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Will Amazon Get Into the Business Software Game?

Ice Crystal Snowflake closeupIce Crystal Snowflake closeup

Amazon Web Services has created a healthy business selling basic technology infrastructure. During its fourth quarter, its computing, storage and networking service sales rose 64% to more than $2.5 billion from the year-ago quarter.

AWS, also known as the Amazon (AMZN) cloud, is basically huge pools of computers, storage and networking that it rents to customers on a pay-as-they-go basis. And given how well it’s done you might wonder why Amazon would mess with success.

But there’s a growing debate about whether the public cloud giant will stick with its tried-and-true model. Instead of merely renting computing power, the theory goes, Amazon could also start selling its own software like Microsoft (MSFT) does with Office, Salesforce (CRM) does with its sales apps, and SAP (SAP) does with accounting software.

As an aside, last week Amazon launched its Application Discovery Service, a previously announced tool that helps companies ferret out what software they have running in house and dependencies between those applications, to make it easier to move them over to AWS. But that’s a different story from AWS building business applications on its own.

To be fair, Amazon already has its toe in the software applications door with Workmail email, Workspaces to manage corporate desktops, and Workdocs, a Dropbox-like file sharing service. But so far it has no rival products to the Microsoft Office and Google (GOOG) Apps, let alone big enterprise accounting tools from companies like SAP and Oracle (ORCL).

Some pundits insist that if AWS, which declined comment on this story, wants to continue its spectacular growth it will offer those higher-level applications.

Analyst Janakiram MSV of Janakiram & Associates, said Amazon wants to deliver more “SaaS-like services” similar to Workmail. SaaS, or software-as-a-service, is a model whereby desktop software is delivered over the web from a third-party provider like Salesforce or Netsuite (N) instead of running on a company’s local servers.

“My guess is that Amazon will either acquire or license third party technology to build SaaS products. But compute, storage, and databases will continue to be the cash cows for the company,” he added.

AWS Forges Ahead Like There Is No Competition

Some in this camp feel strongly that AWS has to get on “the apps train,” said Max Gazor, partner with venture capital firm CRV.

“It’s great that you run infrastructure, but you don’t control the stack or the ERP and CRM applications,” he said. To translate, ERP or enterprise resource planning, is accounting software that companies use to keep their books and manage inventory. CRM is customer relationship management software used by sales people to manage and track leads and accounts. Salesforce (CRM) is the leader in this category. By any definition, these applications are considered critical to a company’s operations.

To complicate matters further, some of these business applications are highly customized for “vertical” industries like healthcare or insurance or financial services.

And it is that complexity that feeds the counter-argument by infrastructure purists that AWS’s appeal comes from its ability to suck the cost out of the basic hardware and sell it profitably. But success there assumes a huge volume business.

To keep that volume sufficiently huge, the workloads have to work in a way that meshes with the AWS model. It’s sort of like early days of mass-produced automobiles when Henry Ford allegedly said: “You can have a car in any color you want, as long as it’s black.”

Applications “have to fit into the Amazon box,” said one data center specialist familiar with Amazon’s model but who did not want to be named because of his relationship with the company.

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“Once you have a bunch of snowflake applications, every one a little bit different, they don’t fit into that Amazon box anymore,” he added.

For this reason he does not see Amazon deviating from its current course of offering broad, horizontal services.

“I have no doubt that some at Amazon see customers asking for more special stuff and trying to figure out a way to accommodate all those snowflakes and still maintain scale.”

What he and others do doubt is whether even Amazon can accomplish that.

This story was updated at 7:58 p.m. to add analyst comment and again on May 15 to add reference to AWS Application Discovery Service.