Amazon Rolls Out its Visionary WebOS Strategy
Written by Alex Iskold and edited by Richard MacManus.
WebOS services are going to be utilized by thousands of companies - and will power the next generation of web applications. Amazon is at this point leading the charge of the big Internet companies to capture this potentially huge market.
There is a very long, but interesting, cover story in today's BusinessWeek entitled Jeff Bezos' Risky Bet. The article focuses on the transformation of the e-commerce giant into a software company. The growing stack of Amazon Web Services clearly points to a sea change in the Seattle e-commerce giant. Indeed Amazon is beginning to look more like an alternative Microsoft for the web computing era!
In short, Jeff Bezos' big bet is a bet on the software infrastructure of the Web. We here at Read/WriteWeb think this is a visionary strategy by Amazon - and it is likely to pay off...
Amazon completes its Web Services stack
In August, I wrote a series of articles about Amazon's Web Services strategy for a Web 2.0 magazine. The article that summed up what Amazon is up to was called: Amazon - the Real Web Sevices Company. Based on the piece in Business Week, it is clear that during the Web 2.0 conference next week, Amazon's Web Services strategy will become official. As a software engineer, I can't hide my joy. This is indeed a triumph of software engineering - a large company has managed to productize the pieces of its own infrastructure.
Not only that, but Amazon is very serious about making money on this endeavor. The web giant is carefully and methodically rolling out the building blocks of its next generation Web Platform. It started with the Amazon eCommerce API and Alexa services. But not until the Simple Storage Service rolled out, did it became clear that Amazon is building a full web services stack. Here is our diagram showing what it looks like:
Web as a Platform
Amazon's Web Services stack is evidence of a new computing paradigm, where web services in aggregate give rise to a new web-based operating system. Like a classical operating system, this new one has the key ingredients - infinitely scalable storage, dynamic indexing service, adaptive grid, etc. These pieces, put together, provide a compelling new way to think about application development. Amazon is actively working to both define and implement the ingredients of this new Web Platform.
Why this makes sense
Building large-scale web software is a big challenge. Amazon solves this problem by offering the infrastructure that has powered one of the biggest online stores for the past decade. Amazon hides complexity behind simple, minimalist APIs and offers their services for a very reasonable cost. The Amazon team takes the concepts of search, storage, lookup and management of data - and turns them into pay-per-fetch and pay-per-space web services.
To begin with, it'll be small and medium businesses that take up Amazon's services. As Business Week points out, Wall Street is not going to jump on this. But the SmugMug photo service did and other startups and small businesses will follow suit. So even if large corporations will not come, there is plenty of money to be made. The Long Tail anyone?
What can we expect?
In the near term, we will probably see more services from Amazon which focus on completing their Web Services stack. For example, S3 does not have querying capabilities - which is a fairly big limitation. The elastic cloud is very powerful, but at the same time complex - so we can expect additional offerings that simplify deployment and management of the grid.
We are also likely to see other players entering the WebOS market. Google has already made moves with its Google Base API and is rumored to be working on the GDrive. Microsoft also has Live Drive in the works. Both Google and Microsoft are no doubt working on other web services initiatives. Also watch out for smaller but more innovative players, like 3Tera - which we profiled in September.
Regardless of the provider, WebOS services are going to be utilized by thousands of companies - and will power the next generation of web applications. Amazon is at this point leading the charge of the big Internet companies to capture this potentially huge market.
In upcoming posts, we will highlight the use cases for Amazon and other web services. In the mean time, let us know if you're currently using Amazon Web Services - and what you think of the experience so far.
See Also: Web Platform Primer - what's available via API?; GData API for Google Base released; Amazon Launches Elastic Compute Cloud
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Excellent write-up, thanx Alex. Yes Amazon is not offering a webOS like YouOS or Goowy but they're offering all the components to make it possible. And they were even faster than Google in this; they offered S3 while people were expecting a similar GDrive move from Google. But these couldn't stop AMZN prices to drop continuously, they can't give the signal of how big their dreams are to the shareholders. Do you think Amazon will have its own webOS and make their plans more concrete?
Posted by: Emre Sokullu | November 3, 2006 9:55 AM
Emre,
I don't have any insights into Amazon stock, but I do not think that strategy of prodcutizing infrastructure is good. And it will work, the margin should be fantastic and ability to scale is there too.
My concern is that Amazon is not a software company, but it will need to become one in order to complete this transformation. I mean 24/7 technical support, training, etc.
Finally, I see that the offerings are going to be separate, there probably will not be an overarching webos, instead, Amazon is likely to offer packages which target different customers with different needs.
Alex
Posted by: Alex Iskold | November 3, 2006 10:05 AM
It may be that Jeff is smarter than the competiton. I'm aware that a number of his staff think so.
Posted by: jeff barson | November 3, 2006 10:58 AM
I would say Amazon has looked at the profit margins of being a store and has decided the web doesn't give it the advantages everyone hoped it would.
However, pivoting into web services is an excellent strategy since it leverages much of their web knowledge, AND their impressive infrastructure.
That's the other part of this. It's one thing to build a web platform, its quite another to make it scalable. Amazon is one of the few who can. I think they know a little something about 24/7 uptime.
Maybe its the reason Amazon really has a chance with this. At least they better, because retail profit margins really are awful-- definitely not going to support that stock price, such as it is.
Posted by: John Milan | November 3, 2006 11:12 AM
First, thanks to Alex for this excellent writeup. I think that Amazon has gotten relatively little attention for this remarkable set of services--it's much more deserving of attention than a YouTube acquisition, for example.
Second, while John Milan is correct that margins in retail are awful, his statement about the stock price doesn't ring true. According to Business Week, the 2007 price-to-earnings ratio for Amazon is 54 (compare that to Google's 35). It seems like the stock price is a bargain.
Posted by: Dan Ciruli | November 3, 2006 3:18 PM
Dan, I think you have it backwards. A higher PE represents a higher premium on earnings. The higher the PE, the better your growth story should be.
Checking Yahoo finance today, AMZN PE is 54.53. GOOG PE is 59.91. The question to ask is which stock has the better earnings potential to support its premium?
For years MSFT supported a high PE, 60+. But as their earnings growth has slowed, their PE has dropped to a more in-line 22.97, as of today.
Posted by: John Milan | November 3, 2006 3:44 PM
I've just messed around with the SSS service a little bit. Seems like a pretty nifty idea. I recently discovered that Streamload/MediaMax has a similar service (nearly identical) but that the pricing is much better.
Posted by: David Mackey | November 3, 2006 5:21 PM
Yes, David, S3 is great. For those of you who are interested in in-depth technical look here is my article for web 2.0 magazine: http://www.web2journal.com/read/233855.htm
Alex
Posted by: Alex Iskold | November 4, 2006 8:07 AM