Infrastructure Behind the Cloud: How Big Data is Rooted in America's Heartland

Cloud Investing
Cloud Investing

A look at the infrastructure that enables Amazon Web Services to function.

Amazon’s (NASDAQ:AMZN) cloud computing service Amazon Web Services might be the single most important factor behind the recent tech boom in the US. According to The Atlantic, Amazon is the largest hosting company in the market today, projected to exceed $8 billion this year. 
Rather than requiring small businesses to make costly investments in computer hardware, Amazon’s cloud alleviates this upfront pressure by offering the on-demand delivery of IT. On a localized scale, that means that startup companies like Airbnb and Uber are able to make a name for themselves almost immediately, without extensive overhead costs.
On a macro scale, however, Amazon Web Services has an even greater impact. The reduction in overhead costs for young tech companies means that less upfront capital is needed to build a stellar project, thus delaying IPOs and pushing the market towards mergers and acquisitions. So what exactly is Amazon Web Services, the platform that underlies much of the modern internet?

The infrastructure of Amazon Web Services

It is difficult to conceptualize a platform that exists entirely in the air. Luckily, when it comes to Amazon Web Services we don’t have to. Although the name “cloud” suggests that there is no infrastructure involved in this service, in reality Amazon Web Services is built from on-the-ground hardware and infrastructure.
Take, for example, the importance of electricity. Operating the cloud consumes a remarkable amount of electricity — so much that Amazon Web Services builds its own electric substations. According to an article on Gigaom, each one requires between 50 and 100 megawatts to be efficient.

Need for cleantech innovation?

This massive reliance on electricity, coupled with the company’s shady reports on operational details, has drawn the attention of Greenpeace. A 2015 report notes that “despite its market leading position among cloud providers, Amazon has long kept Amazon Web Services’ (AWS) operational details inside the proverbial black box, keeping details of its size and scale hidden even from its own investors.”
And, despite a recent push towards corporate transparency, “Amazon and subsidiary AWS unfortunately remain among the least transparent companies with regard to its environmental footprint.”
Despite the mystery surrounding Amazon Web Services’ environmental track record, its location is more widely known. Greenpeace and the Atlantic have both investigated Amazon Web Services’ stronghold in Northern Virginia. According to Greenpeace, despite the company’s dominance in the Eastern US, it continues to grow at a staggering rate in this area. It was estimated that the company runs between 10 and 23 data centers in this region.

What does it mean to have Amazon Web Services domination?

In 2012, it was speculated that one-third of all daily internet usage accesses a site run by Amazon Web Services. Today, the likelihood of that appears even greater. So what does that mean for the other players in the area? Well, Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOGL) are still battling to make a place for themselves in the cloud arena. For instance, on Friday Google released a blog post announcing that it remains the price/performance leader in public cloud.
It’s much more challenging, however, for the smaller fish to stick it out in this space. Opower (NYSE:OPWR) is one company attempting to find its niche. The company is a provider of cloud-based software to the utility industry. Its software solutions are intended to offer key customer-facing applications that reduce energy demand. Nevertheless, Opower’s existence illustrates that there are still small-cap companies in the cloud market.
 
Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.

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