Amazon’s Virtual Private Cloud Push: Showdown Coming

Amazon Web Services this week launched a beta of its Virtual Private Cloud offering and at least one analyst believe the more will shake up the enterprise cloud space -- potentially competing with major players like Hewlett-Packard, IBM, Rackspace and Sun Microsystems. But will Amazon also compete with Managed Services Providers (MSPs)? Here are some observations.

Amazon describes its Virtual Private Cloud as a bridge “between a company’s existing IT infrastructure and the AWS cloud.” The service lets customers link up with AWS compute resources through a virtual private network connection. Customers must first subscribe to Amazon’s Elastic Compute Cloud, or EC2, to employ the Virtual Private Cloud.

In a commentary on Amazon’s move, Ezra Gottheil, analyst with Technology Business Research Inc. (TBR), Hampton, N.H., wrote that the Virtual Private Cloud reflects Amazon’s aim to dominate cloud infrastructure services at the enterprise level. He said Amazon had previously emphasized AWS as a fit for small companies and start-ups wishing to avoid IT infrastructure investment. The service was also deemed appropriate for Web-facing applications subject to unpredictable demand, he added.

But Gottheil contends that the Virtual Private Cloud marks a shift toward enterprise cloud computing, which he views as the main target of established IT vendors.

“TBR believes this move is an imminent threat to IT vendors currently building up cloud services portfolios as rapidly as they can,” he wrote.

Gottheil noted that, until its recent private cloud foray, AWS was positioned between inexpensive local providers of managed services and expensive managed services and cloud providers.

Competition Looms

So, who is most likely to feel competitive pressure from AWS’ enterprise cloud initiative?
Are smaller MSPs off the hook now that AWS is moving upstream?

Asked about the smaller players, Gottheil had this to say: “Amazon is not specifically going after inexpensive local providers, but they are keeping their prices as low as they can. And they have scale.”

Amazon’s retail approach and culture keep operating expenses low, according to Gottheil. This approach lets Amazon price aggressively and earn significant margins.

And while Amazon moves toward the higher-priced providers, the company isn’t fundamentally changing its operating style, Gottheil explained.

“Apart from price schedules that decrease with increasing volume, it’s a one-size-fits-all business,” he said.

The upshot: vendors have room to stand out.

“So vendors at both the low and high ends can differentiate by providing customer-specific services, pricing schedules [and] account management” among other elements.

Will Amazon’s retail tactics catch on in the enterprise cloud? Off hand, it seems an attractive service for enterprises that are already educated on the cloud and, therefore, readily grasp the Virtual Private Cloud as a way to quickly acquire additional capacity. Customers uncertain of things cloud, however, may gravitate toward suppliers that offer more hand holding and greater customization.

Contributing blogger John Moore covers Master MSPs, Web hosts and emerging opportunities. Follow MSPmentor via RSS; Facebook;; and Twitter. And sign up for our Enewsletter; Webcasts and Resource Center.
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