Kevin Deierling, vice president marketing of Mellanox Technologies

Amazon Web Services already dominates the market for cloud services. A recent announcement suggests that it wants the private part of the cloud business it doesn’t already control: the $14 billion global market for data center switches. Bill Boyle takes a deeper look at what this development might mean for all industries including the finance industry

It is ironic that the market for data center equipment looks like it is taking a dramatic new turn with the recent announcement that Amazon Web Services (AWS) is thinking of moving into the data center switch market, dramatically ending the era of Open Source which has, over the past period, lowered the cost of many items in the data center stack. The controversy is further fuelled by the fact that it is AWS which seems to be leading the charge.

In response to criticism that Amazon was locking customers into AWS, Jeff Bezos said at the annual shareholders’ meeting in Seattle last month: “You never want your customers to be trapped. You want your customers to stay with you because it’s the best service.” Switching cloud providers does require a fair amount of investment, he admitted, and so: “My own opinion is that we work as hard as possible to make the switching costs as low as possible.” (My italics).

Intentionally or not, those words held a double meaning. For we now hear that AWS is considering selling its own in-house “white-box” networking switches to business customers. This could give Amazon a new bridge into the lucrative enterprise computing market, by extending dependence on Amazon into the private and hybrid cloud spaces. It also poses a direct challenge to incumbents like Cisco, because AWS plans to use price to undercut rivals – a common Amazon tactic. They could price their switches between 70% and 80% less than comparable switches from Cisco.

Immediately the alarm bells were tolling for Cisco Systems. According to MarketWatch however, quoting a Cisco spokesman, they shot down the report: “Cisco and AWS have a long-standing customer and partner relationship, and during a recent call between Cisco CEO Chuck Robbins and AWS CEO Andy Jassy, Andy confirmed that AWS is not actively building a commercial network switch.” An AWS spokeswoman later confirmed that statement. However it is almost certain that they are actively considering producing the boxes for their own use – what they eventually do will be determined by the demands of the market so Cisco and Juniper are certainly not out of trouble yet, and have many months of uncertainty ahead to deal with.

The growth of cloud services

AWS got off to an early start in 2002, with a free service allowing companies to add Amazon features to their own websites. The first real cloud services that allowed businesses to build their own applications on the Amazon infrastructure came in 2006 – Simple Storage Service (S3) followed by a server rental and hosting service Elastic Compute Cloud (EC2). It was a time of major IT growth, and many startups grew up on AWS, laying the foundation for its current market dominance. Two years later Google joined the market and in 2010 Microsoft muscled in with Azure Cloud: late, but leveraging its extensive installed base in enterprise datacentres worldwide.

While these “public” cloud services were great for developers spinning up new applications and services, the battle was on to win over bigger business – against widespread fears about security in the cloud. In 2009 Amazon responded with its Virtual Private Cloud, allowing more conservative customers a private, self-contained partition of Amazon’s data centres.

Driven by a new focus on AI services in the cloud, Google and Microsoft have been making gains, but all indications are that AWS will continue to dominate the market for years to come. Being so far in the lead does not, however, guarantee popularity, and AWS has been strongly criticised for furthering customer “lock-in”.

In his keynote speech at NetEvents Global Press and Analyst Summit in May, Stanford Professor and co-founder of Apstra, David Cheriton, compared AWS to a mediaeval walled castle, promising a secure stronghold against the highwaymen lurking outside – but turning ultimately into a prison. He explained how developers are tempted by the hundreds of services offered by AWS to save time and build their new application around these services, so that later users find they are “slightly dependent” on AWS: “slightly dependent means it doesn’t work without it. So you can’t get off of AWS without re-writing the application.” For big companies that can add up to a million or more dollar costs per month.

Cheriton also questioned the very notion of a “public” cloud: “What does public mean? It means that if you pay for it you can use it. Well, by that definition I claim Disneyland as a Public Park, because you can pay and you can go in and use it. So Public Cloud is a complete misnomer”.

