The Firm
Amazon Web Services (AWS), a subsidiary of Amazon, has been offering various IT tools and infrastructure as a service to businesses since 2006. These web services, also known as cloud computing technology, provide highly reliable, scalable cloud architectures to meet a wide range of business needs and applications. In 2018, AWS captured 50% of the market share with close to 27% growth and was the market leader over other major competing cloud service providers like Microsoft Azure, Alibaba Cloud, and Google Cloud. However, in that same year market shares of its major competitors’ inched up by about 1.6 percentage points [5].
A clear competitive advantage that AWS gained over its major competitors was being the first mover in cloud computing as well as its Cost Leadership[2] strategy that lures companies to move from on-premise physical servers to cloud. 14 years since 2006, AWS has now become the industry standard by way of licensing its technologies through well a defined appropriability regime in terms of patent protection and clear shared responsibilities of cloud security with its customers[4].
This technology standard shaped[4] by AWS not only creates a bigger platform for its subsequent innovation performance[4] in democratizing Artificial Intelligence and Machine Learning, but it has also inevitably become an additional barrier for new entrants as well as a factor that creates even more cut-throat rivalry among its major competitors[14]. For example in Singapore, the Government Commercial Cloud was launched in 2019 with only three main Cloud Service Providers named and they are AWS, Microsoft Azure, and Google Cloud. What it means is that for example, even though IBM Cloud’s text-to-speech might have both comparative and competitive advantage[15] in terms of offering higher quality synthesized AI human voice at a much lower price than AWS, Azure, or Google Cloud, it is likely that this particular service will not be accepted by stakeholders on both supply and demand-side as far as public sector projects and tender proposals are concerned[3].
The Key Issue
While AWS was undoubtedly the market leader in 2018 based on its revenue and market share, the next three competitors achieved staggering growth between 60.2% and 92.6% within that same year. What this might mean is that a growing number of new adopters[1] within this cloud technology adoption curve were selecting cloud service providers other than AWS as the choice of cloud infrastructure in their digital transformation journey.
Therefore, the key issue was whether AWS would modify its composite mix of Cost Leadership, Differentiation, and Focus strategy[2] to defend its position as the market leader.
Strategic Significance
One of the main significant impacts resulting from this potential change in market leadership would be the Technological Turbulence[7][8] that the industry would experience again. However this time around, it would not be about migrating from on-premise servers to the cloud but rather the change management of a newly shaped standard in cloud technology.
Evaluation
In 2019 after AWS announced that their Q3 sales were up 24% to $70 billion[10], the following enhancements were made to its cloud network and capabilities[11]:
- AI/ML service called Amazon Forecast was made available in most regions.
- Data lake infrastructure was made available in most regions.
- Amazon Quantum Ledger Database (QLDB) was made available in most regions.
- AWS IQ, a new service that helps customers quickly find, engage, and hire AWS-Certified third-party experts was launched.
- Opening of new regions in the Middle East (Bahrain). This brings the total Availability Zones to 69 within 22 geographic regions globally.
- Reduced storage price of Amazon Elastic File System by 44% after 6 times of price reduction in 2019.
- Announced 5 new Machine Learning Services and Improve Everyday Enterprise Task.
- Launched new or enhanced services: AWS Outposts, AWS Local Zones, AWS Wavelength, Sagemaker, Contact Lens, Redshift, ElasticSearch, Cassandra, Detective, Fargate with Kubernetes.
- Launched AWS Braket for Quantum Computing.
By 2019 Q4, AWS announced its sales were up 21% to $87.4 Billion[12].
According to Porter’s Generic Strategies[2], the type of strategies deployed by AWS within a year in 2019 could be classified as below:
| 1 x Cost Leadership Strategy | 6 x Differentiation Strategy | 2 x Focus Strategy |
| 1. Reduced storage price of Amazon Elastic File System by 44% after 6 times of price reduction in 2019. | 1. A fully managed AI/ML service called Amazon Forecast was made available in most regions. 2. A fully managed data lake infrastructure was made available in most regions. 3. Opening of new regions in the Middle East (Bahrain). This brings the total Availability Zones to 69 within 22 geographic regions globally. 4. Announced 5 new Machine Learning Services and Improve Everyday Enterprise Task. [11] 5. Launched new or enhanced services: AWS Outposts, AWS Local Zones, AWS Wavelength, Sagemaker, Contact Lens, Redshift, ElasticSearch, Cassandra, Detective, Fargate with KubernetesAWS IQ, a new service that helps customers quickly find, engage, and; 6. AWS-Certified third-party experts were launched. | 1. Amazon Quantum Ledger Database (QLDB) was made available in most regions. 2. Launched AWS Braket for Quantum Computing. |
As at end of 2019, the market share, revenue, and growth of top Cloud Service Providers[13] were as follows:
| Company | 2019 Revenue | 2019 Market Share (%) | 2018 Revenue | 2018 Market Share (%) | 2018-2019 Growth (%) |
| Amazon | 19,990.4 | 45.0 | 15,495.0 | 47.9 | 29.0 |
| Microsoft | 7,949.6 | 17.9 | 5,037.8 | 15.6 | 57.8 |
| Alibaba | 4,060.0 | 9.1 | 2,499.3 | 7.7 | 62.4 |
| 2,365.5 | 5.3 | 1,313.8 | 4.1 | 80.1 | |
| Tencent | 1,232.9 | 2.8 | 611.8 | 1.9 | 101.5 |
| Others | 8,858 | 19.9 | 7,425 | 22.9 | 19.3 |
| Total | 44,456.6 | 100.0 | 32,382.2 | 100.0 | 37.3 |
Based on the figures shown, AWS’s market share continues to drop by about 3% to 45% in 2019 while growth was up by about 2%. In summary, it is observed that a change in market share may not necessarily have a positive correlation with growth.
