Why Amazon Shied Away from Enterprise Networking

So Amazon is not getting into networking after all. This is probably a wise move considering that delivering and supporting actual network hardware, even of the white box variety, is not as easy, nor as cheap, as delivering books or services.

The trade media was abuzz recently when reports surfaced of a rumored plan to load open-source software (presumably the same software that Amazon uses in-house) on commodity boxes from Celestica, Edgecore and others. By bringing its considerable economies of scale to bear, Amazon was said to be looking at a 70 percent to 80 percent price cut compared to legacy network providers like Cisco and Juniper. And this had the predictable effect of punishing the stock of those players, just as always happens when Amazon sets its sights on a new market.

This particular market is by no means inconsiderable. Statista estimates that enterprise networking in the U.S. alone is worth about $8.8 billion at the moment, and will likely top $10 billion by 2024, which is a fairly healthy growth trajectory for an industry entering its fifth decade. But the raw numbers don’t tell the whole truth about networking. If you look closely at the chart, you’ll note that the growth for actual switches and routers is fairly flat, with only slightly better action coming from wireless LAN technologies. The main driver going forward will be security, which is logical given the evolving nature of cyberwarfare these days.

And herein lies the rub for Amazon. As The Motely Fool’s Timothy Green noted this week, it takes more than just a low-cost platform to succeed in the networking business; it takes ongoing service and support by leading experts in the field. No doubt, Amazon has its share of experts, but it is one thing to maintain an internal network and quite another to do it for others. And the fact is, when you look at the overall cost of enterprise networking, only a small fraction is generated by hardware — or software for that matter. The real dollars are spent on ongoing operational support, which includes security but also maintenance, troubleshooting, updates and a host of other things that generally cost the same to provide no matter how big you get.

Indeed, as Zacks Equity Research pointed out even before Amazon threw cold water on the rumors, companies like Cisco enjoy a strongly entrenched user base that does not cast away longstanding partnerships at the drop of a hat. For Amazon to make true headway into enterprise circles, it would have to show that it can be trusted with such a crucial function as networking. That would be difficult for a company with such a diverse products and services portfolio. Meanwhile, Cisco currently controls more than half of the Ethernet switch market and is already rolling out white box solutions of its own.

All in all, Amazon breaking into the enterprise networking market is one of those things that sounds reasonable at first blush but in the end is rife with difficulties and would lead to an uncertain outcome for the company. Modern enterprise switching is not something you do on a whim, even if you happen to be one of the largest networked companies in the world.

Arthur Cole is a freelance journalist with more than 25 years’ experience covering enterprise IT, telecommunications and other high-tech industries.

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