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Photo by Kevin Lisota
Photo by Kevin Lisota

In 2003, a group of Amazon.com engineers had a radical idea: offer outsiders access to the same type of infrastructure that powered the online retailer’s growing e-commerce site. Amazon CEO Jeff Bezos liked the concept, and Amazon Web Services launched in 2006, clearing the way for a new era of computing.

Few knew it at the time, but Amazon’s unexpected and unconventional idea would upend the tech industry, disrupting startups and tech giants alike.

Ten years later, AWS is on track to generate $10 billion in annual revenue and more than half of Amazon’s profits. If it were a standalone company, AWS would easily qualify for the Fortune 500 — with more revenue than many of its own high-profile customers, including Expedia, Yelp, and Netflix.

aws

The rise of Amazon Web Services — along with the growth of Microsoft Azure, a burgeoning cloud startup scene, and a vibrant cloud and IT developer community — has turned the Seattle region into the epicenter of cloud technology, in the view of many tech and business leaders.

Silicon Valley is the undisputed king of the tech world, but Seattle increasingly rules the cloud.

“Consumers may not realize it, but a lot of Silicon Valley firms rely on Seattle companies to deliver important services,” said Mike Riolo, interim CEO of Seattle-based virtualization firm Virtuozzo. The Bay Area is more likely to churn out the next hot messaging app or social network, but Seattle “deals with the plumbing” — the real and lasting infrastructure that provides the foundation for the new tech economy.

The trend positions the region to play an instrumental role in the next era of technology, by powering new capabilities such as artificial intelligence and machine learning, which rely on the massive computing power and seemingly infinite storage available through the cloud.

It’s a new chapter decades in the making.

Forty years ago, “technology in Seattle” meant Boeing airplanes, Fluke digital voltmeters and Physio-Control defibrillators, said Ed Lazowska, a veteran University of Washington computer science professor.

Then Microsoft essentially created the entire software industry.

The region spawned desktop publishing, with Aldus; and created streaming media, with Microsoft spin-off RealNetworks. It created modern online retailing, with Amazon, and just about every derivative, from jewelry (Blue Nile) to real estate (Redfin and Zillow) to groceries (HomeGrocer and Amazon Fresh) to travel (Expedia).

“Today,” Lazowska said, “we totally ‘own’ the cloud.”

Rise of the cloud giants

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The cloud is enabled by high-speed connectivity and sophisticated server technologies that have it made easier for large companies such as Amazon and Microsoft to build and maintain an unprecedented IT infrastructure around the world — something that is difficult, expensive or impossible for smaller companies to replicate. Rather than use their own data centers and servers, today’s developers and corporate IT departments are increasingly renting access on-demand from public cloud providers.

The ferocious growth of Amazon Web Services hasn’t surprised Tal Saraf, who left Microsoft in 2008 to become general manager of AWS’s then-new CloudFront content-delivery network. AWS has grown by using data to see which services are winners and then doubling down on those,” he said. “It’s a refreshing approach.”

“The folks at Amazon have always been willing to think differently,” agreed Matt McIlwain, a managing director at Seattle VC firm Madrona Venture Group. “People talked for years about the idea of offering computing resources on demand, but they went out and executed against it and became far and away the leader in the category.”

Not to be overlooked, Microsoft “has done very well at getting Azure right and has taken second place,” McIlwain said. Revenue from Microsoft’s commercial cloud business — including Azure and Office 365 — approached $10 billion in the fiscal year ended June 30, up nearly 40 percent.

Corey Sanders

“At Microsoft, we’ve certainly felt the excitement over cloud and the opportunities that come from having a hyperscale cloud offering,” said Corey Sanders, director of program management for Azure. “There’s always been a lot of excitement around tech in general in Silicon Valley, but in my hiring experience, the very specific cloud excitement — specifically from running large, multinational cloud solutions — has really picked up in the Seattle area.”

Entrepreneur Robert Frederick, an AWS pioneer who’s now CEO of Seattle-based Internet-of-Things startup Sirqul, said that in his travels to Taipei, Tokyo and Shenzhen, “people refer to Seattle as ‘cloud city.'”

He asked rhetorically: “How could a small company like ours raise the amount of money we have, and have the corporate connections we do if we weren’t located in Seattle? If you’re doing anything with connected devices in the cloud, you have to be in Seattle. You have to.”

At the same time, DevOps — the confluence of software development and IT operations — has become central to the Seattle computing scene. As to DevOps, “I’d put Seattle in the very top tier of the worldwide hotbeds” that include Amsterdam, Austin and New York, said Barry Crist, CEO of Seattle-based development-automation firm Chef. “When you combine that with cloud, there’s for sure something special going on here.”

Internationally, though, the city is still far better known as an aerospace center than as a tech hub, said Joseph Williams, who works for Gov. Jay Inslee as Washington state’s director of economic development for the information and communication-technologies sector.

“The fact that this is the world headquarters of the cloud industry and one of the best places for DevOps needs to be a talking point for Seattle and the governor,” Williams said. “Internationally, most people don’t know we’re home to Amazon, Microsoft, Chef, Concur. Ask someone in Berlin or  Hamburg, they’d figure since they’re tech companies, they’re probably in Silicon Valley.”

And locals’ enthusiasm does run up against some hard numbers when comparing LinkedIn job openings in Seattle and Silicon Valley.

In a recent search, LinkedIn showed 3,702 jobs openings in the greater Seattle area that included the word “cloud” in their title. Of those, 1,265 were from Amazon and 500 from Microsoft, meaning more than half were from other companies, including Huawei Technologies (83 jobs) and CenturyLink (38 jobs). The Bay Area showed 7,541 cloud-related jobs available — more than twice as many as Seattle.

