Bezos on Amazon Web Services

Om Malik got an interesting interview with Jeff Bezos, Amazon CEO.

Bezos explains how they worked tough at Amazon to develop a hard interface between their network engineering group and their applications programmers group. Once they had architected a set of APIs for their platform, Amazon thought why not make it available to others and create a business out of it. And so Amazon Web Services was born. Amazon is already a web-scale application, so they have the expertise to run a powerful robust platform.

But Wall Street does not like companies diversifying in businesses too different from their Core. And Amazon business, by the books, is retailing. The stock market has accepted well all line extensions from selling books, to music, to DVDs, to electronics, to watches, and basically to anything that can be retailed. Amazon is a huge retailer for almost anything that can be sold on-line. Their knowledge of their customers, the ease of use, their powerful recommendations and the greatest buying experience you can get on-line are Amazon’s core assets, from a Business academic standpoint.

But the truth is technology and innovation are also Amazon’s Core Competencies, and Amazon would have never been the biggest retailer on Earth without excelling at creating such a great on-line experience through great software and a high-performing web platform. All this technology was developed by Amazon and was vital in achieving differentiation from Barnes&Noble and others. So making this unique expertise in web platforms a new business by itself is just another way to monetize one of Amazon’s competencies.

Wall Street will still argue that retailing is a low margin business, while selling software and services is a high margin one. Wall Street would surely prefer an spin-off of AWS. With the hype on Cloud Computing, it could even allow Amazon to cash-in on the buzz by floating a small percentage of their Web Services unit.

Knowing Bezos, he might prefer to go his own way regardless analysts, and demonstrate with hard facts that he was right to bet on Web Services new business.

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