How Amazon wants to dominate in enterprise tech

A scene at the AWS re:Invent conference earlier this week.
Harriet Taylor | CNBC

Long known for its ubiquitous website that sells everything, cheap, some of Amazon's biggest moves in recent years have largely been out of sight of everyday shoppers.

The company is aggressively pushing into enterprise markets long dominated by companies not normally thought of as direct competitors — including Google, IBM, Microsoft, Oracle and SAP — like cloud computing and business intelligence.

All of this was underscored by several product launches this past week at AWS re:Invent, including business intelligence tool QuickSight, and database engine Aurora.

In going after the enterprise sector, CEO Jeff Bezos is targeting a giant opportunity. Baird Equity Research said Amazon's Web Services currently represents less than 5 percent of global data spend — which is around $150 billion — and less than 1 percent of the $1.2 trillion to $1.4 trillion enterprise/software IT services market.

And the company has already made inroads. On stage at AWS re:Invent, Andy Jassy, senior vice president, announced that Amazon Web Services (AWS) now counts more than a million business as customers, and the division has grown 81 percent year over year.

How is Amazon able to do this? By being scrappy. Traditional enterprise software companies need to sell high-margin products to support costly legacy sales and marketing teams. Instead, Amazon has targeted start-ups for cloud services, and is now offering products aimed at bigger customers.

Plus, of course, trying to undercut everyone else on price — a traditional Amazon tactic.

"Whenever Amazon moves into a new market they bring a low margin, direct sales, price penetration model in that upsets the established market order. They unlock lower-level buyers with a lower cost of sales, and redirect the growth in the market away from the incumbents," said Forrester analyst Jeffrey Hammond.

Amazon launches new cloud service

At this week's conference, the company unveiled a slew of new products and partnerships designed to support more complex business needs. It is also venturing into new areas, such as business intelligence, big data analytics and offering new cloud data warehouse solutions.

QuickSight, for example, marks Amazon's entry into business intelligence solutions. It costs about one-tenth of the price of existing offerings — between $9 and $14 per month.

"QuickSight specifically pits Amazon against heavyweight competitors IBM, SAP, Oracle and Microsoft," wrote Citi Research analyst Mark May.

JPMorgan's Doug Anmuth agreed. "Given a lower cost point, strong partnerships and ease of use for existing AWS customers, we think QuickSight will see quick adoption with potential to gain significant market share."

Baird analyst Colin Sebastian speculates that Amazon could eventually move into productivity tools like email, calendars and spreadsheets, similar to Google Apps. "While Amazon's intentions may be to work more in the back end of existing infrastructure, we would not be surprised if Amazon continues to broaden its enterprise offering to include other cloud-based productivity solutions."

Though AWS cut its teeth offering back-end infrastructure to start-ups, it's clear that as the big money moves to the cloud, Amazon is leaning on its strengths and positioning itself as the cost-effective, customer-service focused choice.

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As Amazon courts big business customers, it's also adding partners. At the event, AWS and Accenture announced the formation of the Accenture AWS Business Group, which will train 1,000 employees to help new customers migrate to the cloud.

Anmuth believes partnerships like this represent an important opportunity for AWS to expand its enterprise customer base, "While it remains early in cloud adoption overall, the market is maturing into one that is based on much more than just price, resulting in limited switching across platforms and highlighting the importance of building key partnerships early on."

Underlining the message that AWS believes it is ready for prime time, the keynote presentations at the event featured an impressive slate of clients on stage, including General Electric CIO Jim Fowler, who noted that 60 percent of GE's global workload is going to AWS and Capital One CIO Rob Alexander, who focused on the high security and flexibility offered by AWS.