As more companies move to the cloud, Amazon Web Services speaks to the advantages of storage on the web, with an unlimited web capacity. Flexibility and an elastic model make the cloud ideal for huge companies, as well as startups

By Liana Cafolla

Cloud computing concept.                                                          Cloud computing concept.

Amazon Web Services presented an overview of its operating model to AmCham members last month. AWS, an IT infrastructure company best known for its cloud computing services, defines it as on-demand delivery of IT resources and applications via the Internet with pay-as-you-go pricing. Cloud computing allows customers to access storage, servers, databases and many applications over the Internet through a web application. AWS owns and maintains the hardware and customers can access what they need online and on demand.

Cloud computing services work in a similar way to electricity services – when you want it, you switch it on and pay for what you use, and when you don’t want it, you switch it off and pay nothing.

Millions of customers in 190 countries around the world are already using AWS’s cloud computing services, including The New York Times, the Washington Post, Hitachi, Pfizer and many other well-known names including several leading IT companies. The reason they use AWS, says the company, is because these companies are not in the business of managing IT infrastructure, and that is AWS’ specialty.

Leader of the Cloud Computing Pack

AWS is a business unit of and has had much less visibility among the general public than its retailing superpower parent, but it is likely to become better  known following the announced of its widely reported earnings which were announced in April.

In its first quarter earnings report, Amazon announced that its cloud computing arm had pulled in revenues of $1.57 billion in the first three months of the year, with an operating income of $265 million, easily putting the company at the head of the global cloud computing pack. According to a New York Times report, AWS had about 28 percent of the market share in 2014, almost three times that of its nearest competitor Microsoft. Amazon expects the company’s performance to expand further during the year.

“Amazon Web Services is a $5 billion business and still growing fast — in fact it’s accelerating,” said Jeff Bezos, founder and CEO, in a statement released on 23 April. “Born a decade ago, AWS is a good example of how we approach ideas and risk-taking at Amazon. We strive to focus relentlessly on the customer, innovate rapidly, and drive operational excellence.”

In tandem with its fast-paced growth, AWS is also offering increasing numbers of new features and services – from about 20 new features and services in 2008 to 516 in 2014 – and cutting prices: AWS has made 48 price cuts in the last eight years, it says, and has never increased its prices.

Elastic Business Model and On-Demand Capitalised

The benefits of cloud computing services to businesses are myriad, including cost-cutting, enhanced flexibility, and more opportunities to experiment.

By using a cloud computing service provider, customers have no need to invest in the hardware they need to support their online services, such as servers, nor devote the time and resources needed to manage and service. Clients only pay for the amount of access they actually use, which can be calculated down to a millisecond, and they are virtually guaranteed never to run out of capacity. AWS estimates that its server capacity is “probably impossible to exhaust”.

For customers, this means total flexibility and the ability to access vast amounts of capacity immediately. If necessary, they can discard as soon as they’re finished, paying only for what they have used. It’s a model that can particularly fit the needs of clients whose businesses see surges of use at particular times – for example, a newspaper that may typically be overloaded first thing in the morning, and then be less busy during the rest of the day, or an online retailer making a short-term special offer.

This elastic and low-cost model allows businesses to expand and contract their offerings according to demand. It is especially attractive to start-ups who need the capacity to embrace fluctuating demand, but can’t afford permanently high costs.

This elasticity also encourages the experimentation that is crucial to new businesses as they find their feet in the market. Companies can build programs or applications that require the support of a single server and get immediate access to another 100,000 servers if the experiment works and they are flooded with demand.

The result of this elasticity is guaranteed availability which results in happy customers, “because you are always able to serve them,” says AWS. “You don’t have to limit your investment to serve X amount of customers.”

AWS also offers an auto-scaling service that automatically adds capacity as needed. This allows businesses to be sure that the changing needs of their customers will always be met. As well as scaling up, capacity can also be scaled down for quieter times.

Reduced Capex and Enhanced Security

Using the cloud allows companies to benefit from reduced capital expenditure related to buying, maintaining and replacing the servers. Most servers typically need to be replaced after three to five years, according to AWS. The servers used by AWS are the highest quality and the costs of their maintenance and physical storage – such as adequately cooled environments, which can be expensive to provide in cities like Hong Kong – are borne by AWS.

Businesses using cloud computing are able to avail of the highest possible security levels because AWS and everyone in the industry recognize that a breach in security could be catastrophic to the whole industry.

Facilitates Customer Service and Experimentation

By using the services of a cloud computing provider, businesses have more freedom to focus on their core offerings and client servicing which adds to the likelihood of the business’s success, the development of good customer relations and consequently, happier customers – a byword at Amazon.

Leaving businesses free to concentrate on what they do best also provides them with more opportunities to experiment to enhance their services or products. For example, companies can use a method call “split testing” to show a different page on different browsers, and compare which version increases the number of sales, sign-ins, or completions of purchase. If an experiment fails, businesses have the flexibility to quickly discontinue or change their Internet offerings without having had to expend any upfront costs.

Game-changing Potential

AWS says it has seen changes in the offerings of some companies, such as Adobe, who have replaced their former one-off package fee with a more flexible monthly subscription. Other companies are offering free trials of their products for a limited time, or different fee structures depending on different storage requirements.

While many of its customers are already globally renowned companies, Amazon is excited about the potential of cloud computing to unleash the creativity that is often found in start-ups, including those small enough to encourage students to use their credit cards to access internet services that cost just a few dollars a month. By cutting start-up and experimentation costs, AWS believes that cloud computing can encourage people to risk the uncertainties of setting up a new business.

The biggest way cloud computing is impacting business is removing the barriers to entry, says AWS. By being able to access fast, pay-as-you-go, flexible online services, businesses are able to set up at a low cost and adapt to the market demand and customer needs efficiently and affordably. For some companies, this has been a springboard to huge growth – AWS cites Airbnb, Spotify and Instagram as customers who started out by using AWS services when they were very small and have since grown exponentially.

Such experiences of watching small start-ups developing into titans has fed into a central feature of the Amazon creed, which is its intense focus on its customers. AWS says it treats small companies with as much individual care as it does the US government – which is also an AWS client.