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Werner Vogels Explains Amazon Web Services’ Philosophy
One of the questions that I really wanted to get answered at Structure 08 was what the chances of survival are for the myriad of startups out there building their businesses around Amazon’s Web Services. Companies such as RightScale, Hyperic and Soasta depend on both the success of AWS and its shortcomings — the solutions to which they propose to offer. So I sat down with the online retailer’s CTO, Werner Vogels, to see how Amazon viewed this ecosystem. My takeaway? I think most of the these firms are safe.
Vogels said that Amazon built AWS for the company’s internal developers, and as such, didn’t feel the need to wrap services such as dashboards and testing offerings around it. And the company typically doesn’t announce new features for the AWS platform until they’re ready for use. But when it came to persistent storage, he pointed out, they started talking about it as soon as they had a beta, putting startups and other firms planning such a service on notice that Amazon would enter that market.
“We wanted to make sure people had a look at our roadmap,” Vogels said. “Our goal is to be very respectful and recognize the value of the ecosystem.”
Vogels didn’t offer any specific glimpses of Amazon’s roadmap, but he did say the firm listens to the demands of its customers when deciding which services to pursue. He said popular requests involve content delivery network services, backup, small file transfer, large file transfer and visual applications.
He also noted that many enterprises have “accidentally wandered” into the cloud for one-off projects and then stayed there. For those customers he points out that business processes using AWS can be compliant with Sarbanes-Oxley, and that Amazon does work with customers facing regulatory or industry mandates, such as Visa’s PCI requirements to protect cardholder data.
So while Vogels didn’t draw a map showing what AWS has in store for the future, startups planning additional services tied to AWS now have at least the outlines of the company’s plans. They can now follow that outline or chart their own course when it comes to navigating the cloud.
Why Amazon’s Audible Move Is Laudable
Amazon is buying Audible for $300 million in cash. It’s a smart move by the Seattle-based e-tailer that is spending nearly 20 percent of its fourth-quarter end net cash. Why do I like this deal? So far, Amazon has made a living out of distributing physical goods, and leveraging its physical and technology infrastructure to compete with brick-and-mortar rivals.
That business shows strong revenue growth, but gross margins are under extreme duress, and are likely to remain so, according to Amazon’s (AMZN) own 2008 forecast. No surprise Wall Street is unimpressed with their fourth-quarter results, despite record revenues.
But again, Wall Street has no choice but to focus on near-term and quarterly numbers. The Audible purchase seems to be part of a long-term strategy. Amazon now wants to become a major distributor of digital goods. Amazon has made its intentions very clear with music, movies and books (Kindle.)
Audible (ADBL) is another way to bolster that business, since it accounts for nearly 75 percent of the audio download market on the Internet. If you look at their DRM-free music offering, it shows Amazon’s intent to get the tunes to as many uses (around the world) as possible.
I won’t be surprised if Amazon re-tweaks its movie download business as well, in an effort to work with multiple devices on multiple platforms. Audible, on the other hand, already works with different MP3 players and devices. With its technology infrastructure already in place, Amazon can squeeze some of the operational costs associated with the delivery and distribution of digital content (goods.)
Amazon’s web services portfolio also gives us clues as to where Jeff Bezos & the gang are headed. Just as it currently offers “associates” to sell books and CDs from their web sites, Amazon can offer application developers to embed this new digital content — which is an ever-expanding term — into their apps, and use Amazon payment services to sell them.
I am going try and get together with Amazon executives (when I return to active duty) to get a better understanding of where they are going. Meanwhile, you can count on one thing — this Audible purchase is only a piece of their digital jigsaw.
Five Computer Clouds Are All We Need
Written by Baris Karadogan, a partner at Comventures
“I think there is a world market for maybe five computers.”
This is a famous misquote attributed to Thomas J. Watson Sr., then-president of IBM, in an apparent misjudgment of the PC market’s potential. As the story goes, under Watson’s leadership, IBM — which invented the PC — didn’t have a vision as to how big the market could become and let others, especially Microsoft, get the lion’s share of the value creation.
