The Strategic Value of Amazon’s Web Services

Business by on November 14, 2006 at 1:36 pm

Jeff Bezos’ talk on Amazon’s Web Services at Web 2.0 got plenty of tech press, and generally generated excitement among the development community. However, many in the business community don’t grasp the strategic significance of Amazon’s push into web services that are further afield from Amazon’s core ecommerce service like storage (S3), computational power (EC2) and manpower (mTurk). Techcrunch ran a good interview with Bezos immediately after the conference (a transcript of the recording would be nice).

So, what is the strategic value of Amazon Web Services:
  • Creating new marketplaces: They’ve now created a marketplace for storage and computational power. It is only a matter of time before other providers contribute to this.
  • Deepening ties with the development communities: By strengthening relationships with people building stuff, these people will build more and more of Amazon’s services into their products.
  • Benefits of scale: Amazon’s web services will help Amazon increase its scale, and therefore reduce its costs. Although, I expect these benefits will be limited, every bit helps.
What I see them doing next:
  • Opening S3 & EC2 up for third parties to sell their resources. They do this with mTurk, but QOS issues make it harder for ECS & S2 to do the same out of the gate. Give them time.
  • Data & Algorithmic services: To run their business, Amazon has to perform all sorts of complex algorithms to dedupe data elements, manipulate images, etc. These are probably already being done with services available within Amazon’s infrastructure, and I’m sure they can be modified to be more public facing. If Amazon still had Yellow Pages as part of A9, I’d be even more convinced that they’d look for ways to do this. At Judy’s Book, we found that dealing with Yellow Pages’ data just sucks.
  • Fraud screening: This is really a component of data & algorithmic services, but I thought I’d call it out specifically. Amazon’s fraud processes are world-class. Merchants around the world would greatly benefit from screening provided by Amazon.
Anyway, Amazon will be fun to watch over the next few years.


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