Don’t look now, but AWS might be a billion-dollar biz
gigaom.com
gigaom.com
Sell your byproducts.
There are two very strong reasons to do this. First, it can be an excellent business. You've created something to solve some problem or remove some pain that your company is feeling, it's extremely unlikely that your company is so unique that it's pain isn't shared by other companies. And it's unlikely your internal tools would be of no interest or utility to other companies.
Second, internal tools are typically of terrible quality. There are various reasons for this but it's a very common pattern due to fundamental pressures and incentives. By selling internal tools you force them to have owners and you force them to have a quality sufficient to be acceptable to the market. This generally vastly increases their quality, which provides a benefit to everyone who uses them, including you.
Amazon always tried to give the impression that they use AWS but (at least in early years) those were half-truths (i.e. statements vague enough that if you squint at it one way you can read "Amazon's internal systems are build in AWS services" and if you squint at it differently, they might just as well say "AWS's servers are hosted in the same data center as Amazon's servers"; public perception was the former and the reality was closer to the latter).
That, of course, doesn't mean that 37 Signals' advice isn't good, just that this is not an example that confirms that advice.
http://psav.mediasite.com/mediasite/Viewer/?peid=7ab95f6a5d4...
We're also building Amazon Silk on AWS. As you might guess I think it's pretty cool too.
If Amazon was selling excess capacity, care to guess what would have happened to peoples services come the christmas rush, or any other crunch time for Amazon?
AWS have always been expensive for capacity you need most of the time compared to renting dedicated capacity elsewhere, as you're not only paying for the capacity, but for enough excess capacity for Amazon not to run into the PR disaster of not being able to handle requests for new instances.
The numbers and plain logic just never matched the perception of Amazon selling excess capacity.
The most amazing thing about AWS was how Amazon managed to get people to see it as the most amazing thing to ever happen for hosting and create the perception that you somehow paid for less, when for most typical web hosting scenarios you pay more for a service that is pretty much promised to be less reliable.
(Note that I use EC2 for some things - it has it's uses, and is a good product, but it was way overhyped)
Amazon IT and AWS invented a virtual machine infrastructure that Retail used as soon as it was available. AWS services were quickly adopted by many teams as well.
AWS has always beeywn the future of Amazon Datacenter IT. Retail is a huge legacy system, so of course Reddit could launch on AWS faster than Retail could fully migrate.
AWS is an externalization of core Amazon technology. Don't get hung up on the fact that Amazon runs on a babysat patched alpha version released before the 1.0-quality version went public. Retail needs some customizations hat your startup doesn't. Really.
This "skunkworks AWS" meme is a story about the business, not the technology.
Also, in response to pg's post below, Amazon has increased its usage of AWS substantially in the last few years. The main website primarily runs on AWS, many individual services have been migrating to AWS, and S3 is heavily used internally for static storage. It wouldn't surprise me if Amazon was running 100% on AWS within the next few years. Or, you know, so I hear from rumors... <_<
AWS growth combined with their new hardware combined with the holiday season should give them a nice boost by early next year.
Are there basically just no margins in their retail business? Are they intentionally depressing profits to keep taxes down? Why isn't there plenty of money there?
Because even if they're investing a ton of money in expanding their distribution system to allow for growth, normally that gets treated as a capital cost and amortized over a period of time, not just expensed in the period they pay the money out. The same is true for upfront investment in their Kindle Fire business (edit: or in AWS infrastructure).
I'm not trying to attack Amazon -- they're a savvy company that has proven to be hugely successful through any number of trials and crises. But it's just not clear to an outsider what's going on with their business at the moment.
Their revenues are also down significantly (I think it was something around 40%) which can't be explained by large investments effecting their earnings.
That is incorrect; revenues were up 44% (http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=iro...)
(That said, I still own their stock and was glad to scoop up some more of it this morning on the cheap.)
I know the argument is that Prime alters one's spending patterns, and ten paying customers are subsidizing every yokel like me who's too busy/lazy to walk to the drug store. Still it feels like an unsustainable model.
I often wonder if we'll look back on this period as the apotheosis of consumerism, when cheap and abundant fossil fuels made it possible behave like we all owned matter transporters.
