Why you should care
“Earth’s Biggest Bookstore” may eventually be eclipsed by the “World’s Largest Cloud.” Meet Amazon 2.0.
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We all possess spare capacity or by-products from our lives that we would love to squeeze a profit out of. If you’re lucky, you’ll find a tenant for your spare bedroom through Airbnb, or you’ll loan out your brute strength to help someone with chores via TaskRabbit or you’ll find someone on eBay who wants to buy your pet rocks.
But when the world’s largest online retailer decides to rent out 10 million square feet of spare rack space and a portion of the massive computing capacity it has built up over two decades of online commerce, that’s not a garage sale, it’s BIG business.
Which is exactly what Amazon CEO Jeff Bezos had in mind when the company officially launched Amazon Web Services (AWS) in 2006. With so much attention focused on Amazon and Bezos’ other ventures, including Bezos’ recent acquisition of the Washington Post Company, it has been easy to miss the AWS cloud looming on the horizon. When created, AWS represented a chance to convert Amazon’s idle capacity into a major profit center, a means for the company to tap into the emerging market for big data by monetizing the $2 billion worth of data-processing infrastructure that it had developed to run its business. But even the notoriously farsighted Bezos could not have foreseen that AWS’s growth might one day outstrip the core retail business — and that is precisely what it seems on track to do.
“All the kinds of things you need to build great Web-scale applications are already in the guts of Amazon,” Bezos explained in 2006. “The only difference is, we’re exposing the guts, making [them] available to others.” Now, AWS provides these “guts” to countless companies for a fraction of what it would cost those companies to run their own data servers. Not surprisingly, a bargain like that didn’t take long to spread like wildfire.
We all love a good child-surpasses-the-father storyline, from Alexander the Great to Luke Skywalker to Angelina Jolie. But whether it’s a sitcom or a multibillion-dollar company, most spinoffs and commercial offspring are pale imitations of the original. For every Frasier there are dozens of Joeys or Joanie Loves Chachis. AWS is no Joey.
Amazon’s “killer cloud” now hosts more than 1 million websites, 9.3 million host names, more than 5 percent of the world’s thousand busiest sites and over 2 trillion objects.
As of January 2013, Amazon’s “killer cloud,” originally built by a small remote team in Cape Town South Africa, hosted more than 1 million websites, 9.3 million host names, and more than 5 percent of the world’s thousand busiest sites. And as of April, AWS’s Simple Storage Service (S3) housed over 2 trillion objects.* Morgan Stanley expects AWS to dominate the cloud for years to come and to surpass $24 billion in revenue by 2022 (Amazon recorded $61 billion in revenue in 2012). According to head of the AWS division Andrew Jassy, as of August 2012 AWS was likely less than 10 percent of its eventual size.
As usual, Bezos and Amazon — a company that didn’t turn a profit until a decade after it launched — are dogged by questions of profitability when it comes to AWS. Just like its parent, AWS is a low-margin business, and Amazon investors should gear up for the long haul.
A bunch of new hosting competitors and increasingly sophisticated clients building their own computing clouds will also challenge AWS. But thanks to their long-term planning and big-picture thinking, Bezos and AWS appear to be the front-runner in the global computing competition. That said, the race is picking up speed. Google and Microsoft are recent entries, and both are determined, formidable players.
But Bezos is definitely in it for the long haul. As he said about the 10,000-year clock he is helping to build in West Texas that will tell time for ten millennia, “If we think long-term, we can accomplish things we couldn’t otherwise accomplish. You can’t solve world hunger in five years. You can do it in 100 years. You create the conditions for that to happen.”
Bezos first imagined Amazon as a retail marketplace without boundaries, and he fundamentally reshaped how the world shops. Now he’s turned his gaze to the clouds — and the computing universe could be in for a similarly monumental shift.
* This stat was originally cited as 1 trillion, but was updated to 2 trillion to reflect more recent data. –Ed.