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Amazon is not only the world’s largest online retailer, but also a major provider of IT services for various companies. Many emerging and existing companies, who cannot or do not want to make up front investments into their own infrastructure, software and services, can outsource those to Amazon Web Services (AWS). However, popularization of AWS means that companies will reduce spending on traditional products, which threatens the whole IT supply chain.

Amazon Web Services is a collection of cloud computing services, which includes compute, networking, content delivery, storage, database, deployment, management and app services. AWS was launched in 2006, originally just to make use of excess compute capacity not used for Amazon’s own shopping site. But revenues from AWS business recently reached $2 billion in revenue and currently supports hundreds of thousands of businesses in 190 countries.

Analysts from Morgan Stanley predicted in their recent report that AWS should reach $24 billion in revenue by 2022, through a mixture of services that create greater scale in computing tasks, and by offering a continual downward pressure in pricing, reports Tech Trader Daily. Total addressable market for Amazon Web Services today is around $152 billion, which means that AWS does not threaten significant IT companies, which supply hardware and software, these days. However, Amazon’s retain economy approach to complex services will clearly have an impact on various markets in general since the company’s offerings will be hard to ignore. The group of Morgan Stanley analysts believe that AWS could “impact” between 3% and 17% of traditional IT spending.

The market observers believe that overall server market will face pressure from AWS and other cloud computing providers.

“We expect on-premise server growth to remain negative long-term on the back of smaller footprints post the adoption of server virtualization combined with new workloads moving to the cloud. Partially offsetting the decline is 20% growth in servers shipped to cloud providers, though some of the demand is fulfilled by whitebox makers like Quanta and Wistron,” the report from Morgan Stanley reads.

Storage market may also suffer from AWS and its competitors, who provide cloud storage services and do not acquire special hardware for that.

“Storage market at risk of decelerating growth that isn’t fully baked into expectations (unlike servers which already declined in 2012). We expect 0-5% storage revenue growth going forward, down from 5-10% historically. EMC (EMC) and NetApp (NTAP) likely gain share from server vendors, like IBM (IBM). We downgrade Brocade (BRCD) to UW, given over 30% of revenue derived from server OEMs,” the report claims.

Companies who will suffer most from cloud service providers in general and Amazon Web Services in particular are enterprise software developers.

“Server operating systems and server virtualization most at risk. Compute exposure in software focuses on the operating system and server virtualization markets. To the extent companies move workloads from private cloud type environments to AWS, the $4B virtualization market could face headwinds. Most at threat is VMware (VMW) & Red Hat (RHT) […] AWS’ Relational Database Service often leverages existing MySQL, Oracle or SQL Server functionality, however a shift towards NoSQL database’s like AWS’ DynamoDB or SimpleDB presents a longer-term threat. Longer-term potential threat for Oracle (ORCL), SAP AG (SAP) & Microsoft (MSFT),” the researchers have found.

Although there are companies who are going to suffer from AWS, there are also those, who will continue to sell their products without problems either to Amazon or businesses. Market segments not impacted by AWS includes networking, semiconductors and telecom services.

In conclusion, Morgan Stanley foresees two scenarios of AWS impact on the market and stocks: one includes migration to cloud services by companies of all sizes, another asserts that only small and medium businesses will adopt AWS.

Tags: Amazon


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