For the first 15 years it was around, Amazon acted as a middleman that connected consumers with whatever they wanted to buy. The company didn't make any of the products listed on its website. That changed in 2009, when Amazon began dabbling in white-labeled retail products sold under the brand Amazon Basics. It was promptly accused of cannibalizing the third-party merchants who had been most successful on its e-commerce platform.

Now Amazon seems to be pulling the same move with respect to AWS, its cloud-hosting platform, which is favored by so many startups. The company's announcements at AWS events, both in the past couple of years and just last week, indicate a willingness to compete with startups that host their software on Amazon Web Services, as well as others that provide services and tools to AWS users.

It's 2009 all over again, except in this case, Amazon -- whose first "leadership principle" is "Customer Obsession" -- is muscling in on its own customers' business, not just that of its vendors. The risk is especially strong in cases where a startup's technology complements the existing AWS suite.

A recent CB Insights report said, "Today's Amazon is far more than just an 'everything store,' it's a leader in consumer-facing AI and enterprise cloud services. And its insatiable appetite for new markets mean competitors must always be on guard against its next moves."

A handful of Amazon's recent moves, excluding M&A activity:

  1. In October 2015, Amazon announced its data visualization tool QuickSight, at the same time that partner company Tableau, which provides similar features, announced that it was integrating deeper into AWS. The pattern recurred in November 2016 when Amazon made QuickSight generally available.
  2. Amazon X-Ray and Pinpoint, announced in December 2016 and made generally available last week, compete with New Relic and other monitoring services, as does Amazon CloudWatch.
  3. In February, the company announced Chime, a video-conferencing and team communication platform. The product competes with myriad offerings like WebEx, Zoom, Blue Jeans, and Skype for Business, as well as Slack's nascent offering.
  4. In late March, Amazon announced Connect, customer-service software for call centers. This product both competes and partners with the startup Talkdesk, which runs on AWS.
  5. Last week Amazon debuted AWS CodeStar, which provides a platform for easy application development and deployment.

CodeStar was met with particular trepidation. "When it matures, this is probably going to kill Heroku," software engineer Nathan Broadbent commented on Hacker News, referring to the platform-as-a-service company owned by Salesforce. "Honestly I'm surprised it took so long for AWS to start competing directly with Heroku," LendUp growth manager Austen Allred quipped on Twitter. CodeStar is the spiritual successor to Elastic Beanstalk, which was introduced in 2011.

The outcry from startups that find themselves competing with their host or partner has been quiet, aired in backchannel conversations between SaaS CEOs rather than in quotes to the Wall Street Journal. Even so, people are nervous. One startup executive speculated to Inc. that Amazon shapes its expansion strategy based on which third-party tools are most popular on AWS, just as it did in ecommerce with Amazon Basics. The company declined to comment for this story.

It's early days, so Amazon's moves may not be a cohesive strategy, but the signs are ominous enough that founders should take note. Amazon is moving up from plain ol'  web hosting into true SaaS. No one should be surprised by this -- it's natural for Amazon to build out the possibilities on AWS -- but it's notable because of Amazon's market power and its history of fierce competition.

This is not to say that Amazon is malicious, nor that startups competing with the company should consider themselves doomed. Rather, "Amazon is a force of nature, and they're doing some pretty incredible stuff," as MuleSoft CEO Greg Schott put it. "Anybody who's in technology, period, has to be looking at what Google and Amazon and Azure are doing. You just have to pay attention to it, because obviously they're all making big moves."

The software products that new AWS offerings compete with are typically more full-featured, but they don't have the benefit of being deeply integrated into the rest of AWS, even in cases where companies are AWS solution partners. The services that AWS launches, for instance on April 18, are typically a new value-add layer on top of preexisting AWS services that companies were likely already using.

Smaller companies also may not have the flexibility to offer rock-bottom prices. Amazon's cashflow and its patient investors give the company the ability to subsidize new offerings until they gain dominant market share and reach economies of scale.

Whenever Amazon enters a new market, the company reestablishes its reputation for competing aggressively and effectively. (The exception being consumer smartphones.) Founder and CEO Jeff Bezos famously once said, "Your margin is my opportunity," capturing the company's ethos in a nutshell.

Bezos has gone after many people's margins, winning market share by offering ruthlessly low prices and radical convenience to end-users. That's how Amazon won its dominant positions in ecommerce and cloud hosting... and how it may try to win as it moves up the stack of software services.

Published on: Apr 24, 2017