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SEATTLE: Elastic, a software startup in Amsterdam, was rapidly building its business and had grown to 100 employees. Then Amazon came along.
In October 2015, Amazon’s cloud computing arm announced it was copying Elastic’s free software tool, which people use to search and analyze data, and would sell it as a paid service. Amazon went ahead even though Elastic’s product, called Elasticsearch, was already available on Amazon.
Within a year, Amazon was generating more money from what Elastic had built than the startup by making it easy for people to use the tool with its other offerings. So Elastic added premium features last year and limited what companies like Amazon could do with them. Amazon duplicated many of those features anyway and provided them free.
In September, Elastic fired back. It sued Amazon in federal court in California for violating its trademark because Amazon had called its product by the exact same name: Elasticsearch. Amazon “misleads consumers,” the startup said in its complaint. Amazon denied it had done anything wrong. The case is pending.
Not since the mid-1990s, when Microsoft dominated the personal computer industry with Windows, has a technology platform instilled such fear in competitors as Amazon is now doing with its cloud computing arm. Its feud with Elastic illustrates how it brandishes power in that technical world.
While cloud computing may appear obscure and geeky, it underlies much of the internet. It has grown into one of the technology industry’s largest and most lucrative businesses, offering computing power and software to companies. And Amazon is its single-biggest provider.
Amazon has used its cloud computing arm — called Amazon Web Services, or AWS for short — to copy and integrate software that other tech companies pioneered. It has given an edge to its own services by making them more convenient to use, burying rival offerings and bundling discounts to make its products less expensive. The moves drive customers toward Amazon, while those responsible for the software may not see a cent.
Even so, smaller rivals said they have little choice but to work with Amazon. Given the company’s broad reach with customers, startups often agree to its restrictions on promoting their own products and voluntarily share client and product information with it. For the privilege of selling through AWS, startups pay a cut of their sales back to Amazon.
Some of the companies have a phrase for what Amazon is doing: strip-mining software. By lifting other people’s innovations, trying to poach their engineers and profiting off what they made, Amazon is choking off the growth of would-be competitors and forcing them to reorient how they do business, the companies said.
All of this has fueled scrutiny of Amazon and whether it is abusing its market dominance and engaging in anti-competitive behavior. The company’s tactics have led several rivals to discuss bringing antitrust complaints against it. And regulators and lawmakers are examining its clout in the industry.
“People are afraid that Amazon’s ambitions are endless,” said Matthew Prince, chief executive of Cloudflare, an AWS competitor that protects websites from attacks.
AWS is just one prong of Amazon’s push to dominate large swaths of the U.S. industry. The company has transformed retailing, logistics, book publishing and Hollywood. It is rethinking how people buy prescription drugs, purchase real estate and build surveillance for their homes and cities.
But what Amazon is doing through AWS is arguably more consequential. The company is the unquestioned market leader — triple the size of its nearest competitor, Microsoft — in the seismic shift to cloud computing. Millions of people unknowingly interact with AWS every day when they stream movies on Netflix or store photos on Apple’s iCloud, services that run off Amazon’s machines.
Jeff Bezos, Amazon’s chief executive, once called AWS an idea “no one asked for.” The service began in the early 2000s when the retailer struggled to assemble computer systems to start new projects and features. Once it built a common computer infrastructure, Amazon realized other companies needed similar capabilities.
Now companies like Airbnb and General Electric essentially rent computing from Amazon — otherwise known as using the “cloud” — instead of buying and running their own systems. Businesses can then store their information on Amazon machines, pluck data from them and analyze it.
For Amazon itself, AWS has become crucial. The division generated $25 billion in sales last year — roughly the size of Starbucks — and is Amazon’s most profitable business. Those profits enable the company to plow money into many other industries.
In a statement, Amazon said the idea that it was strip-mining software was “silly and off base.” It said it had contributed significantly to the software industry and that it acted in the best interest of customers.
Some tech companies said they had found more customers through AWS; even some companies that have tangled with Amazon have grown. Elastic, for instance, went public last year and now has 1,600 employees.
But in interviews with more than 40 current and former Amazon employees and those of rivals, many said the costs of what the company was doing with AWS were hidden. They said it was hard to measure how much business they had lost to Amazon or how the threat of Amazon had turned off would-be investors. Many spoke on the condition of anonymity for fear of angering the company.
In February, seven software chief executives met in Silicon Valley and discussed bringing an antitrust lawsuit against the giant, said four people with knowledge of the gathering. Their grievances echoed a complaint by vendors who use Amazon’s shopping site: Once Amazon becomes a direct competitor, it is no longer a neutral party.
