Amazon: Transitioning Into a Technology and "Cloud Services" Company - TheShellyPalmerReport

I've read a bunch of analysts' reports looking for a mention of the fact that Amazon (AMZN)is in the middle of a transition to a technology company and that their service offerings portend a significant upcoming trend and revenue growth opportunity. I couldn't find a word, so here's my brief on Amazon, the technology company.

The headlines read "Amazon Earnings Double" as news of amazon.com's quarterly earnings hit the web. This is not true, by the way. The numbers include a one-time boost from the sale of their European DVD rental company … oops. Amazon's North American sales remained strong growing 35% year over year. As for high fuel costs and the future of free shipping? Amazon CEO, Jeff Bezos said "Since we offer free shipping and Amazon Prime offers fast free shipping, the burden is upon us to make sure that we can do that in a way that is economical for us, so that customers can continue to enjoy those free shipping offers." All in all, it was a pretty good earnings report for Amazon and the stock is up about 8% on the news.

About two years ago, Amazon started Amazon Web Services (AWS), their cloud computing company. It offers four core services: Simple Storage Service (S3), Elastic Compute Cloud(EC2), Simple Queuing Service and SimpleDB. In non-technical terms: Amazon offers storage (like a hard drive), computing (like the CPU in your personal computer, only better), message queuing and database management. In the coming months you are going to hear about cloud services from companies like: Google, Microsoft, Sun, IBM, Oracleand even Salesforce.com.

What makes these services unique? They are all accessed over the public Internet and all of the heavy lifting occurs at Amazon. So, you get the benefits of a humongous IT infrastructure in a "pay for what you use" business model. And yes, at 15 cents per gigabyte of S3 storage and 10 to 80 cents per hour (depending upon configuration) of EC2 computer processing, it is way cheaper than building your own data center.

How much cheaper? While doing research and fact-checking for my book Television Disrupted: The Transition from Network to Networked TV, I happened upon a reference to an interesting corporate title: vice president of electricity. It was a senior-level management position that existed at many major corporations during the early years of the industrial revolution. Back then, if you needed industrial quantities of electricity, the best (and possibly only) way to get it was to generate it yourself. Next to the vice president of engineering, there was no executive at any of these companies with more technical skill and training than the VP of electricity.

As we all know, within a few decades, this position was replaced by a line item on the P&L that simply said, "Electricity." Complex generators and the technologists to run them were replaced by off-premises companies that provided all of the required electricity through a utility grid. On premises, the only skill required was the ability to plug a machine or appliance into a wall socket.

A hundred years later, at the dawn of the information age, the exec in charge of high technology in a modern business is the vice president of IT. If you need industrial quantities of computer power, the best (and possibly only, until now) way to get it was to build the data center yourself.

The 20th century VP of electricity and his 21st century counterpart, the VP of IT have a great deal in common. If you follow that logic and spend any time thinking about the next generation of utility-grade grid computing schemas, you could posit that we are all headed for a day when every computer in America or possibly the world will have access to massive computer, and storage, clouds and that there will be companies that harness, license and provide access to this off-premises technology for others to use. Cloud or Grid computing is not new, but the reality of a utility-grid for computer power, when realized, will change the world into an unrecognizable place. Access to that much storage and computing power has never been in reach for average individuals. It may be the most exciting transition in the offing.

So, why no mention of Amazon's foray into the cloud? It could be that it's just early days. To maximize its operating margin, Amazon needs all of this technology. In fact, they need every aspect of their technological infrastructure to be best of breed. This technology is already available to consumers, Google Apps, Apple's MobileMe and Amazon's S3. When will Amazon, the technology company, start to see its own share price moved by having their heads in the cloud? As soon as the Vice Presidents of Electricity (IT) acknowledge that the technology is "enterprise ready." As soon as big business, and more importantly Small & Medium Sized Businesses (SMBs), can avail themselves of this remarkable cost savings, Amazon is going to really see its quarterly earnings double.

Shelly Palmer is Managing Director of Advanced Media Ventures Group LLC and the author of Television Disrupted: The Transition from Network to Networked TV (2006, Focal Press). Shelly is also President of the National Academy of Television Arts & Sciences, NY (the organization that bestows the coveted Emmy® Awards). He is the Vice-Chairman of the National Academy of Media Arts & Sciences an organization dedicated to education and leadership in the areas of technology, media and entertainment. Palmer also oversees the Advanced Media Technology Emmy® Awards which honors outstanding achievements in the science and technology of advanced media. You can read Shelly’s blog here. Shelly can be reached at shelly@palmer.net