Over the past month, Amazon Web Services (AWS) has completed two acquisitions in succession: quietly acquiring cloud optimization startup in DecemberTSO Logic, and in early January bringing disaster recovery expertCloudEndureinto the fold. For a giant dominating the public cloud market, two acquisitions may not seem like much, but AWS has historically made few acquisitions—before TSO Logic, it acquired only one cloud-related company in all of 2018, the security startup Sqrrl in January.

With few acquisitions, AWS prefers to rely on organic growth through in-house development of new features. Last Thursday (January 10), the company launchedAWS Backup, a centralized, fully managed service that helps customers back up data across AWS services and on-premises environments—a move with significant implications for customers in hybrid, on-premises, and public cloud environments.

These actions show that Amazon is building a seamless cloud experience for customers: from planning migration to the cloud, smooth transition, to protection of data once it resides on AWS servers. For AWS customers, this means a better experience; but for competitors and smaller vendors, it could spell trouble.

Amazon's leading edge in the cloud war

Over the past five years, AWS has made far fewer acquisitions than its two main competitors, Microsoft Azure and Google Cloud Platform. Since 2013, Azure and Google have each completed more than 20cloud-related acquisitions; during the same period, AWS made only 12, with just 2 in 2018.

Although two acquisitions in quick succession is unusual for Amazon, it does not seem to signal an increased pace of M&A. Azure, Google, and other competitors are still striving to gain market share and catch up to Amazon—which holds a steady34% shareof the global public cloud market. Acquisitions can play a key role in accelerating the growth of its product capabilities.

"Amazon has a history of 'eating its children' in the partner ecosystem," said Grant Kirkwood, founder and CTO of Unitas Global, in an interview with CIO Dive. "Either they grab something cool and acquire it, or they build the capability themselves, thereby cannibalizing their own community."

"Amazon has a history of 'eating its children' in the partner ecosystem, either grabbing something cool and acquiring it, or building the capability itself."

—Grant Kirkwood, founder and CTO of Unitas Global

Overall, Amazon tends to build organically and rarely makes acquisitions in software and cloud. However, inorganic growth is sometimes faster, and talent acquisitions also play a role. Forrester principal analyst Lauren Nelson told CIO Dive that AWS is less aggressive than many competitors in using acquisition opportunities to bring in talent familiar with specific tools or capabilities. Nelson believes these acquisitions may include incentives in that area.

The markets in which CloudEndure and TSO Logic operate are primarily dominated by third parties, so Amazon's moves may pressure some smaller players. Nelson said that when Amazon picks a "favorite" or decides to build internally, other vendors in that market may face business setbacks.

Beyond consolidation of third-party software providers, second-tier vendors in highly competitive markets that need substantial capital to stay ahead also face consolidation pressure, said Sash Sunkara, founder and CEO of RackWare, in a statement provided to CIO Dive.

"I don't know if small players can survive, or if they will occupy more niche markets, serving very small markets. What about Rackspace? Will CenturyLink continue to invest? What about Data Domain, NTT, or Fujitsu?"

—Sash Sunkara, founder and CEO of RackWare

Gartner's2018 Magic Quadrant for Cloud Infrastructure as a Servicedropped eight vendors, including Virtustream, Rackspace, CenturyLink, Fujitsu, Skytap, and Interoute. As leaders scale and the market matures, Gartner has expanded its boundaries tofavor a broader set of market participants. Customers are prioritizing vendors that can offer broader capabilities across use cases over these niche players. Sunkara is not optimistic about the prospects for many small players, some of which may realize they must pivot to other businesses to compete.

Moving toward centralized backup capabilities

While all cloud providers have backup capabilities, Amazon goes a step further. In the past, each AWS service had separate backup functions—which added complexity for multi-cloud service applications, Kirkwood noted. AWS Backup, by consolidating these previously disparate methods, offers time savings, consistency, and compliance benefits, especially for the developer community.

Amazon offers AWS Backup through AWS Storage Gateway, a hybrid storage service that allows customers to use AWS cloud storage for on-premises applications. By making backup available on Storage Gateway at launch, Amazon paves a smoother path for customers migrating from data centers to the cloud. Combined with native VMware andAmazon Outpostssupport, Kirkwood said, Amazon is converging into a sophisticated, comprehensive hybrid, on-premises, and public cloud solution.

There are many companies in the backup space, and internalizing the capability is a strategic move for Amazon. Kirkwood noted that if customers use third-party services for backup within AWS, they pay for the resources used and the third party's software licensing model. With AWS Backup, they only pay for the resources used. Third-party backup providers will have to justify the additional costs their products bring.

But many such vendors may still find opportunities: companies focused on backup often have more robust capabilities than a single backup service—after all, that is their entire focus; for Amazon, it is just one of hundreds of areas of focus. Kirkwood said that while other cloud providers also have backup features, they are more service-specific backups, making AWS the only provider with a kind of meta-aggregator backup solution. Competitors are likely to follow suit, especially Azure, although they may just check the feature box without reaching AWS's completeness.

Take database options as an example: both AWS and Microsoft can check the box for supporting relational databases, but the reality is that AWS supports 18 types while Azure supports only 2—showing much greater maturity on the AWS side, Kirkwood said. Competitors may replicate AWS in backup, but AWS is already a step ahead and will continue to expand and improve its services, making it harder for competitors to catch up.

More than just a disaster recovery tool

CloudEndure has a long-standing relationship with AWS—another case of Amazon "eating its children" from its tight ecosystem. Although CloudEndure is touted as a disaster recovery company, its relationship with Amazon began with something more fundamental. The startup was founded around the time AWS announced that cloud migration was possible—companies could move existing applications to the cloud, not just create new ones there, Nelson said.

In 2015, CloudEndure became one of AWS's major migration case studies through its partnership with GE, and quickly gained significant exposure and business from Amazon. The company's value proposition was attractive to customers because it could "lift and shift" applications without requiring customers to rewrite them for the cloud, Nelson said.

"AWS is less aggressive than many competitors in using acquisition opportunities to bring in talent familiar with specific tools or capabilities. These acquisitions may include incentives in that area."

—Lauren Nelson, principal analyst at Forrester

Although CloudEndure is a disaster recovery startup, Amazon's first interest in it was more about migration tools. However, the disaster recovery element is important for a company like CloudEndure because migration tools can be a one-time solution, Nelson said. Disaster recovery and backup capabilities provide longer-term relationships with customers. Kirkwood said the launch of AWS Backup complements the CloudEndure acquisition, although CloudEndure does it differently by "lifting and shifting" workloads from on-premises to the cloud, enabling disaster recovery along the way.

Building a business case for cloud migration

TSO Logic is another company that benefited from Amazon's marketing machine, working closely with the cloud provider's third-party ecosystem before the acquisition. The startup helps organizations assess whether to migrate applications to the cloud, handling calculations of the organization's current technology stack and recommending corrected configurations for the migration experience, Nelson said. The acquisition is a win-win for Amazon because organizations will have an easy tool to build a business case for migration. As a one-time tool, Amazon would typically pay for it to attract customers, she said, so bringing the company and capability in-house makes sense.

TSO Logic does provide optimization analytics for multi-cloud, but few details have been disclosed beyond confirming the deal, so it is unclear whether multi-cloud capabilities will continue. Nelson said AWS has typically not cut off relationships with other platforms. Microsoftacquired Cloudynin 2017, another company that helped enterprises optimize cloud investments, and eventually discontinued multi-cloud support.