AWS re:Invent 2022 – reinventing cloud growth
Thursday 08 December 2022
Portfolio insights
In 2012, Amazon Web Services (AWS) held its first cloud computing focused global customer and partner conference in Las Vegas. 5,000 attended more than 100 sessions. Now in its 11th year, the 2022 event drew in excess of 50,000 in-person and 300,000 virtual attendees participating in over 2,000 sessions and events.
Every day of the week-long event showcased new initiatives. Despite having over 200 different services, the most feature-rich product portfolio of any cloud provider, AWS still has its foot firmly placed on the accelerator pedal. When asked whether AWS has reached peak product growth by technology news site Protocol, AWS CEO Adam Selipsky responded:
“We’re not done building yet, and I don’t know when we ever will be … those kinds of capabilities — … building new services, deepening our feature set within existing services, and integrating across our services – are all really important areas that we’ll continue to invest in.”
Integration driving further growth in cloud computing
Indeed, announcements at re:Invent 2022 highlight the progress and dedication AWS has made in the three parts of its cloud strategy defined by Selipsky above. All three play key roles in the sustainable expansion of AWS’s competitive moat. But we believe “integrating across our services” will drive cloud computing growth both at AWS and industry wide.
There are three reasons why integration is the next leg of growth for cloud computing.
- Cloud strategy is now on the C-suite agenda empowering organisational transformation.
- Data lies at the centre of decision-making and innovation.
- Capturing functional insights from data requires organisations to leverage the powerful intersection of databases, analytics capabilities and machine learning.
Adam Selipsky from the Protocol interview:
“It’s not just about deploying technology. The conversation that I most end up having with CEOs is about organisational transformation. It is about how they can put data at the centre of their decision-making in a way that most organisations have never actually done in their history. And it’s about using the cloud to innovate more quickly and to drive speed into their organisations.”
Notably, AWS is seamlessly integrating its own services with partner services to create simple yet valuable solutions. Each one is individually innovative and cost-effective. And each solution simplifies highly manual and complicated tasks down to clicks, pre-sets, configurations, and machine learning (ML) powered actionable insights.
Below we highlight solutions announced at re:Invent 2022 that address three challenges facing enterprises. Namely security risks, privacy-safe data utilisation and supply chain risks.
Amazon Security Lake
What is it?
A purpose-built data lake* that aggregates data from cloud and on-premises security solutions.
How does it help cloud customers?
It enables enterprises to centralise, standardise and manage security data across the range of solutions they deploy. With a centralised view, enterprises can generate key insights by leveraging ML powered analytics tools from AWS and the AWS Partner Network (APN).
What does this mean for Amazon?
The service strengthens AWS’s overall security value proposition. Moreover it provides easy cross-sell and up-sell opportunities for existing and new AWS customers currently using stand-alone solutions. The information security and risk management industry is forecast to reach $188 billion in 2023.
AWS Clean Rooms
What is it?
A service that enables brands, media publishers and ad tech companies to more easily and securely match, analyse and collaborate on their combined datasets in protected privacy-controlled environments.
How does it help cloud customers?
While data clean rooms typically take months to build, the AWS service simplifies the process to just a few clicks. In addition, data clean rooms are exceptionally difficult to maintain to accommodate requests for new collaborators and data types. The service tackles this challenge by encrypting the data while automatically applying analysis rules and output constraints. Customers can then generate key insights using AWS’s ML-powered analytics tools.
What does this mean for Amazon?
It is part of Amazon’s new AWS for Advertising & Marketing initiative, which brings together a comprehensive set of AWS services, solutions and 150+ AWS Partner offerings. It supports customers advertising and marketing technology workloads. The soon-to-be $1 trillion advertising industry is undergoing significant change, making it prime time for both AWS and Amazon Ads to capture a significant share of the advertising opportunity.
AWS Supply Chain
What is it?
A new solution that gives cloud customers a unified view of supply chain data with ML-powered insights, recommended actions and built-in collaboration capabilities.
How does it help cloud customers?
Enterprises can easily connect supply chain data from various systems with just a few clicks. The cloud application automatically sets up a data lake using pre-trained ML models, allowing users to easily mitigate supply chain risks.
What does this mean for Amazon?
Supply chain risks were front of mind for businesses during the pandemic, and factors such as inflation, sustainability goals and national industrial policies have created further supply chain pressure. Enterprises need to manage complexity, increase agility and leverage data as more components of the supply chain digitise. This backdrop puts AWS in a good position to accelerate cloud revenue in areas such as internet of things (IoT), edge computing, databases and analytics.
Summary
Despite market concerns around inflation and recession and the potential impact they have on cloud spending, the long-term prospects of cloud computing have never looked brighter. The move to the cloud has only accelerated over the past two years as business leaders increasingly realise the critical need to adapt to changing business, social and technology dynamics.
The cost of enterprise IT will exceed $1.3 trillion in 2022 and grow to $1.8 trillion in 2023. Gartner estimates public cloud computing spend will reach $544 billion in 2022, making up around 41% of the total. We believe public cloud computing will overtake traditional spend by 2025 to reach close to $1 trillion. Amazon’s integration focused cloud strategy positions it to capture a significant share of that trillion-dollar market.
AWS’s annual revenue is $82 billion, which is around 16% of the public cloud enterprise IT spend. We estimate AWS will retain at least 16% of the market by 2025, equating to around $160 billion. Applying an operating margin of 30%, the estimated segment margin for FY22, and multiplying by an EV/EBIT multiple of 20x gives us a standalone valuation of $960 billion for AWS.
This excludes Amazon’s retail, subscription and advertising businesses, all of which command market-leading positions. Amazon’s market cap at December 2 2022 was $960 billion, which means investors are essentially getting the rest of Amazon’s businesses for free.
* A data lake is a centralised repository that stores structured and unstructured data at any scale.
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