The CEOs did not press forward with a legal action, partly out of concern that the process would take too long, the people said.
Now regulators are approaching some of Amazon’s software rivals. The House Judiciary Committee, which is investigating the big tech companies, asked Amazon in a September letter about AWS’ practices. The Federal Trade Commission, which is also investigating Amazon, has questioned AWS competitors, according to officials at two software companies who were called in but were not authorized to discuss the matter.
What Amazon is doing to software startups is unsustainable, said Salil Deshpande, founder of Uncorrelated, a venture capital firm.
“It has intercepted their monetization, it has forcibly wrestled control of software from their owners, and it has siphoned customers to its own proprietary services,” he said.
When Amazon Web Services began last decade, Amazon was struggling to turn a consistent profit. A service to provide computing power seemed like a distraction.
Yet startups embraced AWS. They saved money because they did not need to buy their own computing equipment, while spending only on what they used. Soon more companies flocked to Amazon for computing infrastructure and, eventually, the software that ran on its machines.
In 2009, Amazon established a template for accelerating AWS’ growth. That year, it introduced a service for managing a database, which is critical software to help companies organize information.
The AWS database service, an instant hit with customers, did not run software that Amazon created. Instead, the company plucked from a freely shared option known as open source.
Open-source software has few parallels in business. It is akin to a coffee shop giving away coffee on the hopes that people spend on milk or sugar or pastries.
But open source is a tried and true model nurtured by the software industry to get technology to customers quickly. A community of enthusiasts often springs up around the shareable technology, contributing improvements and spreading the word about its benefits. Traditionally, open-source companies later earn money for customer support or from paid add-ons.
Technologists initially paid little attention to what Amazon had done with database software. Then in 2015, Amazon repeated the maneuver by copying Elasticsearch and offering its competing service.
This time, heads turned.
“There was a company that built a business around an open-source product that people like using, and suddenly they have a competitor using their own stuff against them,” said Todd Persen, who started a nonopen-source software company this year so there was “zero chance” that Amazon could lift his creations. His previous startup, InfluxDB, was open source.
Again and again, the open-source software industry became a well that Amazon turned to. When it copied and integrated that software into AWS, it did not need permission or have to pay the startups for their work, creating a deterrent for people to innovate.
That left little recourse for many of these companies, which could not suddenly start charging money for what was free software. Some instead changed the rules around how their wares could be used, restricting Amazon and others who want to turn what they have created into a paid service.
Amazon has worked around some of their changes.
When Elastic, now based in California’s Silicon Valley, shifted the rules for its software last year, Amazon said in a blog post that open-source software companies were “muddying the waters” by limiting access to certain users.
Shay Banon, Elastic’s chief executive, wrote at the time that Amazon’s actions were “masked with fake altruism.” Elastic declined to make Banon available for an interview.
Last year, MongoDB, a popular technology for organizing data in documents, announced that it would require any company that manages its software as a web service to freely share the underlying technology. The move was widely viewed as a hedge against AWS, which does not openly share its technology for creating new services.
AWS soon introduced its own technology with the look and feel of MongoDB’s older software, which did not fall under the new requirements.
That experience was top of mind this year when Dev Ittycheria, MongoDB’s chief executive, attended the dinner with the heads of six other software companies. Their conversation, held at the home of a Silicon Valley venture capitalist, shifted to something drastic: whether to publicly accuse Amazon of behaving like a monopoly.
At the meal, which included the heads of the software firms Confluent and Snowflake, some of the CEOs said they faced an uneven playing field, according to people with knowledge of the gathering. No complaint has materialized.
“AWS’ success is built on strip-mining open-source technology,” said Michael Howard, chief executive of MariaDB, an open-source company. He estimated that Amazon made five times more revenue from running MariaDB software than his company generated from all its businesses.
Andi Gutmans, an AWS vice president, said some companies wanted to be “the only ones” to make money off open-source projects. He said Amazon was “committed to making sure that open-source projects remain truly open and customers get to choose how they use that open-source software — whether they choose AWS or not.”
By the time AWS held its first developer conference in 2012, Amazon was no longer the only big player in cloud computing. Microsoft and Google had introduced competing platforms.
So Amazon unveiled more software services to make AWS indispensable. In a speech at the event, Andy Jassy, the head of AWS, said it wanted to “enable every imaginable use case.”
Amazon has since added AWS services at a blistering pace, going from 30 in 2014 to about 175 as of December. It also built in a home-field advantage: simplicity and convenience.
Customers can add new AWS services with a single click and use the same system to manage them. The new service is added to the same bill and requires no extra permission from a finance or compliance department.
In contrast, using a non-Amazon service on AWS is more complicated.
