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It's quite an interesting business decision to jump into this market.

Take Zencoder for example (which is one of my favourite players in this field)... if you are to compare the prices with say Zencoder [1] AWS is much more cost effective (by several factors). Even if you were operating at scale and spending $2000 per month with Zencoder, you would only get 50,000minutes worth of HD Video. (You pay 2 minutes worth of credits for HD video on Zencoder).

If you spend $2000 with AWS, you would be getting 33% more value. (Remember, this is operating at scale. The savings can be even larger)... and this is really the best case scenario for Zencoder.

If you are "just getting started", the savings are immediate. On Zencoder it's $0.10 for HD video, compared to $0.03 on AWS.

I'd be really worried and slightly confused by Amazon took this step? There are several video encoding companies that operate on AWS already, and they all just got sandbagged.

    [1] : http://zencoder.com/en/pricing

Looking at the fact that you can do encoding across a lot of different regions seems to me to indicate that there isn't any special capabilities required for Amazon to implement this other than just a custom AMI.

If I had to guess, this is all part of a strategy to figure out ways to utilize their idle fleet. Spot instances are often used for these sorts of batch offline compute-intensive jobs, but if you're a third party you are hostage to the market dynamics (changing prices of spot instances). Since Amazon owns the market, they can just take capacity out of the fleet of available as spot instances instantaneously for free and be immune to pricing changes in the spot-instance market - something no competitor could ever do.

So if you were to ask - what is a common batch-style workload that requires a lot of computing power that a lot of people need who would otherwise not be using our spot instances and that can consume our idle capacity? I can't think of a better market than video encoding.

This is certainly scary for companies like Zencoder, and feels somewhat anticompetitive (IANAL so speaking practically rather than legally), but it makes otherwise good sense as a business strategy.

I'm not sure how it's anti-competitive, unless in six months Amazon tries to shut down Zencoder's or some other competitor's Amazon account, which I can't really see happening.

It's more implicit due to the underlying economics than explicitly so. As long as Zencoder runs on AWS, barring some magic encoding technology, it can never be cheaper than Amazon could theoretically go. This assumes that transcoding services are competitive primarily along price (which may be an incorrect assumption - I'm not in the business). The bottom limit of the price Amazon can charge is a function of their dominant (but admittedly not monopolistic) position in the cloud computing market.

There's no question that this new service will be a huge problem for Zencoder. However, I'd argue that many companies build on top of competitors and survive. For example, in the cellular world, we get companies like StraightTalk and Simple Mobile who are doing nothing other than reselling service from one of the major carrier, but are often selling for cheaper. With AWS itself, Engine Yard resells instances on top of EC2.

Zencoder's pricing has been high to say the least. For example, for a Medium High-CPU instance (about 2x 2.5GHz processors) I should be able to encode video faster than real time (encoding a minute of video should take under a minute). At $0.165/hour, that's $0.003/minute. Zencoder is charging 10x that amount for many people (Zencoder charges 2-5 cents per minute depending on whether you commit to a large package of minutes or not). Plus, Zencoder can possibly combine spot instances and reserved instances to get better. Now, that's not to say I haven't been a happy Zencoder customer - for the volume of video that my company does, it wouldn't pay for us to run a server ourselves. Zencoder is immensely cheaper than rolling our own solution. However, it seems like it's also a place where another company could come in and disrupt Zencoder a bit. Even if you weren't Amazon, if you built up enough of a customer base, you could likely have undercut Zencoder's rates.

I think one thing to note is that companies don't offer the lowest price they can. In fact, in an oligopolistic market like this, economics suggests that the price (if services were undifferentiated) would drop to the Nash equilibrium. Looking at Amazon's pricing, it seems clear that they want to provide a good value proposition compared to Zencoder, but they're still charging nearly $1/hr which certainly allows competitors to match that price on EC2 hardware and shows that Amazon isn't offering the bottom of the barrel price.

It's never fun to compete with your infrastructure provider (or any well-run company like Amazon even if you aren't relying on them). However, we see these things happen and companies on both sides survive.

That's not anticompetitive though, it's purely competitive. Amazon has better underlying economics (because it has deployed capital to build infrastructure) and therefore is able to offer the same service at a lower price.

