Amazon in Australia: The industry impact

If you can’t beat ‘em, resell ‘em

“I’ll tell you who’s worried, says IDC analyst Matthew Oostveen: "the telcos and the hosters who are playing in that same SMB space."

Some of the biggest brands in Australian hosting are signing up to use Amazon’s cheaper infrastructure, rather than build more of their own.

Amazon has built an Australian partner network that includes Anchor, ASG, Bulletproof Networks, Fronde, Industrie IT, The Frame Group, Melbourne IT, SMS IT and Sourced Group.

AWS has become a base building block upon which many of these organisations now build differentiated services.

“We see Amazon’s entry into Australia as a fantastic thing for our business,” says Michael McGoogan, CEO of Uber Global, Australia’s third largest hosting company by market share.

Uber intends to use Amazon as its supplier and will start switching over products for new sales and moving its existing 110,000 business customers over a five-year refresh cycle.

McGoogan estimates he will save 20 percent to 30 percent on its infrastructure costs by using Amazon. He says he doubts Amazon will have many competitors at the raw IaaS level. 

“Amazon is changing the whole game at a cent per hour level to a price that domestic competitors simply can’t compete with,” McGoogan says. “They’re able to buy their technology at a global level and bring it into Australia at a much cheaper price. The guys that have built their IaaS have all done so paying the Australian premium, but Amazon doesn’t pay the Australian premium.”

Melbourne IT has also committed to this route, arguing that there is no longer any point in providing commoditised units of storage, networking and compute. Like Uber and Telstra, Melbourne IT had attempted to build their own public cloud services using commercially available virtualisation software, but simply couldn’t build out enough scale before Amazon’s arrival.

“The value today is in the solutions and the way you package up those (computational) units, not in the delivery of those units on their own,” says Peter Wright, Melbourne IT’s executive general manager.

The hosting market should open up to more integrators that use Amazon to provide a cheap, reliable platform on which to sell their applications.

Wright argues that companies that already have experience at building business-focused solutions have an advantage over newer competition.

“I would argue there are very few hosting or cloud organisations that are yet to get their heads above the technology parapet and understand the business outcomes,” Wright said. “Smaller hosting businesses haven’t had the experience in putting solutions together and they’re still competing on offering a technology proposition to the marketplace. I wouldn’t like to be in their shoes.”

Bulletproof Networks is another hoster that has jumped with both feet into Amazon and is loudly promoting itself as the best candidate for the managed Amazon experience.

The Australian host plans to configure and monitor customers’ hybrid and public cloud environments, whether they be private environments that burst into AWS or hybrid cloud farms built on large physical back ends.

Others focus on migration.

HubOne’s Nick Beaugeard says an uptick in his Amazon-related business suggests there was “a heap of pent-up demand” for Amazon’s Sydney outpost.

“In the past few months we were doing $4,000 to $10,000 a month of Amazon business as an Amazon reseller. Last month that hit $36,000 and I reckon we’re going to do $70,000 this month, and that trajectory is not slowing,” Beaugeard said.

Most companies are moving from on-premise to Amazon, he said, citing a hotels group for whom HubOne helped to move 60 servers to AWS. Others, however, are migrating from Australian hosters.

Beaugeard claims to have reduced the hosting bill for 30 servers operated by an IT services company from $45,000 a month down to $6,500 a month by moving them from Macquarie Telecom to Amazon Web Services.

But Macquarie Telecom says such comparisons are unfair, because Amazon’s pricing doesn’t include the labour costs of managing the workloads.

“You don’t get end-to-end control at Amazon, even with integrators involved,” says Aidan Tudehope, managing director of hosting at Macquarie Telecom.

“Part of our proposition is that we own the entire stack. We are a telco, we understand what it takes to get good internet connectivity in Australia. Inside the data centre we run the servers and the firewalls and load balancers and the storage. And we have engineering access on top of that to help design the customers’ environment, to implement, run and optimise it. An end-to-end scenario is a very different proposition.”

Amazon offers little support to customers for its basic (low-cost) plans, Tudehope notes. (Phone support is an additional cost).

Macquarie Telecom’s customers want “one throat to choke” rather than chasing problems between an integrator and a cloud service.

“In material terms there is no overlap” between Macquarie Telecom’s services and integrators using Amazon Web Services, Tudehope says. “Managed hosting is worlds apart from self-service, pay by credit card, pay by the hour, where you don’t know how much the bill is going to be.”

The issue of data sovereignty has also not been laid to rest, Tudehope says.

AWS Sydney’s data centre may have solved latency issues but he claims it does not address the implications of the Patriot Act.

“Amazon is still a US based legal entity and they are obligated to follow US law regardless of where their data centre resides,” he said.

While he admits that “not all buyers of cloud services have put their minds to the issue” of data sovereignty, he believes it should remain a factor. He stopped short of suggesting Australian customers should pay a premium — a data sovereignty tax — for onshore hosting.

“All things being equal, people will choose providers that address the data sovereignty issue,” he said.

But Owenby describes the data sovereignty argument as a “red herring”.

“It’s not a factor in who customers choose for a technology infrastructure provider,” he said. “The reality is that the Patriot Act is actually less severe than data access laws in many of the countries in which we do business. None of these data access laws have had meaningful impact on our customers or businesses.”

Is it profitable to resell Amazon services? We talk to the pioneers...