Amazon – Whoops apocalypse

Networking industry is collateral damage. 

• Amazon’s potential move into the networking space has very little to do with addressing a $14bn market and everything to do with increasing the appeal of AWS.
• Shares of Cisco, Juniper et al. all had a wobble on Friday as the possibility that Amazon will enter the market for network switches was floated by The Information.
• Amazon and Microsoft already have their own custom switches that integrate seamlessly with their cloud offerings in order to optimise performance.
• However, to date, they have kept these products in-house and only deploy them upon their own infrastructure.
• These are switches that are typically completely standard hardware (white boxes) upon which custom software is deployed.
• This software is designed to run optimally with the data centre for which it has been designed thereby giving better performance and integration.
• Microsoft already makes available a piece of software called Azure Stack that runs on standard equipment from Cisco, EMC, Huawei etc and helps the customer stitch together his operations on the public cloud and his own private cloud.
• The difference with Amazon is that it looks to sell both the hardware and the software together, thereby stomping on the network industry’s toes.
• I think that these devices would have at least some of the software hardcoded into the silicon which would further improve performance and power consumption.
• I think that the idea here is to offer the hardware in order to increase the appeal of AWS, its performance and functionality.
• This makes sense because the last set of earnings reports shows that AWS growth is starting to slow while Microsoft Azure is still growing at around 100% thereby closing some of the gap.
• AWS is still far bigger than Azure, but if the gap is closing, Amazon can not afford to rest upon its laurels and will need to keep improving the service that it offers.
• Hence, Amazon will be prepared to accept very low or negative margins on this product as the return will be earned through greater adoption and loyalty to AWS.
• This is how Amazon can quite easily offer its own product at a big discount to the rest of the networking industry.
• Hence, I think that this move is all about enhancing the competitiveness of AWS with the networking industry being little more than collateral damage.
• The networking industry is under assault from all sides with Facebook and now Amazon threatening to collapse the being paid for networking products.
• Facebook, Amazon stand to make back the losses they incur on networking equipment elsewhere, but for the networking industry, this is all it has.
• I continue to avoid this segment like the plague and I also remain un-enthused with regard to the 5G roll-out investment case, as no one seems to be able to find a proper use case for it.

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