There are two ways to look at Amazon.com: as a retailer, and as a software company that runs a retailing application. Both are accurate, and in combination they explain why Amazon, rather than a traditional computer company, has become the most successful early mover in supplying computing as a utility service. For Amazon, running a cloud computing service is core to its business in a way that it isn’t for, say, IBM, Sun, or HP.
In a brief but illuminating video interview with Om Malik, Amazon CEO Jeff Bezos underscores this point in describing the origins of Amazon Web Services. “Four years ago is when it started,” he says, “and we had enough complexity inside Amazon that we were finding we were spending too much time on fine-grained coordination between our network engineering groups and our applications programming groups. Basically what we decided to do is build a [set of APIs] between those two layers so that you could just do coarse-grained coordination between those two groups. Amazon is, you know, just a web-scale application.” As it developed the APIs for its own applications developers, it realized that the interfaces would be useful, as well, to other programmers of web apps: “And so, look, let’s make it a new business. It has the potential one day to be a meaningful business for the company, and we need to do it for ourselves anyway.”
Bezos goes on to note that Amazon’s retailing operation is “a low gross margin business” compared to software and technology businesses, which “tend to have very high margins.” The relatively low profitability of the retailing business gave Amazon the incentive to create a highly efficient, highly automated computing system, which in turn could become the foundation for a set of cloud computing services that could be sold at low enough prices to attract a large clientele. It also made a low-margin utility business attractive to the firm in a way that it isn’t for a lot of large tech companies who are averse to making big capital investments in new, low-margin businesses.
“On the surface, superficially, [cloud computing] appears to be very different [from our retailing business],” Bezos sums up. “But the fact is we’ve been running a web-scale application for a long time, and we needed to build this set of infrastructure web services just to be able to manage our own internal house.”
This is the great advantage that, at this early stage in the evolution of the utility computing industry, is held by companies like Amazon and Google. Building an efficient cloud-computing infrastructure does not represent an added expense for them; it’s a prerequisite to the success of their existing business.