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Prime Leverage: How Amazon Wields Power in the Technology World


Software start-ups have a phrase for what Amazon is doing to them: ‘strip-mining’ them of their innovations.


SEATTLE — Elastic, a software start-up in Amsterdam, was rapidly building its business and had grown to 100 employees. Then Amazon came along.

In October 2015, Amazon’s cloud computing arm announced it was copying Elastic’s free software tool, which people use to search and analyze data, and would sell it as a paid service. Amazon went ahead even though Elastic’s product, called ElasticSearch, was already available on Amazon.

Within a year, Amazon was generating more money from what Elastic had built than the start-up, by making it easy for people to use the tool with its other offerings. So Elastic added premium features last year and limited what companies like Amazon could do with them. Amazon duplicated many of those features anyway and provided them free.

In September, Elastic fired back. It sued Amazon in federal court in California for violating its trademark because Amazon had called its product by the exact same name: ElasticSearch. Amazon “misleads consumers,” the start-up said in its complaint. Amazon denied it had done anything wrong. The case is pending.

Now companies like Airbnb and General Electric essentially rent computing from Amazon — otherwise known as using the “cloud” — instead of buying and running their own systems. Businesses can then store their information on Amazon machines, pluck data from them and analyze it.

For Amazon itself, A.W.S. has become crucial. The division generated $25 billion in sales last year — roughly the size of Starbucks — and is Amazon’s most profitable business. Those profits enable the company to plow money into many other industries.

In a statement, Amazon said the idea that it was strip-mining software was “silly and off-base.” It said it had contributed significantly to the software industry and that it acted in the best interest of customers.

Some tech companies said they had found more customers through A.W.S.; even some companies that have tangled with Amazon have grown. Elastic, for instance, went public last year and now has 1,600 employees.

But in interviews with more than 40 current and former Amazon employees and those of rivals, many said the costs of what the company was doing with A.W.S. were hidden. They said it was hard to measure how much business they had lost to Amazon, or how the threat of Amazon had turned off would-be investors. Many spoke on the condition of anonymity for fear of angering the company.

In February, seven software chief executives met in Silicon Valley and discussed bringing an antitrust lawsuit against the giant, said four people with knowledge of the gathering. Their grievances echoed a complaint by vendors who use Amazon’s shopping site: Once Amazon becomes a direct competitor, it is no longer a neutral party.

The C.E.O.s did not press forward with a legal action, partly out of concern that the process would take too long, the people said.

The A.W.S. database service, an instant hit with customers, did not run software that Amazon created. Instead, the company plucked from a freely shared option known as open source.

Open-source software has few parallels in business. It is akin to a coffee shop giving away coffee on the hopes that people spend on milk or sugar or pastries.

But open source is a tried and true model nurtured by the software industry to get technology to customers quickly. A community of enthusiasts often springs up around the shareable technology, contributing improvements and spreading the word about its benefits. Traditionally, open-source companies later earn money for customer support or from paid add-ons.

Technologists initially paid little attention to what Amazon had done with database software. Then in 2015, Amazon repeated the maneuver by copying ElasticSearch and offering its competing service.

This time, heads turned.

“There was a company that built a business around an open-source product that people like using and, suddenly, they have a competitor using their own stuff against them,” said Todd Persen, who started a non-open-source software company this year so there was “zero chance” that Amazon could lift his creations. His previous start-up, InfluxDB, was open source.

Again and again, the open-source software industry became a well that Amazon turned to. When it copied and integrated that software into A.W.S., it didn’t need permission or pay the start-ups for their work, creating a deterrent for people to innovate.

That left little recourse for many of these companies, which could not suddenly start charging money for what was free software. Some instead changed the rules around how their wares could be used, restricting Amazon and others who want to turn what they have created into a paid service.

Amazon has worked around some of their changes.

When Elastic, now based in Silicon Valley, shifted the rules for its software last year, Amazon said in a blog post that open-source software companies were “muddying the waters” by limiting access to certain users.

