Recently Chris Potter from Screenlight wrote a guest post on GigaOm looking at the growing trend of Amazon Web Services (AWS) introducing services that compete with its own customers. As Potter pointed out, it’s been a continuing trend, from Elastic Transcoder Service competing with Zencoder to the AWS email service competing with Sendgrid, hardly a week goes buy without a blog post from AWS evangelist Jeff Barr and the ensuing shivering from some poor startup somewhere.

In his post Potter talked up the notion of co-opetition, the idea that companies can simultaneously compete and cooperate. Potter points to Sendgrid which, a full three years after AWS introduced a competing service, is still going strong and continuing to thrive. Potter gives three pieces of advice to companies who find themselves suddenly in competition with the AWS crushing machine:

  • Give your target customer better options. Potter points out that AWS tends to start out with lightweight offerings that, while appealing to a broad base of users, don’t meet the needs of customers with very specific use cases
  • Create a better user experience. Again, Potter suggests that since these services are but one from a massive portfolio of offerings, the minnows have the ability to focus on providing a user experience specifically focused on the particular problem space they’re addressing
  • Price based on value – and communicate it Potter advises these companies to articulate a value proposition rather than a cost saving one pointing out correctly that Amazon will always be able to beat them in a price war

This is Not a Battleground of Equals

Many in the cloud space point to the example of OpenStack as an initiative that sees many companies compete for the same customer, yet co-operate on the project itself. While that is true, it is also a fact that, at least to some extent, there is a level playing field in the OpenStack community – sure an OpenStack member such as HP has far more money to throw at the initiative than a smaller player like Rackspace, but this disequilibrium is made up in other ways. When it comes to mindshare in the cloud area, for example, it’s fair to say that Rackspace has the lead on HP. In this way the different OpenStack players achieve a degree of equilibrium which sees them compete fairly equally.

AWS Can Compete on All Levels

Back to the AWS versus the world of startups topic, the equilibrium that exists in the case of OpenStack clearly does not come into play. AWS can out-develop, out-invest and out-perform whomever it wants. It also has the vast majority of mindshare in the cloudy world. Thus a young company in whichever area AWS choses next to enter is presented by a company with the ability to crush it on most axes of engagement.

So, Should These Minnows Go Home?

Now I’d never suggest that a small company that has the misfortune to be competing with AWS should simply close the doors and go home. Our industry was built on the legends of Davids battling the Goliaths and coming out on top. But much of the advice that Potter gives to companies is, in my view, flawed. In most cases AWS can provide better options, nail the user experience, and drop prices such that value is a moot point. Rather than compete in these areas, a company in this situation needs to think of itself as an underdog, and target customers and opportunities that play to its smaller size and agility. Look for the smaller use cases that won’t be attractive to a player like AWS. Target the customers whose location, industry or existing technology stack makes it unlikely that they’ll be an AWS customer anytime soon. Maybe even partner with AWS competitors to gain some “strength in numbers”. Don’t fool yourself that you can beat AWS at its own game, change the game instead.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

  • Interesting post Ben.
    AWS is all powerful, but if we have learnt nothing else, it is that 100% market share is not possible. A you suggest there is always niches, eg. Industry. Geographic, or the like.
    The other opportunity is for smaller firms to focus on customer intimacy, that aligns to the agility question. Identify the customer values that AWS does not offer and drive in hard to just deliver that 101%.

  • Good advice Ben.

    Amazon is to Cloud Services as Microsoft is to Desktop Services.

    Competitors beware.

    Microsoft couldn’t crush Linux, and time will tell whether Amazon will crush OpenStack. What if Amazon licensed it’s technology?

  • Well, when your competition is very large and you are very small you can survive by being compatible with them and turning their perceived advantages against them. The proliferation of “cloud building” tools means many providers will have the ability to create vertical industry clouds or regional clouds that target specific audiences. AWS API compatibility is a way for smaller competitors to survive in the shadow of the giant. The success of AWS is creating its own competition. The emergence of open cloud standards could alter the balance of power, but not in the short-to-midterm.

  • The late Ray Noorda who led Novell to local networking market dominance employed coopetition as part of Novell’s business strategy. Novell was a very small company in 1983 when Mr. Noorda arrived but he realized that Novell would only be successful if it’s activities enlarged the entire market for local networks. The strategy worked really well until Mr. Noorda decided to go to war with Mr. Gates at Microsoft.

  • Very interesting take on AWS “co-opetition”, though I wouldn’t go so far as to think of an incumbent startup as an underdog targeting smaller use cases.

    Just because a big company CAN do something doesn’t mean that it actually will, or that it even makes sense to develop the functionality that smaller players can roll out more effectively.

    Any big company like HP, CA , IBM , or BMC can develop any product. Still, they consistently acquire new technologies rather than developing them in-house. This is the win-win, “co-opetive” engine that drives any technology-intensive business space.

    As a startup implementing the vision of Actionable Cloud Business Insights, our goal is to play a leadership role in the emerging category that is critical to Cloud success.

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