Tired Amazon is thinking outside of the big box
MATHEW INGRAM
When it comes to Internet superstars, Google is clearly the pick of the litter. Every time the company launches a new service -- or is even rumoured to be thinking about one -- spotlights are trained on Mountain View, Calif. But there are other companies doing innovative things on the Internet, including one that doesn't get talked about much any more: Amazon.com.
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Not that long ago, Amazon was everyone's favourite Internet star, and chief executive officer Jeff Bezos was everywhere, talking about how the on-line retailer was disrupting the field of commerce with its virtual storefront and unlimited inventory.
Although it didn't make a profit for a long time, it managed to expand at a prodigious rate as it moved from selling books into everything from garden tools to cars.
Now, Amazon seems a lot like an old-fashioned department store. In other words, boring with a capital "b." At the same time, however, the company has been doing some interesting things below the radar, things that -- investors will be happy to know -- don't involve spending as much as $4-billion (U.S.) on an unprofitable startup, the way eBay did on Skype last year.
Whether these new ventures can help Amazon boost its now anemic growth remains a big question mark. If nothing else, however, they might help the company build a whole new series of relationships with small and medium-sized businesses, relationships that in turn could lead to more profitable ventures in the future.
One of the first new ideas to make it out of the lab was Amazon's Simple Storage Service, or S3. In effect, the service allows any company (or even an individual Internet user, for that matter) to use the excess storage space on the company's massive server farms as a back-end for their business. The space can be used to actually run the databases that power a Web-based operation, or for automated data backups, or a combination of both.
Small and medium-sized companies are already making use of the Amazon product as a cheap alternative to expensive data-hosting services, something that accounts for a substantial portion of the costs that many Web startups face. The photo-sharing site SmugMug, for example, uses S3 for much of its storage and has a favourable review of the service on its website.
Not long after S3 was announced, Amazon started beta testing a service called EC2, or "elastic computing cloud." In addition to using the Internet retailer's servers for storage, businesses will be able to turn one of those servers into a virtual machine, expanding their network quickly and easily whenever they need to. Instead of having to go out and buy new computers, in other words, they can just clone and upload a mirror of an existing one.
Other companies offer similar types of services, from startups to server giant Sun Microsystems, which last year launched what it called a "grid computing" service that companies can use instead of having their own dedicated server farms. But Amazon's new services are almost an order of magnitude cheaper than most of the competition, with storage charges of 15 cents per gigabyte per month (compared with $1 or $2) and server charges of 10 cents per processor hour, compared with about $1 an hour.
Interestingly, both of Amazon's new services -- automated distribution of network storageand the ability to add virtual machines to a network -- flowed out of things the on-line retailer was already doing internally. In that sense, they are more like tools that Amazon developed for its own business and are now offering to other businesses (which makes a lot more sense strategically than buying an unrelated company like eBay did with Skype).
All is not sunshine and roses for Amazon, however. The problem with building new Web-based services that are powered by a massive server farm and sophisticated software is that there are a bunch of other companies out there with equally massive server farms and expertise in software, including Google and Microsoft. Both are already rumoured to be working on remote storage services, which in Google's case, at least, are expected to be free.
By getting out of the gate early and without much fanfare, Amazon may be able to build enough market share and customer loyalty for its new services before others arrive on the scene, or it may only succeed in paving the way for its larger competitors.
Either way, however, the Internet retailer doesn't really have much choice but to try and find new markets.
Being an on-line department store -- even the world's biggest -- just isn't enough any more.
Mathew Ingram writes analysis and commentary for globeandmail.com.