But maybe five computers are all we need. My friend Ray Conley, of Palo Alto Investors, made a good case over lunch one day that the statement could indeed be true if you think of the computer in the cloud sense. Could five computer “clouds” really allow us to do everything we want? The answer is yes, and they can already be found with Google; Amazon; Salesforce.com; either Sun Microsystems or VMWare; and Akamai.
First up is Google (GOOG), for consumer apps. Google can not only take care of all our email, social networking, sharing and blogging needs, but has the means to offer these apps online. Incidentally, Facebook can offer all of these apps as well, save for search. A 2008 prediction could be that they actually do something big on the search front, but I digress.
Next up is Amazon (AMZN) — not for their ecommerce solutions, but for their web services, which I’ve previously compared to semiconductor fabs. They represent the consumer infrastructure cloud. Any consumer Internet app first needs to be hosted somewhere, whether it be on Google or Facebook. Very few companies have the ability to build a big, global data center, but Amazon has one you can use, and pay for by the byte.
With the consumer apps and infrastructure clouds covered, let’s turn to the enterprise side. After all, anybody in front of a PC looks either like an employee or a consumer.
No. 3, therefore, is Salesforce.com (CRM). Just as Google gives you your consumer apps, Salesforce gives you your enterprise apps. Their cloud takes care of all the things you need to get your job done. And just like Google, they are open to third parties who will develop on their platform.
The fourth slot belongs to the enabler of the enterprise infrastructure via control of servers, storage, etc. The owner of this cloud is nebulous. Sun Microsystems (JAVAD) has products and solutions for backend infrastructure, while VMWare is taking care of servers on the front end. I am leaning towards VMWare (VMW), but there is a good case to be made for Sun as well. You take your pick.
The final spot is reserved for the one that gets all the bits to you — the cloud that has the intelligence to move things around. None of the other four work without it. It’s a CDN, and is best represented by Akamai (AKAM).
There you have it. If these companies could completely dominate their spaces, and kill every competitor, you’d be fine doing what you are doing on only five clouds.
OK, so who cares?
Well, from a venture capital investment perspective, if your company can knock out any one of these five, you have estate-making potential on your hands. Even if your company merely complements one of these clouds, you can still do well — either ride their platform or become one of their takeover targets. If you are trying to create a new kind of cloud, however, you may have a problem.
There is a public company investment angle here, too. These companies — call them the “T.J. Watson Portfolio” — are very well-positioned to win over the long term. Just to show you guys I am willing to put my money where my mouth is, follow my profile on zecco.com (covestor version coming soon), and let’s see if I’m right.
Amazon MP3 vs. Apple iTunes: Where Should You Shop?
Amazon (AMZN) has just announced that the beta version of its MP3 download store is live. The company claims it has 2 million DRM free songs, each priced from 89 cents to 99 cents. More than 1 million of the 2 million songs are priced at 89 cents. The top 100 best-selling songs are 89 cents, unless marked otherwise. Most albums are priced from $5.99 to $9.99. OK. Time to try this out and see if Amazon can make me switch from Apple’s (AAPL) iTunes store. Hypebot has a great post about what the store is, and what it isn’t. And that is why I am going to just stick to a head-to-head, hands-on comparison, which follows below the fold.
Find some obscure music test:
Given that Amazon has most of the popular albums, I decided to run a test on obscure music and do a head-to-head using albums/tracks that are sitting in my shopping cart on the iTunes store, just to see if I can actually get a better DRM deal on the Amazon MP3 store.
Hotel Costes X: Not available on Amazon MP3 store
Dimitri From Paris’ Cocktail Disco: Not available on Amazon MP3 store
Breathing Under Water by Anoushka Shankar and Karsh Kale: Yes, for $8.99
Federico Aubele, Panamericana: Yes, for $8.99
Keren Ann, La Biographie De Luka Philipse: Yes, for $8.99, $11.99 on iTunes
Dorfmeister & Madrid De Los Austrias, Grand Slam: Yes for $6.23, vs $7.99 on iTunes
Dust Galaxy, Singles: Yes, 99 cents each, same as iTunes
Night Over Rio, Various Artists: Not available on Amazon MP3 store
Bitter:Sweet: The Remix Game: Yes, $8.99
I bought four albums, and saved $8, which works out to about $45 in lost revenues for Apple. In short, I will be checking in with the Amazon MP3 store before spending the dollars with Apple. I give Amazon a 7 out of 10 for this part of the test.
