Friday, November 03, 2006

Doubling down at Amazon.com

The cover story in next week's issue of BusinessWeek, "Jeff Bezos' Risky Bet", looks at Amazon.com's move into web services.

Some extended excerpts:
Amazon founder and Chief Executive Jeffrey P. Bezos ... is back with yet another new idea. Many people continue to wonder if the world's largest online store will ever fulfill its original promise to revolutionize retailing.

But now Bezos is plotting another new direction for his 12-year-old company ... Judging from an advance look he gave BusinessWeek ... it's so far from Amazon's retail core that you may well wonder if he has finally slipped off the deep end.

Bezos wants Amazon to run your business, at least the messy technical and logistical parts of it, using those same technologies and operations that power his $10 billion online store. In the process, Bezos aims to transform Amazon into a kind of 21st century digital utility.

Amazon is starting to rent out just about everything it uses to run its own business, from rack space in its 10 million square feet of warehouses worldwide to spare computing capacity on its thousands of servers, data storage on its disk drives, and even some of the millions of lines of software code it has written to coordinate all that.

Bezos spent hundreds of millions of dollars to build distribution centers and computer systems in the promise that they eventually would pay off with outsize returns ... Lately profits have fallen, dragged down by spending on new technology projects.

[This] has investors restless and many analysts throwing up their hands wondering if Bezos is merely flailing around for an alternative to his retail operation.

What's more, at the same time Bezos is thinking big thoughts, Amazon's retail business faces new threats ... Other sites are fast becoming preferred first stops on the Web. Google, for one, has replaced retail sites such as Amazon as the place where many people start their shopping.

Amazon's mission to be the place where "customers can find and discover anything they might want to buy online" doesn't especially mesh with the goal to be the prime source of services needed to run an Internet Age business ... Can Bezos manage a company that simultaneously sells the most routine stuff to consumers and the most demanding business services to entrepreneurs and corporations?

"We are willing to go down a bunch of dark passageways," [Jeff] says, "and occasionally we find something that really works." As always, investing in Bezos and his company will require faith that there's light at the end of his newest tunnel.
See also my previous posts on some of Amazon.com's web services, "Amazon launches utility computing service", "Amazon Mechanical Turk?", and "Remote storage on Amazon S3".

See also the "Get Big Fast" post from my Early Amazon series.

[BusinessWeek article via Om Malik]

Update: BusinessWeek also has an interview with Jeff Bezos about the business of offering web services. Jeff says:
We're trying to leverage an existing asset ... We cannot operate our consumer business without these pieces of Web-scale infrastructure.

We have three businesses today ... consumer-facing ... seller-facing ... developer-facing. The first two businesses are already financially meaningful businesses for Amazon.com, and we believe the third one can be too.
[Found via Matt Marshall]

Update: See also the comments in a thread on an earlier post for my thoughts on Amazon's business and their web services. An excerpt:
It may be a failure of imagination on my part, I have a hard time seeing Amazon web services as a profitable venture. I understand the argument that Amazon needs to build a lot of this anyway for internal use, but I think there is a big difference between supporting and servicing internal customers and external customers. I suspect Amazon will find it very expensive to do everything that enterprise-level paying customers will expect of them.

In addition, I find myself confused trying to determine the target market for these web services. Most web services nowadays are free and targeted at hobbyists. Amazon is hoping to extract hundreds of millions from their web services, which means they would need thousands of enterprise level clients. Does this market exist? Other utility computing offerings do not seem to have tapped it, perhaps because substitutes (e.g. leasing servers) work as well or better for many purposes.
Update: Tim O'Reilly, in an interview with Jeff Bezos at Web 2.0, beautifully summarizes the Wall Street reaction to all of this: "But, why?"

1 comment:

jcricket73 said...

It seems the primary "customer" of amazon's web services at this point are other Web 2.0 startups (most of which will be out of business in a year or two after burning through their angel or VC money).

When I read the stories about how a flickr competitor or online storage startup is using amazon to reduce their operating costs all I hear is: "Isn't it great that amazon's web services allow us to lower our burn rate? We have no revenues and our idea isn't profitable, but it will take us longer to go under this way."