On March 14 2006, Amazon expanded from its retail heritage and launched its IT services business with the birth of Amazon Web Services (AWS).

This move was inspired by the company’s own need for computing resources that can scale rapidly at inexpensive.

AWS, that is section of Amazon.com, provides multi-tenanted pay-as-you-use cloud-based services and raw computing power to businesses through its cloud platform. Customers plug in and may use as much or as low as they require and only get billed for what they use.

Two of the most services are Amazon Elastic Compute Cloud (EC2), a service that permits customers to exploit cloud-based severs to run their very own applications, and web storage service S3.

Iain Gavin, UK managing director at AWS, said the corporate was born out of the need for Amazon.com to have access to on-demand computing resources to deal with peaks and troughs in activity. It realised it was not alone.

“We had our own business challenges and we talked to various other companies in the same mode as us and there has been a pattern forming,” he said. Amazon then came up with the AWS concept and decided to visit market with it.

AWS isn’t the same as many IT suppliers on the subject of its business model. Not many IT suppliers speak about a want to make low margins on its services, but AWS does.

Gavin said Amazon runs its IT services business like its retail business, with high volumes of sales and coffee margins as its commercial model. It is a step change from many within the IT sector, where most companies are striving to extend their margins.

“We inspect it from a retailers’ perspective for top volumes with low margins. With volumes you get economies of scale,” he said.

AWS has dropped prices 41 times around the services because it launched. These lower prices attract more customers which increases volume further after which inevitably ends up in lower unit costs.

The undeniable fact that AWS is paid for by the hour means there are not any lower unit prices for using high volumes. Accordingly businesses of all sizes get an analogous deal.

Corporates such as BP, Shell, Aviva and Investec are customers of AWS that experience dramatically reduced costs and gained access to more computing power.

But  low cost isn’t the main advantage, rather the pliability it offers, said Gavin.

When businesses are experimenting or testing new product or service they could do it on AWS’s cloud instead of having to take a position in resources up front. “Businesses can try something out,” said Gavin.

For example Hailo, which developed an app for locating black cabs in London, has put its IT infrastructure inside the AWS cloud. The corporate didn’t have to risk investing in a datacentre and the hardware that goes with it. Nor did it should buy greater than needed just in case.

Through using AWS, the corporate, which was only arrange 18 months ago, was ready to expand to other AWS regions with none additional investment in technology infrastructure and without the ought to re-architect its application.

Channel 4 is another example. It used AWS for its microsites within the early days of the Big Brother reality TV show to deal with peaks in online demand. Traditionally Channel 4 may have needed to build another datacentre.

As well as large corporates with huge demand for computing power and small companies desirous to experiment taking advantage of AWS, there are firms which have businesses susceptible to peaks and troughs in demand.

National Rail Enquiries, has its website in the AWS cloud, and the benefits of on-demand capacity are essential as there are steep peaks and troughs favourite from commuters. The website handles over two million enquiries every weekday for more than 16 million customers.

Other companies have transformed their businesses and cut costs. The Commonwealth Bank of Australia, is a big client of AWS. It is a bank which is moving lock, stock and barrel to the cloud. It even runs its online banking app on AWS.

Customers like these and many thousands more have increased the volumes of work on AWS’s cloud rapidly. It took six years for the S3 storage platform to reach a trillion objects stored and only 10 months more for this to double.

According to AWS, every day it adds enough new server capacity to support Amazon’s entire global infrastructure when it was a $7bn annual revenue enterprise.

Amazon as a whole grew its turnover from $5.3bn in 2004 to $74.45bn last year.

It is not just a utility for end-user businesses but also for IT services firms. The outsourcing sector has been transformed. IT services firms are now selling cloud services to customers on top of the AWS platform. AWS does the pipe into a business and the systems integrator links up the devices to add value.

It is not commercially a good idea for most IT services firms to build their own cloud infrastructure when they can tap into a resource like AWS. This would be like an airline drilling its own oil and refining its own fuel.

AWS has a global partner ecosystem with 5,000 systems integrator partners and 3,000 technology partners. These service providers add value to the AWS computing resources.

But the cloud still hold fears for some with security and continuity on the minds of businesses venturing into the cloud and AWS is not immune to bad press. The company has hit the headlines in the past for less positive reasons, which demonstrate some of the risks of having resources inside the cloud. 

In 2011 a lightning strike in Ireland put European cloud services out of action. Amazon said:  “This disruption affected a small number of customers in one availability zone.”

Last year AWS went down for about an hour as a result of connectivity problems in a North Virginia datacentre.