Seeker Blog

“Amazon’s in the business of managing complexity,” says Amazon director John Doerr of the venture firm Kleiner Perkins Caufield & Byers. “There’s no other e-commerce player that does that.”

I think Amazon’s remarketing of its internal systems is a masterstroke - though it may well take five years for the bottom line impact to be obvious.

… More importantly, some venture capitalists have noticed, and they’re encouraging their startups to consider using Amazon services to save money and get to market faster. “Amazon is becoming a very interesting company,” says Crosslink Capital general partner Peter Rip. “They’re taking their store in the sky and unbundling it.”

If I were an Amazon director, for sure I wouldn’t look forward to fighting a competitor who has built the defining instrastructure like Bezos has done”:

…Like most computer networks, Amazon’s uses as little as 10% of its capacity at any one time just to leave room for occasional spikes. It’s the same story in the company’s distribution centers. Keeping them humming at higher capacity means they operate more efficiently, besides giving customers a much broader selection of products. And the more stuff Amazon ships, both its own inventory or others’, the better deals it can cut with shippers.

But there’s much more at stake for Bezos than making a few extra bucks selling services that his online store is already providing for itself. This is nothing less than a bid to lead the next wave of the Internet. A dozen years in the making, the economy that has grown up with the Internet by most accounts remains in its infancy. And leadership of that burgeoning economy remains up for grabs.

Google and Microsoft, in particular, are each angling to be the Net’s kingpins: Just as Microsoft ruled the PC world (and its profits) with Windows software, so Google and Microsoft want to build what techies call the “platform” for the Web–the powerful layer of basic services on top of which everyone else builds their Web sites. “Amazon’s a pretty serious dark horse” in that race, says Internet visionary Tim O’Reilly, CEO of tech publisher O’Reilly Media Inc. “Jeff really understands that if he doesn’t become a platform player, he’s at the mercy of those who do.”

Bezos believes he has identified a unique Amazonian edge: Like no other Internet or computer company today, the e-retailer is in a position to apply the efficiencies of the Net to tangible and corporeal assets like products and people. Bezos envisions embedding the tasks of product distribution and knowledge work right into the flow of more automated business processes such as order taking and payment processing. For instance, a new service called Fulfillment by Amazon lets small and midsize businesses send their inventory to Amazon warehouses. Then when a customer places an order, Amazon gets an automated signal to ship it out–no muss, no fuss, no servers or software or garages full of stuff. “Amazon’s in the business of managing complexity,” says Amazon director John Doerr of the venture firm Kleiner Perkins Caufield & Byers. “There’s no other e-commerce player that does that.”

…The result was that Amazon made it much faster and easier to add new Web site features. Small, fast-moving groups of five to eight Amazon employees now could go hog wild with new ideas, such as customer discussion boards on each product page and software to play music and videos on the site. Since then these “two-pizza teams,” which Bezos calls them because each team can be fed with two large pies, have become Amazon’s prime innovation engines. “There’s a huge value in this small, nimble team approach,” says tech consultant and author John Hagel III. “But you can’t do that without this kind of computer architecture.”

For a detailed look at how a smallish web company is saving big money while ramping up their use of Amazon’s online storage component, S3, see this commentary from SmugMug CEO Don MacAskill. That doesn’t directly tell you how Amazon makes money at this. But it certainly illuminates the market that Amazon is addressing.