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What Apple's Data Center Build-Out Means for Amazon

February 04, 2016

Those paying attention to Apple’s earning call last week might note that part of Apple’s rationale for building out its own data center infrastructure is a move away from reliance on Amazon’s Web Services (AWS). This could be a big deal for Amazon.

Apple is spending nearly $4 billion on three new data centers in the U.S. and Europe, according to Fortune, and this amounts to a build-out of an estimated 2,544 thousand square feet of data center space. Compare this with Amazon’s estimated 6,707 thousand square feet for its AWS service, and you see the scale of Apple’s build-out.

Morgan Stanley analysts make the striking claim that Apple spend roughly 90 percent of its IT spend on AWS, which means that the shift away from AWS could hit Amazon hard. Even if only half of Amazon’s spend goes to Amazon, it still would amount to almost $600 million of lost revenue. That’s about 9 percent of all AWS revenue, analysts reckon.

By almost any count, this makes Apple the single largest user of AWS. The migration away from Amazon and toward Apple data centers for cloud infrastructure could hit AWS hard.

The pace of the move is not known, of course, but the direction is pretty clear: Amazon’s AWS is losing a big customer.

For Amazon investors, the move could be an issue. But for developers and other folks who rely on Amazon’s cloud, and for Amazon as a whole, it shouldn’t be a huge issue. Amazon, while challenged, is wining the public cloud war. Last year AWS grew by 80 percent, according to Fortune. And if you talk to developers, AWS still is top of the heap in terms of providing cloud infrastructure. Its growth likely will continue.

The build-out of Apple data centers could lead to more cloud use for non-AWS clouds, of course, in addition to the loss of a big customer. But with cloud use growing, the pie is getting bigger faster than Apple is likely to divert users.

Amazon’s AWS is safe. For now—and probably the foreseeable future.

Edited by Maurice Nagle

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