Cloud

Amazon's 'Death Star' will be fueled by fat enterprise margins for years, and no one is safe

Liberty Media's John Malone said that Amazon is in 'striking range of every industry on the planet.' And their enterprise software margins are a big reason for that.

Liberty Media chairman John Malone may have ulterior motives in calling out Amazon as the "Death Star," but his argument that the consumer and enterprise behemoth is within "striking range of every industry on the planet" is gospel truth.

Though Malone focused on consumer-facing businesses, declaring "you gotta believe that Amazon is gonna have a look at that opportunity to commoditize you to use scale to serve the public," the same argument holds true for Amazon's enterprise business. In fact, there may be even more margin for AWS to pillage in the enterprise.

Your margin, my opportunity

That certainly seems to be the lesson from the last few Amazon earnings calls. While the company has famously run razor-thin margins for years, in enterprise it can afford to run up a significant profit margin to pay for investments elsewhere, including on the consumer side. Enterprise software has lived large for decades, charging customers for complicated code at low (though not zero) marginal cost.

For a company like Amazon, this is like introducing a kid to a candy store.

SEE: Cloud computing policy (Tech Pro Research)

This was acceptable when AWS kept to basic infrastructure like compute and storage, but in 2014 Amazon CTO Werner Vogels dropped the axe on this idea: "We're in the business of pain management for enterprises. Tell me what your pain points are and I'll help you make them feel better." If you've spent any time in the enterprise, you know there's no shortage of pain, and the software introduced to manage it often exacerbates it. All of this is Amazon's opportunity.

And all of it comes with fat margins that Amazon can whittle down to close to zero.

The most disruptive

Which is why Malone is correct to highlight Amazon as "the most disruptive" company on the planet. If your company is safe from Amazon today, there's no reason to believe it will remain such tomorrow. There's simply too much "pain" out there with too much margin associated with it for Amazon (and AWS) to hold back.

SEE: AWS just sold some of its cloud computing infrastructure in China (ZDNet)

This isn't to suggest that Amazon (or the cloud opportunity it represents) is perfect. The company stumbles all the time, most recently by holding out on a Kubernetes service (though this is likely to be announced at AWS re:Invent later this month). And AWS, and cloud in general, often comes with all sorts of costs (and, hence, margin) that may be hard to find or predict, as Server Density CEO David Mytton has pointed out. Successfully doing so will make those customers a bit less profitable for AWS.

Even so, the enterprise is the gift that will keep on giving to Amazon for years to come. Enterprise vendors will struggle to keep up even as enterprise customers will benefit. The only vendors that need to worry are...everyone.

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Image: iStockphoto/zakokor

About Matt Asay

Matt Asay is a veteran technology columnist who has written for CNET, ReadWrite, and other tech media. Asay has also held a variety of executive roles with leading mobile and big data software companies.

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