Today when a customer logs on to AWS, they see a homepage called the management console. At the center is a list of about 150 services. All are AWS’ own products.
When someone types “MongoDB,” the search results do not fetch information for MongoDB’s service on AWS; they instead suggest an offering from Amazon that is “compatible with MongoDB.”
Even after a customer has selected a non-Amazon option, the company sometimes continues pushing its own product. When someone creates a new database, they are presented an ad for Amazon’s own technology called Aurora. If they pick something else, Amazon still highlights its option as “recommended.”
Gutmans said AWS worked closely with many companies to integrate their offerings “as seamlessly as possible.”
Amazon’s AWS developer conference is now one of the world’s biggest technology events, drawing tens of thousands of people to Las Vegas every year.
The highlight is a speech from Jassy where he showcases new services. Because a new AWS feature often spells hardship for some startup, the presentation has earned the nickname “The Red Wedding,” a bloody event in a “Game of Thrones” episode.
“Nobody knows who is going to get killed next,” said Corey Quinn of the Duckbill Group, who helps companies manage their AWS bills and writes a newsletter called “Last Week in AWS.”
At last year’s conference, Amazon unveiled a new tool — Amazon CloudWatch Logs Insights — to help customers analyze information about its services.
Daniel Vassallo, a former AWS software engineer who helped develop the product, said executives wanted to go after the market but were worried it would look like Amazon was targeting a company called Splunk, which offers a similar tool and is also a major spender with AWS.
So Amazon previewed its new product to Splunk before the conference and agreed not to announce it during Jassy’s speech, Vassallo said.
“They weren’t particularly happy. Who would be?” Vassallo, who left Amazon in February, said of Splunk. “But we still went ahead and did it anyway.”
Splunk said it had a “strong partnership” with AWS and declined to comment further.
Amazon has also created rules for its developer conference. Companies that pay tens of thousands or hundreds of thousands of dollars for a booth said they must submit their banners, pamphlets and news releases to Amazon for approval.
According to an AWS document from August explaining marketing guidelines for companies it works with, Amazon bans certain words or phrases, such as “multicloud,” the concept of using two or more cloud platforms. An Amazon spokesman said it had stopped this practice.
Companies are also instructed to strike claims about being “the best,” “the first,” “the only” and “the leader,” unless substantiated by independent research.
Redis Labs was founded in 2011 in Tel Aviv, Israel, to build a business around managing a free software called Redis, which people use to organize and update data quickly. Amazon soon offered a competing paid service.
While that created a formidable rival to Redis Labs, Amazon’s move also validated Redis technology. The startup has since raised $150 million, exemplifying the can’t-live-with-can’t-live-without relationship that many software companies have with Amazon.
Former Redis Labs employees estimate that Amazon generates as much as $1 billion a year from Redis technology — or at least 10 times more revenue than Redis Labs. They said Amazon also tried to poach its staff and undercut it with hefty discounts.
AWS offers a discount to customers who commit to spending at least a certain amount with it, but it does not treat money spent on AWS’ own services and rival services equally. Spending on outside services counts as only 50 cents on the dollar toward the balance. And discounts do not apply to non-Amazon products, according to AWS customers.
If a customer still chooses Redis Labs through AWS, Redis Labs is required to kick back around 15% of its revenue to Amazon.
At one point, Amazon’s attempts to hire Redis Labs employees became so aggressive that executives removed some online biographies of its technical staff, said former employees. A Redis Labs spokesman said the startup had no recollection of that.
Some Redis Labs executives considered bringing an antitrust action against Amazon this year, former employees said. Others balked because 80% of the startup’s revenue came from customers on AWS.
“It was a love-hate relationship,” said Leena Joshi, a former vice president of marketing at Redis Labs. “On one hand, most of our customers ran on AWS, so it was in our interest to be tightly integrated with them. At the same time, we knew they were taking away our business.”
Redis Labs declined to comment on its revenues or AWS actions. It said Amazon offered “important services.”
Not every company views AWS as a threat. Ali Ghodsi, chief executive of Databricks, a San Francisco startup that uses artificial intelligence to analyze data, said AWS salespeople have lifted sales of his company’s products.
“I don’t see them using shenanigans to stop us,” he said.
But Saket Saurabh, chief executive of Nexla, a 14-person startup in Millbrae, California, said he had reservations about Amazon.
In August, Amazon began a service for processing and monitoring data that competes with Nexla. Investors warned him about sharing too much information with the giant.
Saurabh went ahead anyway and signed his company up to work with Amazon in September. The reason? Amazon’s giant sales teams can give Nexla access to a vast audience.
“What choice do we have?” he said.