Not saying this is the case. But there is such a thing as a vertical monopoly. Anticompetitive and illegal.

It's very hard to imagine a situation in which Amazon could lock new entrants out of the video encoding market. All you need to enter this market are a fast connection and a server farm, both of which you can get for yourself or rent from numerous IaaS providers.

Amazon might very well have a price advantage, but other parties that can offer better quality of service or better L10n or whatever will still attract customers. This is how markets are "supposed" to work.

It would be shady if Amazon set their prices for video encoding below the price of raw EC2, because then competitors would be in trouble. But they haven't done that.

Why (on Earth) would it be shady?!

    >As long as Zencoder runs on AWS, barring some magic encoding technology, it can never be cheaper than Amazon could theoretically go.
Nobody is forcing Zencoder to stay on AWS, if it no longer makes business sense to stay there then they need to move. If Zencoder believes that isn't feasible they need to find different value adds to make themselves more attractive than Amazon. This isn't anti-competitive at all.

Zencoder here. Amazon has done a good job of making their pricing look simpler/cheaper than ours, and for some customers, it is. Two quick comments.

1. Our larger customers don't pay more than this already.

2. Paying 33% less doesn't necessarily mean getting 33% more value.

We'll be writing up an analysis today. Off the record (ahem), we've known about this for a long time, and we aren't worried.

I've been using Zencoder for a little over a year now and it's been a great experience. We're definitely not one of your larger customers, paying about $100-$120 a month (and rising) on HD transcoding jobs.

At our level, switching to AWS would reduce our per minute cost from $0.08 (HD costing 2x normal minutes) to $0.03 (62.5% cheaper). So our $120 bill would go down to $45.

As a small startup, every $1 makes a difference and the price discrepancy will only increase as our usage increases.

I'm curious if you're concerned about erosion of your low-volume customer base eventually leading lost revenue from future high-volume customers.

Well of course not. Paying 33% less means 50% more value!

But in all seriousness I look forward to the post.

> and we aren't worried.

So are you working on designing them out? Or are you counting on them never giving your AWS account short shrift?

I think Amazon is smart enough to know that they can't give anybody short shrift.

The only reason they're the leading computing platform is trust. Trust is the biggest factor in a platform decision, and they'd be foolish to put all their other business at risk for a temporary advantage in one small slice. Especially since they are still making money on every Zencoder job.

> The only reason they're the leading computing platform is trust.

Is there a lot of that left since they knocked Netflix offline on Christmas eve?

Plenty left.

> I think Amazon is smart enough to know that they can't give anybody short shrift.

Really? One example: When states threatened sales tax (before CA), they cut off retailers in those states.

They can and they have given people short shrift when it's in their business interest. To be fair, that just means they know how to increase sales by selecting who gets thrown to the lions, which is necessary in any business.

Sorry, I am speaking specifically of the AWS business.

I think most people making platform selections are mainly focused on AWS. I'm sure they pay some attention now to Amazon proper, but their affiliate programs were a peripheral thing, and

Jon- How does this effect your relationship with EC2?

Not really. Amazon just builds what they need instead of depending on others and then sell it as a service to the larger market. Remember, they're playing for the long-run. Maybe they needed it to convert their videos on LoveFilm.com or maybe another future service connected with their Cloud Drive.

What is also means is that if your company provides a service to other developers you might well be in competition with Amazon in the future.

EDIT: Maybe I should mention that I work at PandaStream, another video transcoding service. We're still cheaper with 100% utilisation but our pricing model and target market isn't exactly the same.

>>>Amazon just builds what they need instead of depending on others and then sell it as a service to the larger market

Yes. But I don't recall reading anywhere that Amazon would or even could offer this. It makes me wonder what else there is they will sell. Warehousing software? Shipping logistics? Anyone have a list?

Amazon already offers warehousing and shipping as a service, even if you don't sell your products on Amazon: https://developer.amazonservices.com/gp/mws/api.html/180-311...

You ship them a pallet of stuff, and then use a web API to ask items to be delivered to addresses.

Oh, they really have an API for everything. That's awesome. Now... I wonder if there are companies in China that have an API to order a pallet of stuff?

Everything that counts are infrastructure. If you're providing a service that other developers build on you're going to compete with Amazon in the future.