At some point in the future, when all their growth is behind them and they become a value investment as opposed to a speculative investment, they need to make me between 5% and 10% on my money if I buy the whole company. That's how I evaluate stocks. That means a PE of 10 to 20.
In what year do we believe that Amazon will be making 5X to 9X what it's making now, given it's current maturity? If that year is near, than, sure, perhaps buy here. I just can't imagine that kind of growth for such a large company.
To me, Amazon's is Merchant Of Everything, both physical and digital and Everything is a very big market. Amazon grew to its current size by exploiting shift to on-line purchasing but today they're big enough to start taking advantage of their size. Walmart conquered U.S. with lower prices but Amazon can offer even better prices because they don't have to operate physical stores with staff, just warehouses. Amazon is not done until they have a warehouse for each Walmart store, Best Buy store etc. and their competitive advantage grows with every warehouse they build.
And when there are more Amazon's warehouse than Starbucks, there's international market to conquer.
Additionally Bezos has shown that he's very comfortable competing aggressively, running the business at the edge of profitability, which makes sense if you think that Amazon's ultimate ambition is to drive every other merchant out of business by offering lower prices and become the Merchant Of Everything.
As opposed to drop-shipping the most economical one on demand, and not wasting all the time and shipping stocking places, hoping you'll come in and buy from them before the junk is obsolete.
Stores, except tailors and the like, are dead.
As for their warehouses, cities expand and real-estate, especially when at rock-bottom, is a pretty safe bet compared to renting.
I guess you'd need to crawl the web and look for those headers. Or maybe you could look at IP addresses? It would certainly be difficult to do with any kind of accuracy but you could probably get some decent estimates if your sample size was large enough.
Rendering web pages is actually one of the worst use cases for Amazon from a bang-for-the-buck perspective, especially when you factor in bandwidth.
When people are building 30,000 core compute clusters [1] on EC2 - presumably with zero publicly available web servers, I'd be very interested in any methodology that provides reasonable estimates of revenue based on public web servers.
http://arstechnica.com/business/news/2011/09/30000-core-clus...
(You probably have to have showdead on to see me because I'm hellbanned. I've emailled pg to try and get this fixed, and had no response. If you happen to see this, please check my comment history to realise that I'm not at all a troll, and consider upvoting me on the offchance it will get my account back into positive karma land. Thanks!)
Somewhat out-of-date (Aug, 2011) but a useful estimate.
That's likely only if you use Amazon's Linux distribution (based on CentOS). My EC2 instances say "Server: Apache/2.2.17 (Ubuntu)".
Zonefiles are downloadable.
If you can get a comprehensive list of AWS/Amazon ASNs, you could also hit up the CIDR Report: http://www.cidr-report.org/as2.0/
The rabbit I haven't been able to pull from a hat yet is getting that list of ASNs without a fair bit of legwork.
1. If you just look at the cost of bandwidth and hardware, there's no doubt you can find cheaper solutions in the commoditized basic hosting market. AWS solutions, however, remove a lot of manual work that goes into setup, configuration and maintenance of servers. If you're a startup, it costs you (a lot of) money to hire those people. It also cost you time wasted not working on the core of your service. Up to a certain size, the fixed costs of additional personnel heavily outweigh higher bandwidth costs. Evernote and Stackoverflow have extremely high traffic and might have crossed the threshold at which it's profitable for them to look for savings in hosting bill. A vast majority of startups is not in that position.
2. Unique services demand a premium. Most of the hosting companies provide commoditized services. AWS is much more unique.
3. Services higher up the stack demand a premium. The most basic hosting service offers you a bit of physical space in their building and only give you power for the server and network connectivity. Amazon provides a wide variety of services on top of that. Developing those services and keeping them working is much more costly than just ensuring power is on and network is up. They have to charge more (they have higher costs) and they can charge more (they provide a richer service).
4. Ultimately, the prices are set by the market. We can't really say anything about whether Amazon is more efficient at using hardware or power than, say, SoftLayer, based on their prices. First, their services cost much more to provide. Second, they are free to set their margins at whatever level they please. They could run the service at a loss or they could charge an outrageous premium. We don't know. People are clearly willing to pay for AWS services so at the very least they've set the prices in a way that, given additional benefits, is competitive with traditional server hosting.