Amazon Web Services (AWS) Cloud Computing Industry (I) INTRODUCTION

Industry Definition & NAICS number: 541519

Main industry rivals (main incumbent companies competing in the industry): Main industry rivals are Microsoft, IBM, Salesoforce, SAP, Oracle, Google, ServiceNow, Workday and VMware (Evans, 2017).

Main industry supplier groups:

The main industry supplier groups are Infrastructure-as-a-Service (Iaas), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS) (Au-Yeung, Chu, Enfante, Logan & Saelee, 2016).

Main industry buyer groups:

Main industry buyers are Military, financial, health, e-commerce, and any company that needs to store or process data, which is virtually every corporation in today’s digital era.

(II) PORTER ANALYSIS

(A) Threat of Entry (Based on Strength of Barriers to Entry)

1. Limit Pricing: Pricing depends on services rendered. If a single website is hosted, pricing can be as little as $1-$3. For larger contracts, such as hosting the Pentagon’s data, pricing can be in the billions of dollars. The field is competitive, so this gets a 5 score and a 10% factor.

2. Capital Costs: Capex for the top tier cloud computing services is between $2 and $15 billion. AWS spends approximately $12 billion (Jhonsa, 2018). This is because the industry is rapidly growing and AWS like its competitors must expand quickly and maintain space for servers. Spending is a must, so this gets a 5 score and a 10% factor.

3. Incumbent Dedicated Assets: 65% of all assets are dedicated to services in the industry—assets are needed for expansion, and every company in the cloud computing industry is needing to expand in order to stay competitive; so another 5 score and a 10% factor.

4. Restrictive Government Policy: Currently, government policies are non-restrictive. As Lebeda, Zalatoris and Scheerer (2018) notes: “Since 2009, plans and policies were developed for the use of cloud technology to help consolidate and reduce the number of data centers which were expected to reduce costs, improve environmental factors, enhance information technology security, and maintain mission support for service members.” The EU, however, is currently cracking down on cloud computing with its laws. The new European law oversees “how companies store data and requires them to alert authorities within 72 hours of a breach. If companies don’t comply, they can be fined 4 percent of their global revenue or 20 million Euros — whichever number is higher” (Newcomb, 2018). Policy can be a deal breaker, so a 5 score here and 15% factor.

5. Supply-side Economies of Scale: Cloud data centers have lower costs per server, based upon purchasing power (Golden, 2010) but there is a need for expansion in a hurry as competition increases. Score=5, 15% factor.

6. Barriers Independent of Scale: Entry is difficult: a cloud computing company must have a “strategic business analysis, investment requirements, patents, knowledge assets, etc., and the competitive edge to compete with other IT companies” (Au-Yeung et al., 2016, p. 13). Score=5, 10% factor.

7. Customer Switching Costs: As Seroter (2016) notes, there are many downstream switching costs: companies have to spend on “new training for staff, changing hosting or support providers if the new technology is incompatible with their model, and purchasing new tools to administer the new asset,” and there are locked in costs as well that customers must navigate; so here is score of 5 and 10% factor.

7. Demand-side Economies of Scale: Demand-side economies of scale are growing rapidly as cloud computing services are increasingly needed in every industry. Big Data warehousing is something every corporation...

Therefore, this is a 5 score and another 20% factor.
8. Concluding Discussion of Threat Posed by Barriers to Entry: There are numerous factors that require serious consideration as a barrier to entry and all are equally important for the most part. However, one of the biggest barriers is government policies, which essentially dictate the kind of operation—and this is true in the EU, China and other parts of the world. Demand side economies of scale, however, is the other big factor. Still, as Au-Yeung et al. (2016) note, “Cloud Computing does not have much entry barriers; instead it reduces the barriers of entry to new start-up companies because of its low expense and expertise which are needed in traditional IT” (p. 20).

(B) Supplier Power

1. Concentration Ratio of Supplier Group Relative to Concentration Ratio Incumbents: Supplier groups are high relative to the concentration ratio of incumbents. So there is no dearth of supplies and no real risk of supplier groups negotiating higher fees. This score is minimal at a 2 and a 5% factor.

2. Strategic Importance of the Supplier Group to the Industry (and vice versa): Every supplier group is important to its industry and vice versa. The cloud computing industry is relatively new and still growing, so it remains to be seen how these relationships will transpire over the coming years and decades. Currently the score for this factor will rate a 4 and a 10% factor.

3. Costs of Switching from One Supplier to Another: The cost of switching from one supplier to another is not going to be considerably high unless trade wars turn to hot wars and disrupt supply chains substantially. Socio-economic risk factors should always be considered. Thus the score for this factor is a 4 at a 10% factor.

4. Threat of Forward Integration by Suppliers: This threat is minimal, particularly AWS will likely control distribution in the near future. The score on this is 1 with a 5% factor.

5. Extent to Which the Suppliers Products are Differentiated: Differentiation is not particularly important at this point as every company is in need of the same supplies to drive growth. Score is 1 and factor 5%.

6. Availability of Substitutes for the Suppliers’ Products: Substitutes for the suppliers’ products are available. Once build-out is achieved, however, the product requirements are less significant overall. Score for this factor is 2 and factor 5%

7. Concluding Discussion of Threat Posed by Supplier Power: Supplier power is not a considerable threat as there are a range of suppliers available and plenty of competition among them. Traditional IT and open source coding are the only viable alternative solutions and these require considerable internal staff for maintenance (Au-Yeung et al., 2016). The biggest threat would be switching from one supplier to another.

(C) Buyer Power

1. Concentration of Buyers Relative to Concentration Ratio of Incumbents: Cloud computing is gaining in popularity in virtually every industry. This is an opportunity for dominant players to secure their market share by developing relationships with clients for the long term. Score is 5 with a 10% factor.

2. Market/Industry Growth Rate: The market is intensely growing as more and more companies rely on Big Data and data processing. Cloud computing provides all the solutions for these industries and the industry is thus poised to continue growing exponentially, as AWS sales shows. Sore is 5 with a 10% factor.

3. Are there are a Few HighVolume Buyers: There are several high volume buyers, typically in government. Military needs, health needs, administrative services needs, and law enforcement needs are all just a few examples of why governments are high volume buyers. Score is 5 with a…