Shaking Up the Establishment

By Doug Bartholomew Print this article Print

With its Simple Storage Service and Elastic Compute Cloud, Amazon is blazing a trail to Web services and mixing it up with the likes of IBM and Sun — and maybe even Microsoft and Google. 

Shaking Up the Establishment

Amazon’s push into Web services is also drawing the attention of traditional technology companies. The vendors that stand to lose business to utility computing are fighting back and, in some cases, fighting fire with fire.

Just two months after Amazon sent aloft its Elastic Compute Cloud, IBM filed a pair of lawsuits against the retailer. Big Blue, which coined the term “grid computing,” took aim at the online retailer’s core business in what could be considered a shot across Amazon’s services bow.

IBM charged that Amazon had infringed on five of its patents governing the presentation of online advertising, as well as the way data is stored in an interactive network. IBM also claimed Amazon had taken its idea for the “weighted user” to create its well-known feature that enables a site to recommend books to customers based on previous purchases by other customers with similar reading tastes.

Microsoft is also fighting back, but its primary target is, of course, Google. After months of rumors and speculation that it was interested in acquiring Yahoo, Microsoft pulled the trigger last month with a $44.6 billion offer to buy the number-two search and online advertising company (see “Battle of the Brands” on p.12). Yahoo would give Microsoft more than just search technology: It would also provide the massive server infrastructure to deliver the online services and applications Google currently offers. (At press time, Yahoo had rejected Microsoft’s bid as inadequate.)

Other entrants in the utility computing space include tech distribution giant Ingram Micro, which launched its Seismic program last year. It offers a massive infrastructure that leases space to IT resellers and service providers for the delivery of managed services.

Smaller India-based startup Zenith Infotech came to the United States with a similar model, providing inexpensive backend resources that resellers can use for everything from monitoring and managing customer networks to delivering remote backup and storage services. And the concept of specialized enterprise-class SaaS continues to catch fire as marked by Salesforce.com rival NetSuite’s $160 million IPO.

The competitor that most closely mirrors Amazon’s services is Sun. Under the slogan “Own the results, not the hardware,” Sun’s Network.com site offers pay-per-use computing resources provided by the company’s Sun Grid Compute Utility. The utility consists of a package of powerful computational applications that enable software vendors and developers to build, test and deploy on-demand applications over the Web.

Sun’s applications library contains computational mathematics, computer-aided design engineering tools, design automation, molecular simulations, weather prediction systems, and even financial services applications for pricing and risk management analytics.

Despite the notion of large companies being “disruptive” by entering noncore businesses, forays by large tech-savvy companies into new arenas—especially by acquisition—can be risky. Just look at what happened when eBay strayed from its knitting to purchase online telephony service Skype for $2.6 billion in 2005. In October 2006, eBay took a $1.4 billion writedown when Skype failed to deliver the heady returns needed to justify the price eBay had paid for it. Now, with CEO Meg Whitman gone, eBay is reportedly considering spinning off Skype.

Amazon’s foray into grid computing pits it in a race against Google, Microsoft and a host of other companies that are rumored, according to Forrester’s Staton, to be vying to build the next big platform for the Web. Amazon wants its services to be that fabric—a layer of basic services on top of which everyone else builds their Web sites.

So far, Amazon seems to have staked out a major chunk of Web computing turf. In last year’s fourth quarter alone, the bandwidth used by customers of EC2 and S3 was greater than the bandwidth used by all of Amazon’s global Web sites combined.

This article was originally published on 2008-02-21
Doug Bartholomew is a career journalist who has covered information technology for more than 15 years. A former senior editor at IndustryWeek and InformationWeek, his freelance features have appeared in New York magazine and the Los Angeles Times Magazine. He has a B.S. in Journalism from Northwestern University.
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