Category Archives: Amazon AWS

Amazon+Whole Foods – How to read this?

Last Thursday (June 15, 2017), Amazon decided to acquire Whole Foods for a whopping $13.7B ($42 per share, a 27% premium to its closing price). On Friday, stock prices of Walmart, Target, and Costco took a hit downwards, while Amazon shares went up by more than 2%. So why did Amazon buy Whole Foods? Clearly Amazon sees groceries as an important long-term driver of growth in its retail segment. What is funny is that a web pioneer with no physical retail outlet decided to get back to the brick-and-mortar model. Amazon has also started physical bookstores at a few cities. We have come full circle.

Amazon grocery business has focussed on Amazon Fresh subscription service so far to deliver online food orders. Amazon will eventually use the stores to promote private-label products, integrate and grow its AI powered Echo speakers, boost prime membership and entice more customers into the fold. Hence this acquisition is the start of a long term strategy. Amazon is known for its non-linear thinking. Just see how it started a brand new business with AWS about 12 years back and now it is a $14B business with a 50%+ margin. It commands a powerful leadership position in the cloud computing business and competitors like Microsoft Azure or Google’s GCE are trying hard to catch up.

The interesting thing to ponder is how the top tech companies are spreading their tentacles. This was a front-page article in today’s WSJ. Apple, a computer company that became a phone company, is now working on self-driving cars, TV programming, and augmented reality. It is also pushing into payments territory challenging the banks. Google parent Alphabet built Android which now runs most PC devices. It ate the maps industry; it’s working on internet-beaming balloons, energy-harvesting kites, and self-driving technologies. Facebook is creating drones, VR hardware, original TV shows, and even telepathic brain computers. Of course Elon Musk brings his tech notions to any market he pleases – finance, autos, energy, and aerospace.

What is special about Amazon is that it is willing to work on everyday problems. According to the author of the WSJ article, this may be the smarter move in the long run. While Google and Facebook have yet to drive significant revenue outside their core, Amazon has managed to create business after business that is profitable, or at least not a drag on the bottom line. The article ends with cautionary note, “Imagine a future in which Amazon, which already employs north of 340,000 people worldwide, is America’s biggest employer. Imagine we are all spending money at what’s essentially the company store, and when we get home we’re streaming Amazon’s media….”

With few tech giants controlling so many businesses, are we comfortable to get all our goods and services from the members of an oligopoly?

Oracle’s push into cloud solutions

I watched Larry Ellison’s keynotes at this week’s Oracle Open world conference in San Francisco. They are definitely serious in pushing their cloud offerings, even though they came in late. But Oracle claimed that they have been working on it for almost ten years. The big push is at all 3 levels – SaaS, PaaS, and IaaS. The infrastructure as a service claims faster and cheaper resources (computing, storage, and networking) to beat Amazon’s AWS. They make a good point on better security for the enterprises, given the risk of security breaches happening at greater frequency lately. One comment I have is that AWS is beyond just IaaS, they are into PaaS as well (e.g. Docker services, etc. for devops). Oracle’s big advantage is in offering SaaS for all their application suits – ERP, HCM and CRM (they call it CX as customer experience). This is not something AWS offers for the enterprise market, although apps like SalesForce and Workday are available. Microsoft has Dynamics as an ERP on their cloud.

I do agree that Oracle has an upper hand when it comes to database as a service. Larry showed performance numbers for AWS Redshift, Aurora, and DynamoDB compared to Oracle’s database (much faster). They do have a chance to beat AWS when it comes to serious enterprise-scale implementations, given their strong hold in that market. Most of these enterprises still run much of their systems on-premise. Oracle offers them an alternative to switch to the cloud version within their firewall. They also suggest the co-existence of both on-prem and cloud solutions. The total switch-over to cloud will take ten years or more, as the confidence and comfort level grows over time.

AWS has a ten year lead here and they have grown in scale and size. The current run rate for AWS is over $10B in revenue with hefty profit (over 50%). However, many clients complain about the high cost as you use more services of AWS. Microsoft Azure and Google’s cloud services are marching fast to catch up. Most of the new-age web-companies use AWS. Oracle is better off focusing on the enterprise market, their strong hold. Not to discount IBM here, who is pushing their Soft Layer cloud solutions to the enterprise customers. Mark Hurd of Oracle showed several examples of cloud deployment at large to medium size companies as well. One interesting presence at the Open World yesterday was the chief minister (like a state Governor) of the Indian state, Maharashtra (Mumbai being the big city there). He signed a deal with Oracle to help implement cloud solutions to make many cities into “smart” cities and also connecting 29000 villages digitally. This is a big win for Oracle and will set the stage for many other government outfits to follow suit.