Same with DevOps-related jobs. A similar search showed 626 such positions, mostly with Amazon (133), Amazon Web Services (50), Microsoft (38), Nordstrom (30) and Pythian (22). The Bay Area had 1,796 such jobs, nearly three times as many as Seattle.

And Seattle doesn’t begin to compare with Silicon Valley when it comes to venture capital. In this year’s first half, Silicon Valley firms got $13.1 billion for 598 deals, versus the Pacific Northwest’s $510 million for 70 deals, according to the Money Tree Report from Pricewaterhouse Coopers. The second-largest recipient of VC funds, the New York metropolitan area, got $3.1 billion in 260 deals.

A magnet for growth

But increasingly the distinction between Seattle and Silicon Valley is getting . . . well, cloudier.

Many Bay Area companies open engineering offices in Seattle, or even relocate, to be nearer to Amazon and Microsoft — to better partner with them, poach their talent, or both.

For example, Silicon Valley-based Okta, an online-identity firm, just opened its first dedicated office in Seattle, to work more closely with its exclusive cloud host, AWS, and with frenemy Microsoft, with which it both competes and partners.

Google has much of its cloud expertise in Seattle. Other cloud-savvy companies with engineering offices in Seattle include Alibaba, Cisco, Facebook, IBM, Oracle, Salesforce, SAP and VMware. Apple just made its second major acquisition in the city, machine learning startup Turi, following its earlier purchase of cloud networking startup Union Bay Networks, and is rumored to be looking for a big chunk of space in the region.

Seattle’s stature in cloud computing and DevOps led Resin.io, an Internet of Things (IoT) development startup, to choose the region as a home last year. CEO Alexandros Marino founded the company in London. President Bryan Hale, a Seattle native who had worked at Chef for six years, was already in place here.

“The plan was to move the U.S. west coast, and when the team looked at possible locations, they chose Seattle because our company is at the intersection of DevOps and IoT, and you can say without too much doubt that Seattle is the absolute best place in the world to be located for DevOps and cloud,” Hale said. “This town is built around those today.”

The city’s prominence in those areas is starting to create its own market effects, he observed. “Cloud and DevOps engineers come here for one job and if they don’t get it, they see there are a dozen other places to work,” he said. “Out-of-town companies notice there are so many talented engineers and take offices here, which attracts more engineers.”

Increasingly, engineers are training for DevOps positions so they can take those positions directly after graduating rather than having to acquire on-the-job experience first, said Shannon Anderson, a principal consultant with Seattle’s Recruiting Toolbox.

“I can’t think of any place better for that work than here,” she said.

Though Seattle is fertile ground for cloud computing, not every seedling thrives. Hewlett Packard Enterprise (HPE) in 2014 launched its Helion cloud computing initiative, only to pull back from a public-cloud offering early this year and then reallocate its remaining Seattle employees as part of a shakeup as HPE Cloud general manager Bill Hilf left the company.

Barry Crist
Chef CEO Barry Crist. (GeekWire File Photo)

Chef’s Crist, who grew up in Silicon Valley and worked at Apple for a time, called the two areas “close cousins” but characterized the Seattle computing scene as “more about building value and less about chasing buzz,” adding that workers in Seattle tend to stay longer in their jobs and not run after the next hot thing. The city’s new light rail and renewed downtown are drawing millennials, as is Washington state’s freedom from individual income tax, he said.

One engine driving Seattle’s tech scene is the University of Washington — specifically, its Computer Science and Engineering (CSE) Department.

An educational institution, or even a single professor, can draw students so strongly that it influences the region, wrote economist Enrico Moretti in his 2013 book “The New Geography of Jobs.” Oren Etzioni, a University of Washington CSE professor who in 2014 became CEO of Seattle’s Allen Institute for Artificial Intelligence, was among the UW faculty exercising such a draw, said Dylan Simon, a real estate broker with Colliers International in Seattle. “Students come for the professor and the program and they stay for the jobs,” he said.

In fact, 90 percent of UW alums remain in the Seattle area after graduating, according to UW’s Lazowska. UW’s CSE department graduates more than 300 students per year and is aiming to double that number, he said. About 2,000 CSE grads are working at Microsoft and an estimated 200 are at Google, he said. CSE is now the most popular major declared by UW freshmen.

Matt McIlwain
Matt McIlwain

So what’s next for Seattle in the cloud? McIlwain, of Madrona Venture Group, said he’s “hugely confident” the city will emerge as a leading site for machine learning and artificial intelligence.

He pointed to important research being done at the University of Washington, Microsoft Research and the Allen Institute for Artificial Intelligence. AWS and Microsoft Azure both offer cloud-based machine-learning services, and Microsoft in addition is reportedly building Open Mind Studio, an as-yet unannounced machine-learning suite. In addition, McIlwain noted the presence in Seattle of “a ton” of startup activity centered on AI and machine learning, including several companies backed by Madrona.

Envisioning Seattle as a center for AI, machine learning and the Internet of Things is “spot on,” Azure’s Sanders said. “We’ll continue to see (such specialized technology emerging) in both the Valley and in Seattle, but . . . we’ll see a lot of net new growth in Seattle thanks to the spin-off from the power that cloud solutions offer.”

Cybersecurity, too, is “an enormous issue globally, and a lot of the AI and machine-learning technologies being developed here could extend themselves into a cybersecurity industry that we don’t have yet,” suggested Joseph Williams, the state economic-development lead. “That would be very good for Seattle.”

There’s no question Silicon Valley’s Google will also be a major player in AI and machine learning, McIlwain added. But Seattle has an edge because “it has many smaller companies that are sitting here, where people are constantly thinking about getting more insights out of data. I love our chances of establishing a strength (in AI) that is equal to or maybe even could surpass what we have in cloud.”

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