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Amazon's data socket

July 13, 2006

Yesterday, Amazon's web services subsidiary issued a press release touting the number of web companies that have signed up for its Simple Storage Service (S3). S3 in essence allows companies to rent space on Amazon's infrastructure, using it to store and serve data for their own sites. Because it's the same infrastructure used by Amazon's store, it's exceedingly robust and reliable. And it's cheap. You pay for what you use: fifteen cents per gigabyte of storage per month plus twenty cents per gigabyte of data transferred.

The service is proving particularly attractive to startups. That's not surprising. For startups, building and maintaining - or simply expanding - an infrastructure can be onerous. Even if the components are cheap, it still requires a substantial capital investment - magnified by the fact that you have to build it to accommodate your site's estimated peak future usage, which means most of what you buy will go unused most of the time. And then, of course, you have to hire people to maintain the gear, and you have to worry about all the associated headaches. With a utility service like S3, you get state-of-the-art technology that expands and contracts effortlessly to meet your needs, and you get it for a simple and predictable monthly fee. (Need I have to point out that that's exactly the way you get electricity?) "Despite my early skepticism," writes Om Malik today, "the growing number of early-stage start-ups signing up for Amazon S3 indicate[s] that something big is afoot." He's right - particularly when you take into account that the fees for these kinds of infrastructure services will go down steadily as the utilities achieve greater scale economies, the component costs continue to fall, and competition heats up.

There's another story here, too - a strategic one. As I describe in my book Does IT Matter?, information technology, like earlier infrastructure technologies, becomes less strategic as it matures. Not long ago, it was hard and expensive to build an infrastructure like Amazon's - but the fact that it was hard and expensive also made it strategic. It provided a competitive barrier, particularly against smaller, capital-constrained rivals. As IT costs fell and best practices spread, it became easier and cheaper to build the infrastructure, which lowered the competitive barrier it provided. When the infrastructure turns into a utility service, available to all comers for the same fee, the barrier collapses altogether. You no longer compete on the technology; you compete on something else.

Malik gets at this effect when he writes that "S3’s early success makes you think that [if] the on-demand infrastructure can be delivered at an affordable price, the cost of setting up an online business is going to decline even further ... Maybe what we are seeing is the early signs of value moving into user experience and developer skillset." Amazon also gets at it in its release: "small but fast-growing businesses ... that depend on storage are using Amazon S3's benefits of scale and cost-efficiency that were previously only available to large companies." And Don MacAskill, CEO of S3 customer SmugMug, gets at it when he says, "Amazon S3 makes it possible for SmugMug to compete with huge, deep-pocketed companies without having to raise massive amounts of cash for hardware."

Whether it's compute cycles or storage space or even enterprise applications like CRM, once an IT function becomes a utility it becomes neutralized as a source of advantage. The technological playing field gets leveled, and the battle for advantage moves elsewhere.


This might be considered of topic but when I read this I cant help thinking how great something like this could be for biomedical research. There is so much innovation in the web because it cost's almost nothing to build up an idea. A biomedical lab requires a substantial financial investment and to have it running efficiently it requires some scale to have core facilities running the repetitive jobs as services, etc. Maybe universities or big pharma could play a role of something like amazon. Renting out lab space and core facilities to incite the biomedical innovation.

Posted by: pedrobeltrao [TypeKey Profile Page] at July 16, 2006 02:42 PM

I agree that S3 will transform the landscape for Internet businesses (especially startups). We've already added some S3 features to our Cardbox database and there'll be more to come.

I've started a blog series that you may find interesting, called S3 in Business. Over the next two week's it'll look at some of the risks as well as the benefits of using S3.

Posted by: Cardbox [TypeKey Profile Page] at August 14, 2006 03:45 AM

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