I think more competition to AWS is welcome, as no one wants a single-vendor lock-in. Mark Hurd said that by 2020, cloud solutions will dominate the enterprise landscape. The analysts are skeptical on Oracle’s claim over AWS, but a focused Oracle on cloud is not to be taken lightly.

Jnan Dash

Linux & Cloud Computing

While reading the latest issue of the Economist, I was reminded that August 25th. marks an important anniversary for two key events:  25 years back, on August 25, 1991, Linus Torvalds launched a new operating system called Linux and on the same day in 2006, Amazon under the leadership of Andy Jesse launched the beta version of Elastic Computing Cloud (EC2), the central piece of Amazon Web Services (AWS).

The two are very interlinked. Linux became the world’s most used piece of software of its type. Of course Linux usage soared due to backers like HP, Oracle, and IBM to combat the Windows force. Without open-source programs like Linux, cloud computing would not have happened. Currently 1500 developers contribute to each new version of Linux. AWS servers deploy Linux heavily. Being first to succeed on a large scale allowed both Linux and AWS to take advantage of the network effect, which makes popular products even more entrenched.

Here are some facts about AWS. It’s launch back in 2006 was extremely timely, just one year before the smartphones came about. Apple launched its iPhone in 2007 which ushered the app economy. AWS became the haven for start-ups making up nearly two-third of its customer base (estimated at 1 million). According to Gartner Group, the cloud computing market is at $205B in 2016, which is 6% of the world’s IT budget of $3.4 trillion. This number will grow to $240B next year. No wonder, Amazon is reaping the benefits – over past 12 months, AWS revenue reached $11B with a margin of over 50%. During the last quarter, AWS sales were 3 times more than the nearest competitor, Microsoft Azure. AWS has ten times more computing capacity than the next 14 cloud providers combined. We also saw the fate of Rackspace last week (acquired by a private equity firm). Other cloud computing providers like Microsoft Azure, Google Cloud, and IBM (acquired SoftLayer in 2013) are struggling to keep up with AWS.

The latest battleground in cloud computing is data. AWS offers Aurora and Redshift in that space. It also started a new services called Snowball, a suitcase-sized box of digital memory which can store mountains of data in the AWS cloud (interesting challenge to Box and Dropbox). IBM bought Truven Health Analytics which keeps data on 215m patients in the healthcare industry.

The Economist article said, “AWS could end up dominating the IT industry just as IBM’s System/360, a family of mainframe computers did until the 1980s.”       I hope it’s not so and we need serious competition to AWS for customer’s benefits. Who wants a single-vendor “lock-in”? Microsoft’s Azure seems to be moving fast. Let us hope IBM, Google, and Oracle move very aggressively offering equivalent or better alternatives to Amazon cloud services.

The top five most-valued companies are Tech. – almost

On this first day of August 2016, I saw that the top most-valued companies are tech. companies, and the fifth one is almost there. Here is the list.

  1. Apple ($appl): $566 billion
  2. Alphabet ($goog): $562B
  3. Microsoft ($msft): $433B
  4. Amazon ($amzn): $365B
  5. Exxon Mobile ($xom): $356B
  6. Facebook ($fb): $353B

The big move is Amazon’s beating Exxon Mobile (used to be number 1 for many years) to the fourth spot. The switch came after Amazon posted its fifth straight quarter of profits last week as the oil giant’s profits tumbled 59 percent during the same rough period. If Exxon continues its drop, then Facebook will beat it in days.

This is quite remarkable! Other than Microsoft and Apple, the other 3 companies are much younger, Facebook being the youngest one. Their rapid rise is due to the growth of the Internet with its associated areas of search, e-commerce, and social networking. Interestingly Amazon survived the dot-com bust of the early 2000-2001 time unlike Yahoo, AOL, etc. Contrast this to the $4.8B valuation of Yahoo’s core business acquired by Verizon last week! Also, the fastest growing and most profitable of Amazon’s 3 businesses (Books, any commercial items, and AWS) is the cloud infrastructure piece called AWS (Amazon Web Services) with a run-rate of $10B this year. This is way ahead of Microsoft’s Azure cloud or Google’s cloud solutions. 