Discovery & Search:
Amazon beats Apple hands down on search, but discovery of music is still a work in progress. I bet as we buy more from them, the recommendation system will make discovery of “like music easier.” This is Apple’s Achilles heel. I give Amazon a 4 out of 10 here.
User Interface:
The Amazon MP3 store is a mess. There, I said it! Sure there are navigation options and ways of finding music, but compared to the iTunes store, it takes forever to find music you really want. There are way too many options to click and sometimes that can be distracting. However if you get past that, then the click-and-download part is fairly simple, and as easy to use as the iTunes store. I give Amazon a 4 out of 10 here.
Download Process:
You need a special downloader (both Mac and PC are supported) in order to download files. You click and a file with extension .amz is downloaded to your computer. Double-click and the album/single starts to download using the Amazon downloader. It is a process eMusic fans are quite used to, though for iTunes people, it is an unnecessary extra step. Amazon getsa 3 out of 10 here. iTunes is brain-dead simple.
Music Quality:
256 kbps and DRM free. Need we say more. 8 out of 10 for Amazon.
Bottom line: 26 out of 50. I am not ready to write Amazon off just yet. We might have a worthy competitor, willing to lose a lot of money to attract customers. The Mp3 format files are awesome, and I think it makes sense for everyone to browse the Amazon store before hitting the “buy” button on iTunes.
Can Amazon Make Startupping A Science?
Amazon (AMZN) is trying to turn the art of internet startups into a science. At an open event at Stanford yesterday, a couple hundred or so entrepreneurs, VCs, and developers talked about how Amazon Web Services — cheap and elastic storage, computing, message queuing, and payments — could change, or is already changing, their businesses.
“We’re now at a point that business plans really don’t matter,” said VC Randy Komisar of Kleiner Perkins Caufield & Byers. “It’s an iterative process of quickly getting your ideas into the hands of others.”
Komisar, who is writing a book on the topic, admitted that cheap and testable company building makes his job a lot harder, and in some cases irrelevant. “Before — there was a black art,” he said. “We don’t need gurus, we have a market.”
Amazon Web Services — which kicked off with the release of Amazon S3 (Simple Storage Service) last March — now hosts over 265,000 developers, more than 5 billion objects, and up to 25,000 requests per second, according to Andy Jassy, Amazon’s senior vice president of AWS.
Amazon representatives — including a surprise appearance by CEO Jeff Bezos and Amazon backer John Doerr of KPCB — expressed awe at how much traction the services have gotten in such a short time.
Case studies from AWS users — which include disparate startups like virtual world Second Life, live-video service Mogulus, and peer-to-peer expense tracking site Buxfer — drove the potential for the “pseudo-scientific method,” as Komisar called it, home.
“This next wave is not about making it cheaper, it’s about making it so you only pay when you have success,” said Jon Boutelle, CTO of startup SlideShare, an AWS customer since inception. He suggested AWS should use the unlikely motto “failure is an option.”
Joyce Park, CTO of Renkoo, discussed how her social events company was able to play around with building an app for the new Facebook platform without draining too many company resources. The app, Boozemail, turned out to be wildly successful, with some 69 million virtual drinks exchanged by Facebook members since June 29. Because of AWS, Boozemail never had a chance to take down Renkoo’s servers and its main service.
But the money part is important too. SmugMug CEO Don MacAskill reiterated he’s saved $692,000 using AWS for his photo-sharing startup. He said that figure was as of April of this year and would be higher if he recalculated.