References
[1] Swan, Andy. 2021. “How To Spot Companies Accelerating Through The Adoption Curve”. Forbes. https://www.forbes.com/sites/andyswan/2020/04/12/how-to-spot-companies-accelerating-through-the-adoption-curve/?sh=6367cc114231.
[2] Kim, Eonsoo, Dae-Il Nam, and J. L. Stimpert. 2004. “The Applicability Of Porter’S Generic Strategies In The Digital Age: Assumptions, Conjectures, And Suggestions”. Journal Of Management 30 (5): 569-589. doi:10.1016/j.jm.2003.12.001.
[3] “Singapore To Invest $25B For Research And Innovation ‘Til 2025”. 2021. Singapore Business Review.https://sbr.com.sg/economy/news/singapore-invest-25b-research-and-innovation-%E2%80%98til-2025.
[4] Lichtenthaler, Ulrich. 2012. “Licensing Technology To Shape Standards: Examining The Influence Of The Industry Context”. Technological Forecasting And Social Change 79 (5): 851-861. doi:10.1016/j.techfore.2011.11.004.
[5] Su, Jeb. 2021. “Amazon Owns Nearly Half Of The Public-Cloud Infrastructure Market Worth Over $32 Billion: Report”.Forbes.https://www.forbes.com/sites/jeanbaptiste/2019/08/02/amazon-owns-nearly-half-of-the-public-cloud-infrastructure-market-worth-over-32-billion-report/?sh=79255c1629e0
[6] 2021.https://www.nasdaq.com/articles/will-growing-aws-clientele-aid-amazons-amzn-q4-earnings-2021-01-29.
[7] Hall, Jeremy, and Philip Rosson. 2006. “The Impact Of Technological Turbulence On Entrepreneurial Behavior, Social Norms And Ethics: Three Internet-Based Cases”. Journal Of Business Ethics 64 (3): 231-248. doi:10.1007/s10551-005-5354-z.
[8] Celtekligil, Kudret, and Zafer Adiguzel. 2019. “Analysis Of The Effect Of Innovation Strategy And Technological Turbulence On Competitive Capabilities And Organizational Innovativeness In Technology Firms”. Procedia Computer Science 158: 772-780. doi:10.1016/j.procs.2019.09.114.
[9] 2021. https://www.gartner.com/doc/reprints?id=1-1ZDZDMTF&ct=200703&st=sb.
[10] WIRE, BUSINESS. 2021. “Amazon.Com Announces Third Quarter Sales Up 24% To $70.0 Billion”. Businesswire.Com.https://www.businesswire.com/news/home/20191024005962/en/Amazon.com-Announces-Third-Quarter-Sales-up-24-to-70.0-Billion.
[11] WIRE, BUSINESS. 2021. “AWS Announces Five New Machine Learning Services That Reinvent And Improve Everyday Enterprise Tasks – With No Machine Learning Experience Required”. Businesswire.Com.https://www.businesswire.com/news/home/20191203005916/en/AWS-Announces-Five-New-Machine-Learning-Services-That-Reinvent-and-Improve-Everyday-Enterprise-Tasks-%E2%80%93-With-No-Machine-Learning-Experience-Required.
[12] WIRE, BUSINESS. 2021. “Amazon.Com Announces Fourth Quarter Sales Up 21% To $87.4 Billion”. Businesswire.Com.https://www.businesswire.com/news/home/20200130005814/en/Amazon.com-Announces-Fourth-Quarter-Sales-up-21-to-87.4-Billion.
[13] “Gartner Says Worldwide Iaas Public Cloud Services Market Grew 37.3% In 2019”. 2021. Gartner. https://www.gartner.com/en/newsroom/press-releases/2020-08-10-gartner-says-worldwide-iaas-public-cloud-services-market-grew-37-point-3-percent-in-2019.
[14] Porter, Michael. 1979. “How Competitive Forces Shape Strategy.” Harvard Business Review. March 1979. https://hbr.org/1979/03/how-competitive-forces-shape-strategy.
[15] Dev Gupta, Satya. 2014. “Comparative Advantage and Competitive Advantage: An Economics Perspective and a Synthesis.” Athens Journal of Business & Economics 1 (1): 9–22. https://doi.org/10.30958/ajbe.1-1-1.