The importance of cloud is obvious as Oracle just paid $9.3B last week to acquire Netsuite, a company that was funded by Larry Ellison. With a 40% ownership of Netsuite, he gets a hefty $3.5B from this deal. Paradoxically, Amazon lead the way to cloud computing – not IBM, not HP, not EMC/VMWare, and not Microsoft or Google. So no wonder, Amazon is reaping the benefits!

IBM’s Software Business

IBM has come a long way from my time – 16 years spent during the 1970s, 1980’s and early 1990s. Hardware was the king for most of my years there and software was merely a means to an end of “hardware sales”. Even during the early years of the IBM PC, that mistake (of thinking it was a hardware game), helped create a new software giant called Microsoft. Hence the acronym IBM was jokingly called I Blame Microsoft.

Advance two decades and we see a big shift of focus from hardware to software, finally. IBM has sold off much of its non-mainframe hardware (x86 servers) & storage business. During the 4th. quarter of 2015, IBM’s share of server-market was 14.1% with an impressive yearly growth of 8.9%. Contrast this to the growth rates of HPE(-2.1%), Dell (5.3%), and Lenovo (3.7%).

IBM’s software is another story. While it contributed about 28% to total revenue in 2015 ($81.7B), the profit contribution was 60%. If it’s software was a separate business, it would rank as the fourth largest software company, as shown below:

  1. Microsoft  –  $93.6B Rev. —> 30.1% profit
  2. Oracle        – $38.2B Rev. —> 36.8% profit
  3. SAP            –  $23.2B Rev. —> 23.4% profit
  4. IBM           –  $22.9B Rev.  —> 34.6% profit

IBM’s software is second most profitable after Oracle’s. The $22.9B revenue can be split into three components:

  • Middleware at 19.5B (includes everything above the operating system like DB2, CICS, Tivoli, Bluemix, etc.),
  • Operating System at $1.8B,
  • Miscellaneous at $1.6B.

It does not split its cloud software explicitly. Therefore, it is hard to compare it to AWS or Azure or GCE.

The only problem is that its software business is not growing. As a matter of fact, it showed a decline last year. Given the rise of cloud services, IBM has to step up its competitive offering in that space. It did acquire Softlayer couple of years back at a hefty price, but the cloud infrastructure growth does not match that of AWS (expected to hit $10B this year).

IBM is a company in transition. Resources are being shifted toward high-growth areas like cloud computing and analytics, and legacy businesses with poor growth prospects are in decline. Still, IBM remains a major force in the software market.

TiEcon 2016 – some keynotes

After a few years gap, I attended this annual conference called TiEcon. TiE stands for The Indus Entrepreneurs, formed 23 years back by some of the valley technocrats originating from India. This is a non-profit organization to foster and help budding entrepreneurs. I helped organize the contents of this 15 years back. Now the scale has gone up and last week, there were almost 3000 attendees from the US and outside. Many attendees came from faraway places like India, Singapore, etc. Let me highlight some of the keynotes I attended.

  • Shantanu Narayen, CEO of Adobe – This was the first keynote on day 1 where he narrated how far Adobe has come, from a desktop publishing company of the 1980s and 1990s to a cloud-based digital solutions company. He emphasized the challenge of transformation and said that some of the difficult ones are the antibodies inside the company averse to change. Hence he spent a lot of cycles convincing the troops on why change is so key for survival and growth. Now Adobe has a line of products called Creative Cloud (developers), Document Cloud (Acrobat, etc delivered in cloud), and Marketing Cloud (number of analytics products in cloud). Adobe has also been acquiring companies for non-organic growth, such as Omniture. They claim to be changing the digital experience for everyone, from emerging artists to global brands.
  • Vishal Sikka, CEO of Infosys – I liked Vishal’s talk a lot. He has a Ph.D. in computer science from Stanford and his thesis was on AI, which was out of fashion for many years, but is emerging as the latest big trend. Vishal joined Infosys about 21 months back, after being CTO at SAP for many years. He described the tough transition from a product/technology company to a services company. But one can see his stamp of injecting AI technology into the services sector. He calls AI as Automation and Innovation. He announced a new solution called Infosys Mana, a platform that brings machine learning together with the deep knowledge of an organization, to drive automation and innovation – enabling businesses to continuously reinvent their system landscapes. Mana, with the Infosys Aikido service offerings, dramatically lowers the cost of maintenance for both physical and digital assets; captures the knowledge and know-how of people, and fragmented and complex systems; simplifies the continuous renovation of core business processes; and enables businesses to bring new and delightful user experiences leveraging state of the art technology. I was surprised to learn that Infosys has 200,000 employees and they educate something to the order of 17000 people every year in their huge facility in Mysore. Vishal is certainly transforming Infosys and their recent quarterly results have reflected that.
  • Sanjay Mehrotra, CEO of SanDisk – This was a real treat as I was unfamiliar with the evolution of SanDisk as a company, built by 3 immigrants – Sanjay from India, Eli Harari from Israel, and Jack Yuan from Taiwan. Sanjay described how he got rejected 3 times for a US visa when he was planning to come to UC Berkeley for his undergraduate studies. He got his BS and MS in electrical engineering and started a career at Intel where he met the other two founders. The three started SanDisk, which created a new revolution in the flash memory business. After 27 years, SanDisk was acquired by Western Digital last October for $19B. I liked the candid answers Sanjay gave to the ups and downs of his journey and how he learned many lessons while going from an engineer to a business leader and growing a company to such scale. He narrated how Sequoia rejected them for the initial investment, suggesting that funding will happen only if they follow the Intel model. Of course they refused. He said that VC’s don’t always see the future and are risk-averse if you are charting a new path.
  • Besides these keynotes, I also enjoyed listening to Diane Green, the new cloud czar at Google and how they are planning to compete with the de facto cloud king AWS. Sandy Carter from IBM described how IBM is moving towards building cognitive apps on its Watson platform.

