November 16, 2006 4:00 AM PST

Amazon: Utility computing power broker

Utility computing--the notion of paying for Internet-delivered computing services by the drink--has enlisted an unexpected adherent: online retailer Amazon.com.

The likes of hardware makers IBM, Sun Microsystems and Hewlett-Packard have preached the benefits of utility computing for years. During that time, Amazon has been quietly putting the idea into practice. Its Amazon Web Services business essentially opens up the online store's computing guts to outsiders, giving software developers access to its retail services, such as fulfillment and commerce, as well as to computer processing and data storage.

So rather than buy and run an e-commerce package or a server farm, programmers can tap into Amazon's infrastructure over the Internet and pay for it based on usage, much like they do with electricity or other utilities.

"One of the things that stands out about Amazon is our willingness to plant these seeds and grow these trees and spend some time doing it," Amazon CEO Jeff Bezos said. "We think we understand what Web-scale computing will need, and we'll be well-positioned in a high-volume, low-margin business."

Started in 2002, Amazon Web Services now has about 200,000 developer customers, and the company is actively investing in it, with an eye toward a long-term payback. Its goal: to establish a separate line of business that builds off of Amazon's technical expertise and mimics the economic model of its retail business.

Amazon's game plan became clearer over the past year, as it expanded its roster of Web services and top executives hit the road to "evangelize" the business.

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Video: Amazon.com CEO talks Web services
Bezos describes the e-commerce giant's hopes for offering computing and retail services to developers.

Many see the retail giant as competing with traditional computing vendors and, potentially, with large-scale Web providers such as Google, eBay and Yahoo.

"Most of the big tech vendors--including IBM, HP and Sun--offer basic computing infrastructure as a pay-as-you go utility. But I think at the moment, they're being outmaneuvered by Amazon Web Services," said Nicholas Carr, a business writer whose book "Does IT Matter?" argues for the rapid adoption of outsourced utility computing services.

Unlike Amazon, traditional technology vendors typically view utility computing as an adjunct to an existing corporate IT business, rather than a standalone line of business, he noted.

"Amazon is coming at it fresh, without any baggage. As a result, it's been able to target the current sweet spot for utility computing--startups and smaller companies that have Web-based businesses and need highly scalable systems," Carr said.

A natural extension?
As ambitious as Amazon's vision is, some financial analysts have voiced concern over the amount of the company's technology investment, $2 billion to date, part of which is spent to run and develop Amazon Web Services.

Bezos responds that he's just thinking ahead. Amazon Web Services is like previous forays into new areas, such as its international expansion or its move to sell products other than books and music. Between three and seven years passed before these showed "meaningful financial results," he said.

The first Web services released by Amazon gave developers access to the data generated on its retail site through an application programming interface (API). A Web site developer could, for example, pull book price information from Amazon and eBay and present it to shoppers.

In the past several months, however, the company has fired up two generic computing services that do not have an explicit tie to its retail site. These services directly tap into the idea of utility computing.

Amazon Elastic Compute Cloud (EC2), launched as a beta in August, allows outsiders to rent Amazon's servers per hour of running time.

Its Simple Storage Service (S3), released in March, is the same idea for data storage. Other Amazon Web Services enable developers to write applications that use the company's huge distribution centers for order fulfillment or that use Amazon's setup to reliably send messages between computers.

Its Mechanical Turk automates the process of finding outsourcers to handle small jobs, such as sorting through invoices to spot problems that computers have trouble finding.

The introduction of the latest computing services, although still in beta, caused a buzz among developers, particularly those at smaller Web companies. The pay-as-you-go scheme can obviate the need to purchase computing gear, hire people and deal with bandwidth providers.

CONTINUED: Savings of $500,000 a year…
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