Amazon
(
AMZN
) is widely believed to be the market leader in cloud computing
market and competes directly with Google (
GOOG
), Microsoft (
MSFT
), IBM (
IBM
) and HP (
HPQ
). Amazon's pricing model of charging by the hour has been
challenged by a new service ProfitBricks, which bills by the
minute. The per minute service would be particularly attractive to
companies or applications with constantly fluctuating
computing/traffic requirements. Recently, the company
announced an online marketplace where users of its cloud
computing services can sell their reserved server instances to
other companies. We expect the marketplace to help the company
somewhat offset the threat posed by the bill by minute model.
See our complete analysis for Amazon
Instance Marketplace to bring in revenues at almost no
incremental costs
Amazon Web Services (AWS) offers its users reserved instances,
which allow them to lower their cloud costs by making a one-time
payment to reserve computing capacity for a specified time period
and receive a discount on the hourly rates. The online marketplace
would allow users to move their instances across AWS Regions,
change it to a new type or sell capacity for projects that ended
before the completion of their term. The AWS management console
will be the gateway for these transactions.
We expect the marketplace to generate substantial revenues for
Amazon, which will earn a 12 percent service fee on every
transaction. As there are no significant investments required in
rolling out or operating this service, the twelve percent fee
should translate into substantial profits. The Infrastructure as a
Service (Iaas) market is expected to grow to $5 billion by
2020.
Key Risks: Competing products at lower costs
ProfitBricks, an infrastructure-as-a-service company, lets
customers spec out their own virtual machines and bills them by the
minute, enabling greater control on the services they use. The
two-fold flexibility advantage can translate into substantial
savings for companies, which face significant fluctuations in
traffic and computing needs as they don't have to pay according to
pre-defined instances and fixed rates. We expect the new pricing
model to threaten AWS due to the cost advantages it offers.
Besides ProfitBricks, another cloud computing provider
CloudSigma offers a flexible pricing model, which lets users
customize their technical specifications but charges them on an
hourly or monthly basis.
We currently have a
$222
estimate for Amazon
which is 13% below the current market price.
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