
Don’t look now, but AWS might be a billion-dollar biz - bond
http://gigaom.com/cloud/dont-look-now-but-aws-might-be-a-billion-dollar-biz/
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InclinedPlane
Regardless of what you think about the 37 Signals folks one bit of their
advice has always struck me as being particularly insightful and powerful:

Sell your byproducts.

There are two very strong reasons to do this. First, it can be an excellent
business. You've created something to solve some problem or remove some pain
that your company is feeling, it's extremely unlikely that your company is so
unique that it's pain isn't shared by other companies. And it's unlikely your
internal tools would be of no interest or utility to other companies.

Second, internal tools are typically of terrible quality. There are various
reasons for this but it's a very common pattern due to fundamental pressures
and incentives. By selling internal tools you force them to have owners and
you force them to have a quality sufficient to be acceptable to the market.
This generally vastly increases their quality, which provides a benefit to
everyone who uses them, including you.

~~~
kkowalczyk
Except it has been reported by Amazon insiders that AWS is not a byproduct of
Amazon's other work but a very much stand alone product with it's own dev
group with little connection to devs working on Amazon proper and that Amazon
was relatively slow in adopting AWS product for implementing Amazon's internal
software.

Amazon always tried to give the impression that they use AWS but (at least in
early years) those were half-truths (i.e. statements vague enough that if you
squint at it one way you can read "Amazon's internal systems are build in AWS
services" and if you squint at it differently, they might just as well say
"AWS's servers are hosted in the same data center as Amazon's servers"; public
perception was the former and the reality was closer to the latter).

That, of course, doesn't mean that 37 Signals' advice isn't good, just that
this is not an example that confirms that advice.

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pg
Yes, this is true. When I first heard about AWS I assumed Amazon was selling
excess capacity (because why would an online retailer set out to build
something like this?), but in fact, as you say, it was a completely separate
project. I've heard from people who used to work at Amazon that they don't use
AWS for much there.

~~~
jonjenk
I tend to think we use it quite a lot internally. For instance every
amazon.com web server has been running on AWS for quite a while now. You'll
find more info here.

[http://psav.mediasite.com/mediasite/Viewer/?peid=7ab95f6a5d4...](http://psav.mediasite.com/mediasite/Viewer/?peid=7ab95f6a5d4a479fa512270356a1e8a81d)

We're also building Amazon Silk on AWS. As you might guess I think it's pretty
cool too.

<http://amazonsilk.wordpress.com/>

~~~
justinchen
Great video. Got me thinking about new ways to use S3.

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jontas
I see their stock crash today as a pretty temporary thing. I bought a lot of
shares today around 200 which I hope is close to the bottom of this decline.

AWS growth combined with their new hardware combined with the holiday season
should give them a nice boost by early next year.

~~~
pdx
I like Amazon, but with a PE of 90, I can't make myself buy them.

At some point in the future, when all their growth is behind them and they
become a value investment as opposed to a speculative investment, they need to
make me between 5% and 10% on my money if I buy the whole company. That's how
I evaluate stocks. That means a PE of 10 to 20.

In what year do we believe that Amazon will be making 5X to 9X what it's
making now, given it's current maturity? If that year is near, than, sure,
perhaps buy here. I just can't imagine that kind of growth for such a large
company.

~~~
vannevar
Current revenue growth is around 50% annually; if that continues, it will
reach the lower edge of your target (5X) in 48 months. Assuming of course it
can maintain its margins.

~~~
mikeryan
Am I missing something or don't your assumptions assume that over those same
48 months Amazon's price remains static? Note that any assumption of Amazon's
margins remain the same is kind of hard pressed. Their revenues this quarter
was 40% greater then the same quarter last year - yet their earnings were down
73%.

~~~
vannevar
The question was 'when will Amazon be making 5X what they make now?', and the
answer (at current growth rates and current margins) is 48 months. Which is
not a long time, thereby explaining the high P/E. If you think the growth will
slow substantially or the margins will shrink substantially (or both) in the
next 48 months, then the PE is too high. Otherwise, perhaps it's not so crazy
after all.

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treeform
Not surprising, they brought cloud computing to the masses and are doing a
pretty good job at it too.

