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November 18, 2016updated 21 Nov 2016 2:23pm

Music & video streaming, ecommerce, food delivery: Amazon shows it will compete with anyone – including itself

From OTT TV to retailers to financial services, how Amazon competes with its biggest AWS customers.

By James Nunns

There is no vertical that Amazon believes it can’t compete in, as has been made apparent by its presence in retail, music streaming, food delivery and now global video streaming.

The expansion of Amazon’s video on demand services, which it launched in 2006, from a handful of countries to 200 in December comes as it launched The Grand Tour, a new show from the former presenters of Top Gear.

“In December, the show will premiere in 200 countries and territories around the world, exclusively on Amazon,” said Amazon.

As Amazon increases its vertical presence it begins to create competition with key customers of its cloud unit, Amazon Web Services.

The Grand Tour launched on Friday 18th November.

The Grand Tour launched on Friday 18th November.

The Prime Video service, which comes as part of the Amazon Prime package that typically costs £79 a year, is now a direct competitor to AWS customer Netflix.

Netflix uses tens of thousands of servers and many tens of petabytes of storage, and while not everything from the online video streaming company sits in AWS, all of its applications and the data needed to manage what a customer does before clicking play is.

All customer facing systems sit in AWS and so does the personalised elements, the business logic and data processing.

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The point is that Netflix, which charges £8.99 a month for its premium service, relies heavily upon AWS and now the company that owns the cloud business is going global with a rival product.

This of course isn’t the first time that a conflict like this has been thrown up by the moves of the AWS parent company.

Apple is an AWS customer, which charges £9.99 a month for Apple Music, and Amazon Prime is a rival to that with its service that it launched in October 2016 Prime Music and now Amazon Music Unlimited, available for £7.99 a month for Prime members and £9.99 a month for non-prime.

Amazon is also widely considered to have been a core player in the demise of the bookstore and then decided it would be opening brick and mortar bookstores in Portland, Oregon, and Chicago to go along with locations already open in Seattle.

The ability of Amazon to experiment with brick and mortar stores is a unique one that has been helped by the company’s ecommerce and cloud success, but there is a clear conflict that businesses should be aware of.

Many start-ups and businesses of all sizes are using Amazon Web Services, it has over one million customers and is widely considered by analysts to be the clear public cloud market leader.

The problem is that part of the AWS idea is to help businesses to grow, something which they might struggle to do if the company that owns AWS continues to launch market rivals.

Amazon’s ability to offer these services and more in one package presents a serious threat to other companies in the market and it’s being propped up by Amazon Web Services.

For the third quarter 2016 financial results Amazon posted a net profit of $252m while AWS reported $861m in profit for the same quarter.

AWS has become the main profit driver for Amazon and it is this which is driving the company’s ability to break into any vertical and Amazon CEO, Jeff Bezos wants this to continue.

AWS key happening from Amazon's Q3 financials 2016.

AWS key happening from Amazon’s Q3 financials 2016.

 

In his annual letter to shareholders in 2015 Bezos said: “AWS is already good enough today to attract more than 1 million customers, and the service is only going to get better from here.

“As the team continues their rapid pace of innovation, we’ll offer more and more capabilities to let builders build unfettered, it will get easier and easier to collect, store and analyze data, we’ll continue to add more geographic locations, and we’ll continue to see growth in mobile and “connected” device applications.”

The ability of Amazon to experiment with brick and mortar stores is a unique one that has been helped by the company’s ecommerce and cloud success, but there is a clear conflict that businesses should be aware of.

Many start-ups and businesses of all sizes are using Amazon Web Services, it has over one million customers and is widely considered by analysts to be the clear public cloud market leader.

The problem is that part of the AWS idea is to help businesses to grow, something which they might struggle to do if the company that owns AWS continues to launch market rivals.

What this presents is a perfect argument for the AWS rivals to point to as a reason for not using the Amazon cloud.

Why would a retailer which is competing with Amazon want to then pay a part of it a sum of money in order for it to operate? Something that is basically helping to fund Amazon’s continued growth into the retail market.

The same now can be asked of Netflix, Apple, Spotify and many more examples.

AWS is the market leader for a reason, it successfully pushed API based access to computing resources and is recognised as one of the leading innovators in the cloud market. The company continues to see success but it may end up being limited by actions of its parent company

The board of directors at Amazon shows a history of expertise across retail, music, TV and other industries that the company operates in.

The board of directors at Amazon shows a history of expertise across retail, music, TV and other industries that the company operates in.

The cloud unit has long been linked with a move into financial services and while it has signed up some big name clients such as HSBC and Capital One, the sector may not be too quick to adopt due to Amazon starting to offer loans to customers that are buying products off its website.

The online retailer is offering pay monthly options on order of more than £400. And it is also short-term working capital loans to SMBs in a growing list of countries.

Now Amazon Web Services is expanding its energy supplier footprint with the announcement of five new solar farms across the Commonwealth of Virginia. And yes, AWS does have case studies on energy suppliers using its services.

To add to the lengthy list of services available, Amazon has struck a deal with Fiat Chrysler to sell cars online.

Again, this is basically more competition conflict.

So businesses that are using AWS are increasingly in competition with Amazon, which is described by the word coopetition.

This isn’t a criticism of Amazon or AWS, these moves are the nature of business where growth and expansion are welcomed and expected from a successful operation.

What these moves represent for AWS competitors is ammunition in the argument for not choosing it. Microsoft can argue that it isn’t an ecommerce giant so a retailer won’t be propping up its competitor, Google isn’t selling groceries and Oracle isn’t in the music streaming business.

These vendors should be arguing this point when trying to win customers from AWS.

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