing (or at least IaaS) as part of an internal project to improve IT delivery for Amazon.com, but quickly saw its potential as a revolutionary service for other companies. The now classic message was simple: customers could source virtualized infrastructure on demand, transforming CapEx into OpEx, saving money and gaining flexibility. Over time, however, IaaS morphed from an infrastructure sourcing model into a new computing paradigm, unleashing a wave of innovation, especially for “cloud native” applications.

AWS now has nearly fifty different services, most going well beyond basic compute and store. The company launched 516 major features in 2014 alone, up from 280 the previous year. At the 2015 Summit, AWS presented a number of new and interesting things including its “built for the cloud” Elastic File System that replicates like S3, Amazon Machine Learning, the EC2 Container Service for Docker, and new mobile features for its AWS Lambda “event driven” computing service.

While AWS has a well established reputation as the innovation leader, both MIcrosoft and IBM are investing heavily to challenge it. How this will all play out in the market may depend on what part of the battlefield is in dispute. For cloud native applications, AWS looks likely to remain the leader over the next several years, since it benefits from a strong head start and a single minded focus on the public cloud.

In the domain of Hybrid IT, however, competition will probably be tougher, especially from established IT players. With Active Directory, for example, Microsoft has an extraordinarily valuable weapon, solidly positioned at the nexus of many company information systems. AWS supports Active Directory, of course, but Microsoft controls its evolution. IBM middleware is also a well entrenched reality at the infrastructure level. Both companies can be expected to leverage their “assets” in Hybrid IT to challenge AWS and how things will turn out is far from clear.

What is clear, however, is that innovation - and not price - has now become the crucial battlefield in the war for the massively scaled public cloud.

Conclusion

On the whole, the AWS 2015 Paris Summit was a great event. The company has clear value propositions for its various categories of customers, backed with well crafted arguments and good examples. The stand out message was its capacity for fast, continuous innovation, which is now the real battlefield in the high volume, massively scaled segment of the public cloud market.

Coming back to the issue of growth in France, there is considerable anecdotal evidence - even if Amazon, for its own inscrutable reasons, doesn’t want to admit it - that the company’s French business is growing very fast indeed. In a country that has been notoriously reluctant to embrace the public cloud, that is a strong signal that the market may - at long last – be taking off. That would be very good news, not just for Amazon Web Services in France but also for its competitors, and most of all for the entire French economy.

Monday, July 27th 2015
Duquesne Advisory
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Duquesne Advisory is a European firm, dedicated to researching, understanding and advising clients worldwide on opportunities and trends in Information and Communications technology.

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Duquesne Advisory delivers in-depth analyses of Information and Communications Technologies, their implementations and their markets. Research is based on critical observation of the market by the analysts and their on-going contacts with the vendor community, together with hands-on, practical experience in consulting engagements.

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