Not only developers. They are also upending all intermediary businesses between manufacturers and consumers (inventory, shipping, etc).

This is a strange question - Amazon can offer anything that can be thought of by the human mind and can be shown to make some money. It's a competitive world. I'd fully expect Amazon to do anything and everything their staff can come up with. Perhaps in a few years when the space industry takes off maybe even run a space / orbital freight service. It makes sense for them.

Re: could

Amazon has offered streaming video for years now. This is just a guess on my part, but they probably don't receive video from studios in a stream-friendly format. Their streaming format has also likely been updated over the years.

> There are several video encoding companies that operate on AWS already, and they all just got sandbagged.

Yep, they put a potential competitor into their critical path. The business lesson is: Don't do that.

Nothin personal, jus business.

A potential competitor, yes, but who expected Amazon to offer a video transcoding service? I certainly did not. Do you think that offering any compute-based service using Amazon's infrastructure is a bad business decision?

If you'd asked me a few years ago, I wouldn't have expected Amazon to provide a CDN. Or a DNS server. Or a giant MySQL instance in the sky.

I think the general lesson here is that if it is a server-based operation that can be made more cost effective in bulk, Amazon are interested in doing it.

> that can be made more cost effective in bulk

I assume the Heroku guys have noticed by now. Hopefully they're working on designing Amazon out.

It is interesting that Amazon never seem to go down the acquisition route- if they did, Heroku could be a target.

I really want someone to make an RDS-like service for Postgres. But I don't blame people for not trying right now, I'm sure Amazon will do it eventually.

Are you saying Amazon would buy Salesforce, or that Amazon would buy Heroku from Salesforce?

I actually forgot that Heroku had been bought out by Salesforce- but the point remains that before they sold, Amazon could have been tried competing in any buy out.

I can't quite believe Amazon has never acquired anyone, though- are there any high profile ones out there?

eh? From the bottom of the Amazon.com homepage ...






Book Depository

















Most of those look like online retailers and not iaas or compute services companies.

No one builds services like amazon. They aren't interested in bolting on someone else's idea company.

Plus defunct operations like cdnow.

Amazon bought Zappos and Kiva

Someone already did, like a year ago: http://www.enterprisedb.com/

> but who expected Amazon to offer a video transcoding service?

Anyone who has used their instant streaming service. They have a boatload of video to transcode to zillions of devices. The fact that they would take that in-house was not a particularly big leap.

I never would have guessed it before they released their Simple Workflow Service. Once I saw that, though, game on.

I'd expect anything that allows them to sell more instances without having to increase cost of sales. They have unique edge in being able to see what types of services would do well under this model, including live competitive analysis on the instances they currently run.

"I'd be really worried and slightly confused by Amazon took this step?"

This happens. Look at the operating systems companies. Apple introduced iTunes or Time Machine, and the sales of third-party music players and backup systems goes down. Microsoft includes a web-browser and the sales of third-party browsers goes down, or to go back 20 years, MS introduces DoubleSpace and sales of Stacker go down.

It can be a balancing act. If Amazon starts picking off the businesses of its most profitable cloud customers then there will be an uproar. If Amazon sticks with the features which make it a better cloud provider, then it's more to be expected. This fits into the latter. Hopefully the video encoding companies that operate on AWS already have considered this possibility.

> I'd be really worried and slightly confused by Amazon took this step?

I'm not so sure I'd be worried. Amazon has certain advantages in the market. But they are not into handholding at all. I think you can easily out-compete them on ease of use, support, and community. You can also do much better marketing, and make much more interesting partnerships.

I also think Amazon's massive scale constrains them some; they can't be as flexible. In Zencoder's shoes, I'd be looking to see if I could get a pricing advantage through specialized hardware that covers my base computing load. I've see people drop their AWS bills by a factor of 10 when a good sysadmin designs a workload-specific setup.

OTOH, Amazon's service looks like the most basic possible transcoder. At this point many competitors have moved on to offering full-fledged video CDNs with more sophisticated features.

Does this mean we will see Zencoder and all of the other competitors in the cloud transcoding space start to lower their prices to match amazon?

Or even Microsoft's Azure. They officially announced their entrance into the encoding game about a week ago.



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