Jeff Bezos: How Amazon Web Services Is Just Like The Kindle Business

From my Forbes.com blog The New Persuaders:

Amazon Web Services, which provides computing and storage services to hundreds of businesses, began as a seemingly crazy idea in 2006, but it has since grown into a $1.5 billion business this year,  according to a new report from R.W. Baird. It’s believed to be one of Amazon.com’s fastest-growing businesses, the largest piece of an “other” revenue category that grew 68% in the third quarter, to $648 million, far outpacing overall company revenue growth of 27%.

Today, Amazon founder and CEO Jeff Bezos offered an explanation of how AWS, often seen as something that has little to do with its core retail operation, fits into Amazon’s business, and how it runs on similar principles. In fact, he says, it’s quite similar to Amazon’s Kindle business, where the company makes little money on the device but a lot more if it’s used–in that case to buy lots of books and movies.

Bezos made his comments, which were webcast early Thursday afternoon, to close the company’s first public conference on Amazon Web Services, a three-day geekfest that started Tuesday in Las Vegas. Following are his edited and sometimes paraphrased comments in conversation with Werner Vogels, Amazon’s chief technology officer, sometimes ranging well beyond AWS to entrepreneurship, rockets, and a humongous clock in the mountains of west Texas. (Unfortunately, he had nothing to say about Amazon’s surprisingly large ad business.) You can view the whole keynote here or click the video above.

Vogels: The last time you were onstage, at the Kindle Fire announcement, you said that Amazon should only win when our customers win, and that’s how the Kindle Fire business works. I’d like to think AWS also works that way, but elaborate on that.

Bezos: It’s very similar to our Kindle device business. We sell our hardware near break-even, so we make money when people USE the device, not when they BUY the device. That is very aligning with customers. It causes us to have the right behaviors.

AWS is very similar. It’s a pay-as-you-go service. We’re not incented to get people to overpay for hardware. In the long run, that will work out very well for customers, and it will work out very well for Amazon.

Vogels: You’ve always talked about flywheels, which in Amazon retail is low prices, convenience, etc. What’s the flywheel in AWS?

Bezos: I always get the question, what’s going to change in 1o years? I almost never get asked, what’s NOT going to change in the next 10 years? That’s the more important question, because you can build a business around things that are stable. One is low prices. Another is faster delivery. Vast selection.

On AWS, the big ideas are also pretty straightforward. People will want more reliability, lower prices, etc. The big ideas in business are often very obvious. But it’s hard to keep a firm grasp of the obvious.

Vogels: What are the real mechanisms of innovation?

Bezos: Innovation is a point of view. You have to select people that want to innovate, to explore. An explorer company isn’t for everybody. But for people who get up in the morning and want to change things, it’s a lot of fun.

Other things important for innovation isn’t as fun. One is you have to have a willingness to fail, to be misunderstood for long periods of time. Then, you can ramp up your rate of experimentation. Successful invention requires you to increase your rate of experimentation. AWS is one of those things that helps startups do experimentation faster. …

Read the complete post at The New Persuaders.

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AWOL From Amazon’s New Kindle Fire Tablet Lineup? That (Mostly) Ad-Supported Model*

* Updated below.

From my Forbes.com blog The New Persuaders:

A few days ago, it looked like an ad-supported (read: cheap) Kindle Fire might be in the lineup introduced this morning at Amazon.com’s debut of new Kindles in Santa Monica.

Sorry, no dice. The company did introduce a lot of other products, of course, including a faster, cheaper, $159 version of the Kindle Fire with longer battery life, as well as new high-definition “HD” models–including, in something of a surprise, one that has a nearly 9-inch screen. The 7-inch version with 16 GB of memory will be $199, the original price of the first Kindle Fire. It will ship Sept. 14. The 8.9-inch version will be $299, $200 less than Apple’s iPad, and will ship Nov. 20.

Amazon CEO Jeff Bezos also pulled an Apple-like “one more thing” move by introducing a $499 8.9-inch Kindle Fire, also shipping Nov. 20, that has 32 GB of memory and much faster 4G data connections, though that service will cost $50 a year for 250 MB a month. That doesn’t seem like much data, at least for video streaming purposes.

On the more traditional e-book front, Amazon also showed a new Kindle called Paperwhite for $119 for a WiFi version and $179 for a free-3G version, as well as a newly named basic non-touchscreen Kindle now called the $69 Kindle. That one, $10 less than the previous version, is the ad-supported Kindle.

But it’s not the cheaper ad-supported Kindle Fire that some folks apparently had expected. * Update: To make it clear, as Amazon did not at the launch event, all of the new Kindle Fire models will have some advertising, or what Amazon calls “special offers” and “sponsored screensavers” that previously were only on the Kindle with Special Offers. So in a sense, the whole line has at least a small ad component that ultimately may have some impact on the price of the devices. But it still looks fairly minimal compared with the potential for a tablet whose cost could be substantially subsidized by ad revenues in a similar way that carriers subsidize cell phones. Although Engadget reported Amazon would soon allow buyers to pay a fee to avoid ads, CNET now reports Amazon has no immediate plans for that.

Why not a much cheaper, largely ad-supported model, given that it would have provided Amazon an additional way to differentiate itself from Google’s, Apple’s, and other tablets? …

Read the complete post at The New Persuaders.

Flashback to 2001: How Far Can Facebook Shares Fall Before They Can’t Fall Any Lower?

Facebook’s stock performance since May IPO

From my Forbes.com blog The New Persuaders:

I’m having a flashback, and it’s Mark Zuckerberg’s fault. OK, not exactly the fault of Facebook’s cofounder and CEO, but his company’s stock.

The swoon in Facebook’s shares, culminating in a close today at less than half their IPO price, brought back memories of what feels like (but may or may not be) a similar situation I observed a decade or so ago in the wake of the dot-com bust. I was covering Amazon.com during its period of rapid expansion, when it was far from apparent to everyone that it would survive, let alone turn into a blockbuster business.

Amazon.com’s shares–which went public at $18, as it happens the price to which Facebook’s shares fell today–had dipped below $6 a share in late 2001. Amazon had huge costs from building out massive warehouses around the country well ahead of its level of revenues, prompting one analyst to predict that Amazon would go under unless it changed its expansionist ways.

It was the one time I remember wishing that I weren’t prohibited by BusinessWeek rules from buying stocks of companies I wrote about. Having reported on the company for several years and knowing how the economics of its business worked, I was pretty darn sure Amazon wasn’t going under and that founder and CEO Jeff Bezos knew exactly what he was doing.

And he did. Thanks to his vision coupled with a determination to stay the course while adjusting for market changes along the way, Amazon is now trading at $248 a share. A mere 100 shares bought then would have realized 40-fold return for a pre-commission, pretax profit of $24,200.

I don’t yet have the same feeling about Facebook’s stock that I had about Amazon’s back then. …

Read the complete post at The New Persuaders.

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