Content Published Last Week

1. The History of x86, ARM, & Amazon's Graviton Processor

2. Amazon Web Services: EC2 Graviton Strategy

3. ACV Auctions Competitive Advantage & Threats

4. OHB & European Space Systems

5. UK Accountancy Practice M&A

6. AWS Graviton's Process Power

AWS Analysis Series

Over the last 2 weeks, we’ve started publishing content on areas of AWS we feel are less well-covered:

1. Former GCP Director on BigQuery & How GCP can compete with AWS

2. IP analysis on Kubernetes & IaaS Stickiness

3. AMZN’s Partner Program Strategy

4. History of ARM and Graviton 3 Customer Feedback

5. AMZN Graviton strategy with Former AWS Graviton GTM Director

The first post in our AWS analysis series focused on the stickiness of EC2 and S3 IaaS. This week, we shared our analysis on Graviton, AWS’ family of proprietary processors, and the potential advantages of vertically integrating software and hardware in the cloud computing stack.

We’ve shared a few snippets from the analysis below but the full write-up is only available to paid subscribers.

AWS Graviton’s Process Power

Graviton is a family of ARM server chips designed by Annapurna Labs, a division of Amazon Web Services, to power EC2 virtual machines.

We believe Graviton deepens AWS’ competitive advantage through greater scale economies, higher switching costs, and greater 'process power' driven by a vertically-integrated hardware and software cloud computing stack.

The decision to build Graviton illustrates AMZN’s unique DNA:

AWS’ foray into chip building epitomizes its ‘Day 1’ culture. Just as it integrated down the value chain to own warehouses and trucks, the nuts and bolts of ecommerce, it now designs processors for various use-cases. This not only leverages the scale economies of cloud computing, it deepens the process power of Amazon relative to competitors. - IP Analysis, AWS Graviton's Process Power

In the early 2010’s, when AMZN decided to build Graviton, designing proprietary ARM-based chips was a bold bet. ARM still only has ~15% market share today.

So why did Amazon decide to build its own chips?

The simple answer is Amazon puts the customer first and Graviton reduces the price performance of cloud computing. By switching from x86, AMZN could target ARM-based applications such as web servers, offer more EC2 instances, and improve the security and availability to customers. - IP Analysis, AWS Graviton's Process Power

Graviton provides lower unit costs because of two main reasons: power efficiency and cost savings from paying Intel.

Graviton’s unit cost is lower mainly due to ARM’s more efficient architecture for the data center relative to x86:

ARM chips aren't burdened by a 40-year-old instruction set, therefore they don't have to devote surface area to extra decode units, which means they are able to offer one for one. If you buy a core of Graviton, it's not half a compute core, therefore you can run the Graviton instance, even though the clock speed is slower than Intel. Graviton is playing the compute per watt game, so you are able to push more workload through at higher saturation because you're not contending on the same compute cores. - Former Director of Google Cloud Platform

Graviton’s cost savings are passed back to customers in lower pricing which drives higher EC2 adoption to further drive scale economies across AWS’ fixed cost base.

But this is only part of the story:

AWS is now integrating software with cloud computing hardware.

AMZN now builds the data center, offers hundreds of software solutions, owns the compute and storage layer, and now owns and designs the chips that power the cloud. Integrating software and hardware down to the processor enables AMZN to innovate faster; it can build, test and deploy software in the same data centers their chips are deployed in. Annapurna can build Graviton to optimize the price and performance of EC2 instances on AWS. Over time, this can enable AWS to build chips to focus on a specific end-customer or workload. - IP Analysis, AWS Graviton's Process Power

Just as AMZN offers the best experience for general merchandise online, by owning the full cloud computing stack, AMZN is in prime position to offer workload or customer specific compute services. This only drives EC2 and S3 stickiness and further fuels AWS’ scale economics.

Where does this leave MSFT and GOOG?

Potentially, well behind.

Microsoft and Google are now licensing Ampere’s ARM chips to enter the race. However, Ampere's chips are not deeply integrated with Azure or GCP. This limits the efficiency and ability of GCP and Azure to offer workload specific processors.

In our full write-up, we discuss MSFT and Google’s strategy with Ampere and how they could catch up with Graviton.

The decision to build Graviton highlights why AMZN is arguably the most entrepreneurial business of all time. No challenge is too big. If DHL or Fedex can’t provide the capacity to ship parcels, AMZN buys trucks and planes. If Intel can’t provide the hardware to reduce computing cost, AMZN builds Graviton.

It's this culture that enables AMZN to stay ahead of competitors for years to come.