Why Amazon's HaaS (Hardware as a Service) Strategy is a Winner
We all know the term 'Software as a Service (SaaS). The term SaaS was coined in a conference in 2005 and then popularized by Salesforce with its "No Software"
motto. Today Google is one of the strongest backers of this approach, with such products as Gmail,
Google Reader and
Google Docs. And ever since Bill Gates' famous Internet services memo in November 2005, Microsoft has been promoting the concept too.
But today we can coin have a new, similar term: HaaS, for 'Hardware as a Service'. [Update: As several commenters have pointed out, in fact we didn't coin the term HaaS. It seems that Nick Carr was the first, in March 2006.] Hardware has always been
available as a service through dedicated hosting providers, but it was never so
well abstracted until Amazon introduced
S3 and EC2. With dedicated hosting, you
still had to deal with dirty hardware issues like scalability; but Amazon makes
it a totally painless experience. In other words, the relationship between
EC2-S3 and dedicated/virtual hosting is similar to the one between SaaS and
ASP
(Application Service Providers) - EC2-S3 is an evolved version of dedicated or virtual hosting services.
How big is HaaS?
First of all, if you still don't know about S3 and EC2, I recommend you take a look at some past RWW articles on the topic; Alex Iskold wrote a very good introductory article about it. See also Alex's ETech report of Amazon CTO Werner Vogels' speech. Also, there are great articles on Amazon's official web site.
So what is Haas? A good comparison can be made with Google Adsense. In early 2000, Google enabled web publishers to generate revenue from their content. Google introduced a fair pricing model that worked for everyone, from personal publishers to big media companies. As a consequence, some earned pennies with Google AdSense, while others earned millions of dollars per month.
In other words, Google fragmentized the Revenue side of web business and made it available to everyone. But the Costs side of the web business remained the same for a very long time. There was an ongoing inefficiency and nobody did much about it. Virtualization, which was made commercially available first by VMware, changed things a little and lowered the prices of hardware. But things were still pretty much the same; publishers still had to pay for resources they didn't use and deal with the hassles of maintenance.
Now what Amazon is doing with EC2 and S3 is to fragmentize the Costs part of Web business. Publishesr no longer need to deal with scalability - they pay exactly for what they use. In other words, resources are allocated more efficiently than ever - which was what happened with Google AdSense too, as the below diagram shows.
Can Amazon Follow Google's Example, on the Hardware Side?
Another way to ask how big is HaaS: "Will Publishers follow the same pattern as with Google Adsense and pick more fragmentized and efficient hardware options?" If the advantages are obvious, there is no reason for them not to embrace Amazon's offerings. However, there are a few differences that may slow down or even inhibit this process:
- Amazon S3 & EC2 is less viral than Google AdSense. Google Ads were spread all over the Internet - everywhere you go, you see Google Ads and you want to give it a try yourself. Amazon's offerings work in the background and they're not visible to users, hence they're not especially viral. However, Amazon could try things to make their product more viral - e.g. offer discount prices for web sites that promote that they're powered by Amazon EC2.
- It is tough to switch your existing infrastructure to Amazon S3 & EC2. On the other hand, you can start using Google AdSense using a simple copy-paste.
- The fact that the EC2 pricing is linear may make it not so attractive for big publishers. Even so, Amazon should cut deals with the top web sites, to try and influence other sites.
It's also worth pointing out that VMware, the first virtualization software company listed on NASDAQ, performs very well and shows the potential of HaaS. Amazon EC2 is not a direct substitute of virtualization, but it shows the potential of offering super-efficient hardware services over the Internet.
Conclusion
It's intriguing to watch Amazon, the old favorite dot com era e-commerce site, transform itself into a technology company with their new and innovative HaaS unit. Amazon is leveraging its deep scalability know-how and expertise, and it's making web publishing even easier and cheaper. As a result, it should eventually bring great value to Amazon.
Some may be wondering why Amazon is de-focusing and entering into something that is far from its DNA as an e-commerce service. To respond to that question, take a look at the table below, which compares some financial data of Internet bigcos:
| Company | Net Profit Margin (%) | 2006 Annual Revenue ($M) | Market Capitalization ($B) |
| 29.02 | 10,604.92 | 210 | |
| eBay | 18.86 | 5,969.74 | 50 |
| Yahoo | 9.96 | 6,425.68 | 45 |
| Amazon | 1.77 | 10,711.00 | 37 |
In terms of 2006 annual revenue, Amazon is even stronger than Google and well ahead of the others. However, in terms of market capitalization, it is ranked only 4th. That's because of Amazon's more traditional, less technology intensive business model - which pushes their net profit margin down with high inventory costs.
That's why, in order to remain strong, Amazon is investing more and more in technology - which will increase its net profit margin.
We will see how HaaS complements SaaS; and how many SaaS startups will shift their infrastructure to Amazon's server farms. And let's not forget that Google and Microsoft are both increasing their HaaS efforts - the Google Dalles server farms for example. Nonetheless, HaaS gives Amazon hope for increased profit margins and stock price in the long term.