Switching roles?

So why is Amazon really developing its own switches? Like all the world’s top hyperscale companies, with needs way ahead of anything that is available off-the-shelf, Amazon needs to design and build its own datacentres. This was the process that also took place at Facebook and morphed into the Open Compute Project with its many offshoots. The Open Source movement is a powerful source of dev ops resources, ideas and brute force ability to help huge enterprises scale-up quickly. It is therefore arguable that

AWS has recruited specialist development teams in order to control every detail to achieve unmatched efficiency. That required freedom to choose best-of-breed or the most cost-effective equipment available to build an open, fully disaggregated networking platform. So, like other technology giants, Amazon has been using white-box switches across its data centers, and this switch project is based on the knowledge and technology gained while deploying white-box hardware and software in its own operations.

Meanwhile, the shift to the cloud continues, with predictions that over 80% of all enterprise workloads will be in the cloud by 2020. But fears about security, governance and compliance mean that private clouds are holding their own, and hybrid cloud is especially popular with large companies that want the flexible scalability of public cloud combined with greater control for sensitive data or to comply with data regulations.

At NetEvents, David Cheriton used the analogy of a private home and a hotel:  ”Say I’ve got a family and we live comfortably in a three bedroom house.  Then relatives come to visit at Christmas time and I need five more bedrooms, so I rent hotel space. It’s great to have the public cloud there for research space, for start-ups who want to experiment and when you’re trying to figure out what you’re doing… Once you get to a certain scale you want to have your own private cloud, just like you want to have your own private house.”

These private and hybrid clouds represent a massive market opportunity for Amazon’s lower cost white-box switches. Since last year, Amazon has been working on these switches with several white-box manufacturers – including Celestica, Edgecore Networks and Delta Networks – and has started testing them with selected customers. As well as unbranded hardware, the switches use open-source software. Combining white-box hardware and open-source software enables companies to reduce the cost of building networks.

But the Amazon switches will include built-in connections to AWS cloud services such as servers and storage. This will make it easier for customers to shuffle computing chores between their private data centers and AWS – meanwhile tying those enterprise even more closely into Amazon’s services.

Switching tactics

The project marks a continuing shift for AWS, whose CEO Andy Jassy for years insisted that all computing would eventually move from private data centers to public clouds. While Jassy and other AWS senior executives continue to hold this view, they may now be recognizing that many large customers might not yet be ready or willing to make such a move.

It is true that the big banks and finance houses are, like everyone else, actively considering cloud but they are unlikely to utilise public cloud any day soon.

Enterprise customers want the ability to own and operate their own compute and networking infrastructure, but with the same agility, scalability, and cost as they get from the public cloud. “While there was a lot of noise around the rumour that Amazon would enter the Open Ethernet market with white-box switches, the reality is more complicated,” said Kevin Deierling, vice president marketing of Mellanox Technologies. “Unlike the black box switches from networking incumbents, Open Ethernet switches such as ours, decouple the hardware and network operating system software. This allows customers to choose best in class networking hardware and software. But Amazon is coming late to this party, and open platforms based on Microsoft Azure Cloud SONiC, (Software for Open Networking in the Cloud) are already available, truly open, and have broad industry adoption. This makes SONiC the more likely convergence point for Open Ethernet on-premise, hybrid, multi-cloud connectivity.”

This is not the only sign that Amazon wants to win hybrid cloud customers. Less than two years ago VMware said it would develop a version of its software that runs on AWS, making it easy for VMware customers to move computing jobs between their data centers and AWS. Last July it was reported that AWS and VMware were considering a deeper collaboration to develop software that runs in data centers.

Nor is Amazon the only tech giant to see the hybrid cloud as a lucrative opportunity. Now the second-largest public cloud provider, Microsoft offers Azure Stack, making enterprise data centers compatible with its Azure public cloud. Cisco and Google Cloud, through a partnership announced last October, are jointly developing software to connect data centers running Cisco hardware with Google Cloud services.

