Amazon’s river of bits

Since its launch more than a decade ago, has served as an interface between the digital and the physical worlds, providing an easy and efficient way to shop online for an ever expanding array of material goods. As the first widely successful Internet retailer, its business has been as much about the old-fashioned craft of logistics – warehousing, picking, shipping – as the newfangled arts of web design, online merchandising, and algorithm wrangling.

But the company’s recent moves show that a transformation, or at least a refocusing, may be in the works. Amazon may be signaling that it sees its future more as a river of bits than as a river of goods. Over the last year, the company has greatly expanded its “digital downloads” business, launching its Unbox digital movie service and its mp3 music store and unveiling its Kindle ebook reader. At the end of January, it announced it would buy Audible, the largest seller of downloadable audiobooks and other digital spoken-word products. Most audacious of all, Amazon has begun selling computer processing and data storage in purely digital form through its Amazon Web Services unit. Whether it’s books or music, movies or servers, the company is aggressively trying to substitute virtual goods for physical ones.

Amazon isn’t about to close down its physical warehouses, of course. But its digital warehouses could eventually become the center of its business. That may be good news from a financial perspective. Amazon has invested a great deal of money and ingenuity into fine-tuning its physical logistics operation, and that operation has given it an edge in online retailing, but the cost of storing, handling, and shipping physical goods has always been a drag on its profitability. That cost largely disappears when customers buy products as bits rather than atoms.

There are risks, too. Many of these digital markets, particularly ebooks, are small, and their prospects are uncertain. And as Amazon moves more into the digital media business, it will have to fight tough rivals like Apple as well as an implacable new foe: free stuff. Amazon will have to succeed in holding the line on prices or else figure out how to earn revenues through complementary services and products or other indirect means.

If the company meets those challenges, what might it look like in the long run? It may end up looking more like Amazon Web Services than like the we’re used to. Just as AWS currently supplies virtual servers and storage drives to companies, Amazon could become the preferred supplier of virtual media servers to individuals. You store all your media on your own virtual machine in Amazon’s data centers, and Amazon serves up your audio and video seamlessly to whatever device you happen to be using at any given moment. Everything’s automatically synced, cached, and backed up, without you having to worry about it, and you use one web interface to control it all.

I’ve long thought that the AWS business and the retailing business were fated to come into conflict. But maybe they’re the same business after all.

6 thoughts on “Amazon’s river of bits

  1. Harald Felgner

    Though the utopia of storing private photographs, music files, and all the rest of personal data externally might sound intimidating in the first place – I am looking forward to it. The mere effort of performing backups and looking for archive files on one’s own harddisks/ DVDs is increasing immensely as soon as you begin to produce files of a certain type beyond amateur level. And even then …

    It goes without saying that different applications trying to access those files that have been moved to a new archive location, are throwing different errors and in some cases make it nearly impossible to switch that access location on a regular basis without loosing half of the data associated with the files :(

    Looking into an always-online, access to all of my files beyond personal harddisk space future!

  2. George Tuvell

    I have been waiting for a service to centrally control my digital life for the past 10 years! I keep movies, music, photos, and videos all in digital format, but this issue is that some of them are on my mac, some are on my wife’s machine, some are stored on the web, but there is not centralized location that keeps track of the insanity. I love love the idea of being able to fire up my digital life from any device at any point in time on demand. I do think Amazon has some hurdles to overcome, big ones, but this concept is right on.

  3. alan

    The scenario you described is undoubtedly the format that is going to change the way we connect with our data. And the previous comments made it clear we are waiting for it!

    Why would you call Amazon’s new focus audacious? Haven’t they managed to make the transformative process of their business model fairly low key with minimal bad publicity or turmoil!


  4. Linuxguru1968

    “Many people, other than the authors, contribute to the making of a book, from the first person who had the bright idea of alphabetic writing through the inventor of movable type to the lumberjacks who felled the trees that were pulped for its printing. It is not customary to acknowledge the trees themselves, though their commitment is total.”

    — Richard Forsyth and Ray Rada, “Machine Learning” 1986

  5. finn

    Another highly audacious move on Amazon’s part – more audacious than selling digital downloads, I would argue – is “Amazon Fresh”. Short version: WebVan 2.0. Long version: um, WebVan 2.0.

    So far it’s only available in Seattle. I’m a very pleased customer here. Everything I’ve eaten so far today was delivered yesterday morning, waiting on my porch when I woke up at 7.

    That’s a pretty aggressive move into physical goods.

  6. friarminor

    Amazon Web Services, concept-wise, is the way to the future. From apps to services and everything meta-physical, it has become “the” storage, at least for now.

    Now who’s afraid of security and the doomsday crash?

    And we’re tenants by the way.

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