ShareRelated Entries
1 TrackBacks
TrackBack URL for this entry: http://www.readwriteweb.com/cgi-bin/mt/mt-tb.cgi/1737
Comments
Subscribe to comments for this post OR Subscribe to comments for all ReadWriteWeb posts
Investing heavily into hardware unless it is your core business is what a company called Enron did with its Broadband trading strategy.
And you know how that turned out. Computer hardware is NOT a good asset to hang on to.
Even software is the same (pricing is arbitrary). What the industry wants is software solution service as service (not software product by itself which gets outdated).
@Joseph, IMO, one bad experience shouldn't get you to generalize things; EC2's real asset here is Amazon's deep know-how and expertise - the technology that handles clustering, virtualization and scalability issues.
Emre -- good analysis.
I think that your second bullet regarding inhibitors hits the nail on the head: "It is tough to switch your existing infrastructure to Amazon S3 & EC2".
What if you could write your application on your laptop and then scale it out on EC2 on 2 , 10, 100 servers?
We wanted to provide a solution for that at GigaSpaces. And we did. It's available here.
HAAS was coined (I believe) by us back at the beginning of 2006 :)
http://www.hosting365.com/blog/2006/03/10/haas-hardware-as-a-service/
@Stephen, at least on the blog dates, you were beat by a few days by:
http://www.roughtype.com/archives/2006/03/here_comes_haas.php
Of course, great minds and all that :).
Wanting to get in on the fun, I gave a stab at coining MaaS (no connection to Oedipa)...
http://blog.postful.com/2007/10/29/manufacturing-as-a-service-maas/
Nick Carr coined HaaS in March of 2006:
http://www.roughtype.com/archives/2006/03/here_comes_haas.php
Speaking about earning pennies or millions from AdSense...Try out my Adsense-Preview-Tool.
www.Adflora.com
I think this is only the beginning - as the speed of the Internet increases, and the potential capabilities of server farms increase in tandem, we're likely to see almost complete diffraction of the platform.
Your storage could be handled by Amazon, database by Oracle, application functionality by Media Temple, all displayed in a web browser to a user on a mobile device, who then saves their data onto their Microsoft network drive. The possibilities are huge, and very exciting, I think.
An interesting idea, and it looks like amazon has a competitor in this sector already: check out NearlyFreeSpeech.net
I'm still hoping that Google buys Amazon. Does anybody remember Googlezon from the EPIC video? Is the future just around the corner?
google and Amazon does seem like a nice match.
>>> Your storage could be handled by Amazon, database by Oracle, application functionality by Media Temple, all displayed in a web browser to a user on a mobile device, who then saves their data onto their Microsoft network drive.
The ultimate mashup! Unfortunately, you probably wouldn't use it due to the additive latencies involved.
We don't get the halo effect Amazon enjoys, but 3tera customers have been building production services with HaaS since February 2006 when AppLogic went into beta. With almost two years experience working with customer apps I can share that deterministic low-latency interconnects and high-speed storage are critical for building rich user experiences.
did I just read you said the term "SaaS" was coined in 2005? are you kidding me?
sorry, but this term was around long way before Web 2.0 people decided only they could possibly change the world :-)
guess there's something to be said for those of us who have a memory -- I mean, an historic perspective
maybe it really is true: there's nothing new under the sun?
g
@Graeme Thickins:
See: http://www.hakia.com/search.aspx?q=when+was+saas+coined
There are at least 2 reliable sources which cite this:
http://wiki.ittoolbox.com/index.php/SaaS
http://www.peer1.com/resources/questions/56/SaaS+Coming+of+Age
@Zoli Erdos
@Stephen McCarron
Thanks for the correction, but a quick search doesn't give anything about it, that's why..
A competing HaaS solution is called 3tera. Here is an interview with 3tera: http://fishtrain.com/2007/10/29/interview-with-3tera/
Graeme, the Wikipedia (linked) says SaaS was coined in 2005, so it must be right ;-)
A little ironic to enhance AdSense but not to use it on this site. I assume Yahoo brings you a better deal which is surprising when you see the small advertiser network they have especially abroad....Very insightful article though
Its all very well talking about the 'virtual machine' but there is a massive issue in terms of building applications to run on such infrastructure. The current way of building applications is really a cottage industry - we need to build applications using an 'engineered', or 'f'actory' approach to take advantage of the virtual machine.
VMware is listed on the NYSE, not the NASDAQ.
@Anonymous: Good point! :)I forgot that.
Hi,
Adsense is the same for worldwide, it hasn't differences to deal it on USA or Europe.
Instead EC2-S3 is located just on USA. From Europe (I think same for Asia, Australia & Africa) we have the problem of latency: EC2-S3 has more than 200ms access and we have several restrictions with the personal data to be outside of our country.
If Amazon decides to have more datacenters over the world perhaps could be as AdSense, while will be successful just on USA.
Jmsuarez
This webpage loads very fast
What hosting provider do you use?
Adding to the long list of inaccuracies in this article. VMware was not the first to offer virtualization. The term, concept and products date back to the 1960s. A simple google search will show that IBM initiated virtualization around 1964-67. They had a commercial product starting in 1967.
http://www-03.ibm.com/systems/p/apv/timeline.html
Please check your facts before reporting