There were several tracks on Cloud, IoT, Data Economy Social Entrepreneurship, etc. Overall it was a good 2-days experience.

Stack Fallacy? What is it?

Back in January, Tech Crunch published an article on this subject called Stack Fallacy, written by Anshu Sharma of Storm Ventures. Then today I read this Business Insider article on the reason why Dropbox is failing and it is the Stack Fallacy.  Sharma describes Stack Fallacy as “the mistaken belief that it is trivial to build the layer above yours.”

Many companies trivialize the task of building layers above their core competency layer and that leads to failure. Oracle is a good example, where they thought it was no big deal to build applications (watching the success of SAP in the ERP layer initially built on the Oracle database). I remember a meeting with Hasso Plattner, founder of SAP back in the early 1990s when I was at Oracle. He said SAP was one of the biggest customers of Oracle at that time and now Oracle competes with them. For lack of any good answer, we said that we are friends in the morning and foes in the afternoon and welcomed him to the world of  “co-opetition”. Subsequently SAP started moving out of Oracle DB and was enticed by IBM to use DB2. Finally SAP built its own database (they bought Sybase and built the in-memory database Hana). Oracle’s applications initially were disasters as they were hard to use and did not quite meet the needs of customers. Finally they had to win the space by acquiring Peoplesoft and Siebel.

Today’s Business Insider article says, “…a lot of companies often overvalue their level of knowledge in their core business stack, and underestimate what it takes to build the technology that sits one stack above them.  For example, IBM saw Microsoft take over the more profitable software space that sits on top of its PCs. Oracle likes to think of Salesforce as an app that just sits on top of its database, but hasn’t been able to overtake the cloud-software space they compete in. Google, despite all the search data it owns, hasn’t been successful in the social-network space, failing to move up the stack in the consumer-web world. Ironically, the opposite is true when you move down the stack. Google has built a solid cloud-computing business, which is a stack below its search technology, and Apple’s now building its own iPhone chips, one of the many lower stacks below its smartphone device”.

With reference to Dropbox, the article says that it underestimated what it takes to build apps a layer above (Mailbox, Carousel), and failed to understand its customers’ needs — while it was investing in the unimportant areas, like the migration away from AWS. Dropbox is at a phase where it needs to think more about the users’ needs and competing with the likes of Google and Box, rather than spending on “optimizing for costs or minor technical advantages”.

Not sure, I agree with that assessment. Providing efficient and cost-effective cloud storage is Dropbox’s core competency and they are staying pretty close to that. The move away from AWS is clearly aimed at cost savings, as AWS can be a huge burden on operational cost, plus it has its limitations on effective scaling. In some ways, Dropbox is expanding its lower layers for future hosting. It’s focus on enterprise-scale cloud storage is the right approach, as opposed to Box or Google where the focus is on consumers.

But the Stack Fallacy applies more to Apple doing its own iPhone chips, or Dell wrongfully going after big data. At Oracle the dictum used to be, “everything is a database problem – if you have a hammer, then everything looks like a nail”.