Shay Banon, Elastic’s chief executive, wrote at the time that Amazon’s actions were “masked with fake altruism.” Elastic declined to make Mr. Banon available for an interview.

Last year, MongoDB, a popular technology for organizing data in documents, also announced that it would require any company that manages its software as a web service to freely share the underlying technology. The move was widely viewed as a hedge against A.W.S., which does not openly share its technology for creating new services.

A.W.S. soon introduced its own technology with the look and feel of MongoDB’s older software, which did not fall under the new requirements.

That experience was top of mind this year when Dev Ittycheria, MongoDB’s chief executive, attended the dinner with the heads of six other software companies. Their conversation, held at the home of a Silicon Valley venture capitalist, shifted to something drastic: whether to publicly accuse Amazon of behaving like a monopoly.

At the meal, which included the heads of the software firms Confluent and Snowflake, some of the C.E.O.s said they faced an uneven playing field, according to the people with knowledge of the gathering. No complaint has materialized.

“A.W.S.’s success is built on strip-mining open-source technology,” said Michael Howard, chief executive of MariaDB, an open-source company. He estimated that Amazon made five times more revenue from running MariaDB software than his company generated from all of its businesses.

Andi Gutmans, an A.W.S. vice president, said some companies wanted to be “the only ones” to make money off open-source projects. He said Amazon was “committed to making sure that open-source projects remain truly open and customers get to choose how they use that open-source software — whether they choose A.W.S. or not.”

By the time A.W.S. held its first developer conference in 2012, Amazon was no longer the only big player in cloud computing. Microsoft and Google had introduced competing platforms.

So Amazon unveiled more software services to make A.W.S. indispensable. In a speech at the event, Andy Jassy, the head of A.W.S., said it wanted to “enable every imaginable use case.”

Amazon has since added A.W.S. services at a blistering pace, going from 30 in 2014 to about 175 as of December. It also built in a home-field advantage: simplicity and convenience.

Customers can add new A.W.S. services with a single click and use the same system to manage them. The new service is added to the same bill and requires no extra permission from a finance or compliance department.

In contrast, using a non-Amazon service on A.W.S. is more complicated.

Today when a customer logs onto A.W.S., they see a home page called the management console. At the center is a list of about 150 services. All are A.W.S.’s own products.

When someone types “MongoDB,” the search results do not fetch information for MongoDB’s service on A.W.S.; it instead suggests an offering from Amazon that is “compatible with MongoDB.”

Redis Labs was founded in 2011 in Tel Aviv, Israel, to build a business around managing a free software called Redis, which people use to organize and update data quickly. Amazon soon offered a competing paid service.

While that created a formidable rival to Redis Labs, Amazon’s move also validated Redis technology. The start-up has since raised $150 million, exemplifying the can’t-live-with-can’t-live-without relationship that many software companies have with Amazon.

Former Redis Labs employees estimate that Amazon generates as much as $1 billion a year from Redis technology — or at least 10 times more revenue than Redis Labs. They said Amazon also tried to poach its staff and undercut it with hefty discounts.

A.W.S. offers a discount to customers who commit to spending at least a certain amount with it, but it does not treat money spent on A.W.S.’s own services and rival services equally. Spending on outside services counts as only 50 cents on the dollar toward the balance. And discounts do not apply to non-Amazon products, according to A.W.S. customers.

If a customer still chooses Redis Labs through A.W.S., Redis Labs is required to kick back around 15 percent of its revenue to Amazon.

At one point, Amazon’s attempts to hire Redis Labs employees became so aggressive that executives removed some online biographies of its technical staff, said the former employees. A Redis Labs spokesman said the start-up had no recollection of that.

Some Redis Labs executives considered bringing an antitrust action against Amazon this year, the former employees said. Others balked because 80 percent of the start-up’s revenue came from customers on A.W.S.



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