Amazon (NASDAQ:AMZN) Web Services (AWS) continues to battle with Oracle (NASDAQ:ORCL), IBM (NYSE:IBM) and HP (NYSE:HPQ) in the big data space as it announces the public availability of Amazon Redshift, a new data warehousing service. The service was first announced at the re: Invent conference in November 2012 and was made available in the beta phase to a select clientele. It is positioned as a low-cost and big data-ready alternative to traditional enterprise data warehouses. For now, Amazon Redshift is only available in the U.S. East Region but will be rolled out to other AWS regions in the coming months.
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Like other AWS offerings, Redshift is cloud-based and charges extremely low prices. The low cost of operating a data warehouse on Amazon Web Services is expected to attract large corporations looking to cut down on infrastructure, maintenance and personnel costs associated with managing large, on-site data warehouses. We expect the service to drive growth in Amazon Web Services revenues in 2013. We currently estimate that Amazon earns about 4% of its overall revenues from cloud and other web services, and we expect the share to grow to about 5% of total revenues in 2013.
Presently, Amazon Web Services provides both IaaS and SaaS (Software as a Service). The retailer has been expanding the availability of its cloud products and recently launched Amazon Cloud Drive in Spain and Italy. It competes directly with Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM) and HP (NYSE:HPQ) in the cloud computing market.
An Entire Ecosystem To Promote Cross Selling Of Services
Amazon is gradually developing an integrated ecosystem of its cloud-based services. Redshift will enable direct integration with Amazon S3 (a web-based data storage service) and Amazon DynamoDB a (fully-managed NoSQL database service). One can thus pull data from Amazon Elastic MapReduce (a web-based data processing tool), Amazon RDS (a relational database tool), and Amazon EC2 (re-sizable computing capacity) using the AWS Data Pipeline (a data processing and movement tool). The integration of the entire portfolio of web services tools is expected to promote cross selling. We expect the availability of services from a single provider, who will also act as a singular point of contact, will attract firms big and small to migrate their systems over to Amazon.
The company has already tied up with many software and consulting companies to enable enterprises to easily migrate their operations to Amazon’s servers. Redshift supports technology from popular providers such as SAP, IBM, MicroStrategy, Informatica, Actuate, and AWS has partnered with them to help customers transfer to Redshift. We expect the inherent ease of operations and low cost will attract enterprise users to the service and this will support our approximately 40% y-o-y growth forecast for Amazon’s cloud services revenues.
Competitive Edge: Scalability of Operations And Low Prices
Like some of its other services, the competitive edge of Redshift lies in the ease of scaling operations and low prices. Redshift is optimized to run data sets ranging from a few hundred gigabytes to a petabyte or more and is compatible with most intelligence tools. The user gets to scale up operations through the AWS dashboard. The services are also priced at prices less than $1,000 per terabyte per year – one-tenth the cost of most traditional data warehousing solutions.
Amazon’s dominance in the cloud services market is largely because of the cost savings it offers to its customers. The users save on low prices and do not have to pay for capacity they are not using. Through the AWS dashboard, users can add and remove capacity (computing/storage/others) depending on their most recent requirements. Thus, the user doesn’t have to pay for redundant capacity like with other cloud service providers. Redshift carries on the tradition and charges for the usage. Prices are charged at an hourly rate based on the node type and the number of nodes in the user’s cluster. Besides flexibility, the user also saves on costs and risks associated with operating an on-site data warehouse.
Key Risk: Dependence On The U.S. East Data Center
Amazon has not categorically stated whether Redshift will be based out of its U.S. East data center located in Virginia. But we believe the service will most likely be based there as the launch has been confined to the U.S. East region and also given its proximity to the North Virginia data center.
The data center in question has had several outages recently. The most recent was on Christmas Eve which resulted in Netflix being unavailable across a major part of America. Prior to this, the data center was also responsible for an outage in October which had resulted in services such as Reddit, Github becoming unavailable. Re-occurrence of such an outage could potentially scare off Redshift enterprise customers.
We have a $235 estimate for Amazon which is 10% below the current market price.