The startups seemed to be willing to hand over to Amazon just about every aspect of their backends, telling Amazon at the event they’d pay for additional services, such as a content delivery network. Various Amazon execs, including Bezos, dropped hints about things like Amazon-Oracle integration and the introduction of a service-level agreement (SLA) — which would make Amazon guarantee its services formally and let its customers breathe easier.
Prior to the event, Amazon had announced it would be holding a promotional startup contest over the next month, with the grand prize $50,000 in cash and $50,000 in AWS credits. Four second-prize winners will receive $5,000 in AWS credits.
The contest didn’t seem to be generating much excitement among attendees, with the prize money and the chance of winning perceived as too small. However, Bezos did mention that his personal investment manager might look at the participants, and Doerr heartily encouraged startups to contact KPCB. So maybe the old ways will stick around for a while longer.
There’s another version of the AWS in San Francisco this afternoon; you might still be able to get in.
Additional Stories on Amazon Web Services from our archives:
Apple & The DRM Free Market Madness
When it comes to DRM free music — that is, music not encumbered by copyright certain playback restrictions — the pitchers are still throwing their warm-up pitches. Nevertheless, there is a lot of excitement leading up to the game.
So far two major music labels — EMI Music and Universal Music Group — have decided to offer DRM free music. Others are still sitting on the fence for now. That hasn’t stopped new entrants from entering what is beginning to look like a very crowded market. Real Networks (RNWK), Amazon.com (AMZN) are among several companies that have already made DRM free music sales a priority.
New players, such as Cupertino, Calif.-based Navio Systems’ spinoff gBox, are launching music-download stores. gBox is planning on launching a content download site, starting off with DRM free music. More traditional retailers are getting in on the act as well; Walmart.com is making a renewed push and will start selling DRM free music.
The decision of record labels to sell DRM free music is indeed a blessing for music lovers, who until now have been forced to make choices based on their hardware and have subsequently been locked into using proprietary music formats.
Apple and its iTunes store have the biggest market share, and as a result have many consumers locked into Apple’s DRM. “DRM free music is going to help digital music expand from the iPod generation to the mainstream market,” says John McFarlane, CEO of Santa Barbara, Calif.-based Sonos Inc.
However, now you will be able to buy their music from any store, and play it back on a device of their choice. The jury is still out on where consumers will buy their music.
It would seem that this copyright-free music movement would threaten Apple and its iTunes monopoly. But it won’t and here’s why: First of all, a crowded market has always helped Apple, and there is no reason why it won’t be the case this time around. Two years ago I wrote Digital Music Services, Dot Bombs of Today. This is a repeat of that very same situation, except this time around there’s no DRM and so the music is more portable — any store, any device.
Except most of the devices that folks are buying are iPods.
Apple makes most of its money selling hardware, not music. Its hardware rivals have so far failed to come up with a device that rivals the iPod and hence it remains a preferred device of choice, at least in the Americas.
As long as iPod keeps selling well (no reason why it won’t), Apple also doesn’t have to worry about its music sales as long as it starts offering more DRM free music at a price that is similar to its DRM-protected tracks.
The iPod buyers end up installing iTunes software, and are taken to the store, where they are exposed to a relatively simple interface and a cleaner buying experience. It is still unmatched by other services, and I have tried them all: Napster, Real’s Rhapsody and, my favorite, eMusic.
The non-Apple players face a unique challenge: They are fighting over a business where profits are marginal at best. Of the 99 cents for which a song is sold, nearly 70 cents goes back to the record label. Music sellers are left with 30 cents or so and have to use that to build and operate their music stores. That would include costs for storage, CDNs and bandwidth.
If you factor in that the music sellers would have to market their services, and perhaps have to discount heavily to gain market share (Real is saying its customers will pay 89 cents per DRM track), profits are going to be hard to come by. And what happens when broadband service providers start offering access to music libraries for a monthly flat fee?
It is already happening in France, where competitive telecom and broadband provider neuf Cegetel has unveiled plans that let its subscribers pay an additional EUR 4.99 a month for access to the entire catalog of Universal Music Group’s 150,000 songs and 3,000 video clips. How long before others jump into the business?