Most people only think of Amazon.com as the omnibus online retailer that sells everything from books and music to baby clothes and garden implements. But while that side of Amazon's business is its most high profile, there's another, less glamorous side that will likely become ever more important: cloud computing services.
Cloud computing lets people build Internet-based businesses incrementally, and pay for more and more computing power as they go, without having to buy any actual hardware. Amazon’s offering is the undisputed leader in the fast-growing field. Research firm Gartner last year estimated that the public cloud services market totaled $131 billion worldwide, with the Amazon Web Services business being "five times larger than the next 14 competitors combined."
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Amazon doesn't release specific numbers for its cloud computing side, but an estimate from Macquarie Capital puts the 2013 revenue contribution from Amazon Web Services at $3.4 billion. Amazon made $74 billion in total revenue last year. If the Macquarie estimate is correct, Amazon Web Services contributed only 4.6 percent of total revenue, but that percentage is forecast to grow. Macquarie forecasts AWS's revenue contribution to increase to $5.3 billion for 2014 and $8.1 billion for 2015.
While Amazon is the biggest player in cloud computing right now, how long that will last remains to be seen. A price war in the space has already begun, and Google just announced a simplified pricing structure for Google Cloud Platform — its cloud computing side — that will cut prices anywhere from 30 percent to 85 percent. Amazon responded the very next day with deep price cuts of its own. Cisco and Microsoft are also trying to get in on the act.
The stakes are huge. As Kevin Roose notes at New York magazine’s website, “Whoever wins the cloud war will, in effect, control the internet. As the back-end operator of the world's biggest companies, the choices the winner makes will have a major impact on issues like net neutrality and data privacy.”
If that’s the case, Amazon just got a significant boost from the Department of Defense. Amazon announced last Wednesday that its cloud computing side — known as Amazon Web Services — had won clearances that will allow it to work with all DoD agencies. Amazon Web Services, which launched eight years ago, has been selling cloud computing services to government agencies like the Navy and Air Force for years. But the depth and breadth of this latest clearance means the potential for even more business with the Pentagon.
DoD already has its own cloud-storage service, as well, called MilCloud, which was just rolled out this month. MilCloud is meant to provide Amazon-style cloud computing services at similar costs, but with even higher levels of security than Amazon's (though in the post-Edward Snowden area, government invulnerability in the cyber arena is no longer a given). MilCloud isn't intended to compete in the private sector.
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In the meantime, as the world becomes more and more data and computing driven — and if the government becomes more reliant on Amazon’s cloud — it might be worth pondering what happens if the day ever comes when the president needs to mobilize American military forces but all he sees on his DoD computer screen is: "Sorry. Amazon.com is currently experiencing technical difficulties. Please try again later." The president better be sure he has Jeff Bezos's mobile number.
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