White-box, black heart?

AWS could be the first major cloud company to sell commercial white-box switches to the enterprise market. Although other companies like AT&T, Google, Microsoft and Facebook use white-box hardware to deliver cloud services to customers, none of them have yet suggested launching commercial products.

Amazon’s offering has considerable potential. A combination of white-box hardware and open-source software cuts the cost of building enterprise networks, and enables greater customization than traditional solutions from one-stop-shop suppliers. AWS customers might also run their data centers with fewer engineers, freeing up development for new networking features. So white-box switches pose a serious threat to traditional networking companies. Cisco Systems, which now dominates the networking market, would be hit the hardest by Amazon’s switches.

Nor is Amazon alone in seeing this opportunity. Longtime Cisco Systems customer, AT&T is building its own white-box-based switch for use in its internal networks. Arista and Juniper already offer software for white-box switches, and even Cisco has offered to sell its software separately from switches.

It is hardly surprising that Amazon would want to participate in, as well as control, the data center as the onramp to their cloud services. This should still, despite AWS’s protestations, be seen as a threat: big retailers like Walmart and Target are also planning to use more white-box hardware in their internal networks and data centers, in order to avoid being locked-in to AWS while in ferocious competition with Amazon in the retail business.

At NetEvents, David Cheriton spoke about Amazon’s capabilities to move into almost any industry: “I was told that Boeing is moving off of AWS because they regard Amazon as a competitor. What! Boeing – Amazon? Well, Boeing has a drone business that’s one of their fastest growing areas… What has Amazon invested in, for delivery? So it’s now competing with Boeing… and I think they should be concerned about this.”


For years AWS was committed to the idea that ultimately almost everything should move to the public cloud, offering exceptional flexibility and world-class security. Business had fears about trusting its most private data to a public service, but an analogy was drawn with air travel: people are afraid to fly, despite the fact that the greatest risk in an inter-continental flight is not in the air, but in the short drive to the airport. So trust the experts, and chose the most secure private line to the cloud.

But Intel Security’s 2017 report on cloud adoption reported that only 23% of organizations completely trust public clouds to keep their data secure, and hybrid cloud adoption had increased three-fold from 2016 to 2017, being highest among government and engineering firms. The big banks and finance houses are even more reluctant to move to any type of public cloud. But the need for an easy solution is shown by the fact that, according to a recent survey, only one out of seven small businesses can actually support their own IT needs, and only four of 10 mid-sized businesses say they can.

Almost 90% of both groups say they would buy a SaaS suite if it provided everything they needed,

Meanwhile, the hyperscale technology that has given the cloud giants such an outstanding advantage is now moving down-market. The companies that have been supplying Facebook, Amazon, AliBaba and their ilk are starting to offer the data center benefits of open, converged networking, software-defined everything and automation at prices that enterprises can better afford. So private clouds remain a serious and very lucrative market, and one that Amazon does not want to miss out on.

In the Q&A session following his keynote at NetEvents, David Cheriton compared the private cloud to one’s home and the public cloud to a hotel – and what a great combination the two possibilities made. But what about a world where Airbnb takes over completely, so that your very own home and every hotel is now part of the Airbnb system? It would be a super-flexible lifestyle – but is it what we really want?

Cheriton added: “I think once you figure out what you’re doing and get to a certain scale you want to have your own private cloud, just like you want to have your own private house or private condo… So there’s a role, whether it’s Azure, whether it’s Google Cloud, whether it’s AWS.  The reason I focus on AWS is they’re by far the largest, the most dominant and they’ve got the greatest track record of getting people on board and then taking over their business”. The final statement on his presentation was: “Be lucky and be prepared; choose your friends well“

If AWS extends its dominance down into the private cloud with its own white-box switches, should we be prepared for an Orwellian future where “all clouds are public, but some are less public than others”?

One where we will all be singing from the same hymn sheet: “Amazon Grace, How sweet the sound”…

by Bill Boyle
IBS Intelligence Senior Editor