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The AWS economy

For the good of the information technology industry, and those employed in it, AWS must continue to offer an increasingly complex portfolio of services. The more effort it takes an organisation to use AWS effectively, the more jobs it creates for other people. This undue burden on AWS customers is a job creation program for everyone else. AWS is a giant star orbited by partner companies of various sizes and countless individuals, this is the AWS economy.

According to Gartner worldwide IT spending is $3.7 trillion, this is more than twice the size of the global oil industry at $1.7 trillion, and five times the size of the international metals and minerals market at $660 billion. IT spending is not just people buying things, it includes people doing things. The smiles of server and storage vendors have become a rictus of panic in trying to convince everyone their businesses are doing fine when they are not, the real spending is happening elsewhere.

While vendors capture most of the economic value from their intellectual property there is an expansive ecosystem of higher revenue but lower margin services provided around that intellectual property. This is a technological economy and every new service AWS offers increases the overall size of the AWS economy.

Independent software vendors selling products that use or run on AWS, consultants and system integrators who wrangle AWS for organisations and those developers who deploy code on AWS are all beneficiaries of the AWS economy. They are employed to do things AWS customers cannot or do not wish to do themselves. If AWS was easy and something organisations did not have to think about these other members of the AWS economy would not exist.

How large is the AWS economy? That is unknown but we can get a sense of how large it might be by looking at a peer. In 2017 estimated that for every one dollar Salesforce earned the economy that operates around Salesforce made $3.67. For every one turn of the Salesforce crank the connected flywheel spun nearly four times.

By Salesforce’s estimates, between 2016 and 2022 Salesforce will facilitate the creation of 3.3 million jobs and generate $859 billion in new business revenue. Salesforce pitch this as an example of how Salesforce helps companies perform better. But it’s also a lot of consultants and sales people buying plane tickets, booking hotel rooms and going to see Salesforce customers to sell them products which integrate with Salesforce.

Is the AWS economy now measured in the billions? Yes. Hundreds of billions? Well, if it is not there yet it will be soon. Every new service for customers to make sense of and integrate with adds hundreds of millions of dollars to the AWS economy.

Andy Jassy will take the stage this week and will fire off a volley of new features. He may throw another service or five on the pile of ~90. He’ll probably mention something about databases, because Larry Ellison has been living rent free in Andy’s head for a while now.

Focusing on databases is good because if Oracle’s Autonomous Database strategy pays off, where automation does things junior DBAs used to, it will probably cost some junior Oracle DBAs their jobs. Those junior DBAs will look for other places to sell their time and a lot of them will land on whatever AWS is offering because that is where the future growth is. These will be new members of the AWS economy.

Amongst the noise and endless queues in Las Vegas this week do not forget that the more difficult it becomes to read the eye chart that is AWS’s service offerings, the better it is for members of the AWS economy.

So sit back, relax and listen to what the sages at Amazon have to say. Then know that many people elsewhere will be hired to make sense of it all..

AI adoption cost Diane Greene her job.

New products are adopted slowly if they are adopted at all. The expectation that Google Cloud's AI offerings would generate a monsoon of new revenue, within the five year horizon Diane Greene referenced frequently, has proven to be incorrect. 

This cost Diane her job.

Google Cloud Platform (GCP), under Diane's leadership, has attempted to leapfrog its cloud competition by selling the superiority of GCP's AI offerings. But Google are early and have dramatically overestimated the speed of AI adoption. 

Product adoption can be measured. 3M corporation is one of the most innovate companies in the world and how they measure the success of that innovation is in how much revenue it returns to their business. This is a good measure of success for any technology company. In Transforming a Legacy Culture at 3M: Teaching an Elephant How to Dance, the New Product Vitality Index (NPVI) is shown as a 3M measure of sales generated from products introduced during the past five years.

At 3M's highest performing point, its NPVI has not exceeded 35%. Out of more than 50,000 products touching different parts of our lives, two thirds of their revenue comes from products that are more than five years old. For companies not as successfully innovative as 3M, an NPVI of 3%-5% of revenue is common.

New products are adopted slowly if they are adopted at all, and AI is being adopted slower than Google Cloud needs it to be.

While GCP's financials are opaque in Alphabet's earning reports there is no visibly increasing GCP/AI bounce in Google's revenue. Not in the way AWS and Azure have clearly contributed to their parent operations.

AWS and Azure built their leads selling infrastructure and platform as a service offerings making it understandable that Google would look for a point of differentiation. AI has been the wrong point of differentiation. While AI will diffuse throughout new products over time, being built in the way embedded databases were, this adoption time will be long.

Changing business leaders will not alter Google Cloud's market position because it does not change its point of differentiation. Finding a differentiator with an adoption timeline that works for Google, and works against its competitors, will be what will earn Thomas Kurian his compensation.

Or if he too gets it wrong, it'll earn Thomas a severance package..