~~~
arctangent
Agreed. It would be incredibly naive to suggest that AWS is anything other
than a huge source of income for Amazon for a long time to come.

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kjw
Can anyone think of any ways to collect data on just how big AWS really is? So
far it seems like everyone is just trying to infer based on the "other" line
of their revenues and anecdotes from the cloud community.

~~~
jontas
Their servers send an indication in the http headers: Server: Apache/2.2.21
(Amazon)

I guess you'd need to crawl the web and look for those headers. Or maybe you
could look at IP addresses? It would certainly be difficult to do with any
kind of accuracy but you could probably get some decent estimates if your
sample size was large enough.

~~~
kjw
I haven't used AWS in a while. Is there a pattern to the AWS IP addresses?
(e.g. are they using a set of specific blocks? ...that seems too simple). The
other interesting data point would be how much AWS resource is consumed by
Amazon itself. I understand that they have been moving big pieces of
infrastructure onto AWS over the past couple years.

~~~
crb
They keep a sticky post in their announcements forum with the current list.
The post as of today is <https://forums.aws.amazon.com/ann.jspa?annID=1199>,
and the forum link (in case that didn't work) is
<https://forums.aws.amazon.com/forum.jspa?forumID=30>.

(You probably have to have showdead on to see me because I'm hellbanned. I've
emailled pg to try and get this fixed, and had no response. If you happen to
see this, please check my comment history to realise that I'm not at all a
troll, and consider upvoting me on the offchance it will get my account back
into positive karma land. Thanks!)

~~~
showerst
I don't have showdead on and i see your comment just fine.

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salem
There was an interesting comment from the stack overflow guys that they
guessed that using AWS could cost them 4x more. The evernote guys are another
high profile team that went their own way. I wonder what that says about the
margins for AWS, or is the AWS architecture not actually a more efficient use
of hardware, power etc compared to old school setups at co-lo's.

~~~
kkowalczyk
There are several reasons why AWS does (and should) cost more than a generic
solution.

1\. If you just look at the cost of bandwidth and hardware, there's no doubt
you can find cheaper solutions in the commoditized basic hosting market. AWS
solutions, however, remove a lot of manual work that goes into setup,
configuration and maintenance of servers. If you're a startup, it costs you (a
lot of) money to hire those people. It also cost you time wasted not working
on the core of your service. Up to a certain size, the fixed costs of
additional personnel heavily outweigh higher bandwidth costs. Evernote and
Stackoverflow have extremely high traffic and might have crossed the threshold
at which it's profitable for them to look for savings in hosting bill. A vast
majority of startups is not in that position.

2\. Unique services demand a premium. Most of the hosting companies provide
commoditized services. AWS is much more unique.

3\. Services higher up the stack demand a premium. The most basic hosting
service offers you a bit of physical space in their building and only give you
power for the server and network connectivity. Amazon provides a wide variety
of services on top of that. Developing those services and keeping them working
is much more costly than just ensuring power is on and network is up. They
have to charge more (they have higher costs) and they can charge more (they
provide a richer service).

4\. Ultimately, the prices are set by the market. We can't really say anything
about whether Amazon is more efficient at using hardware or power than, say,
SoftLayer, based on their prices. First, their services cost much more to
provide. Second, they are free to set their margins at whatever level they
please. They could run the service at a loss or they could charge an
outrageous premium. We don't know. People are clearly willing to pay for AWS
services so at the very least they've set the prices in a way that, given
additional benefits, is competitive with traditional server hosting.

~~~
salem
Well, I was ultimately commenting on margins. Since we agree that at scale,
DIY is cheaper, that implies to me that AWS margins are healthy. On point 2&3,
there are plenty of cloud offerings, the more you use premium features, the
more you are locking yourself into to one provider. I would say that the
greatest additional benefit over traditional hosting is low startup cost and
autoscaling. But once you're established, if you're using those premium
features, you're stuck, so your business better have high margins too.

