Jeff Bezos’ Risky Bet
And, he hopes, making money. With its Simple Storage Service, or S3, Amazon charges 15 cents per gigabyte per month for businesses to store data and programs on Amazon’s vast array of disk drives. It’s also charging other merchants about 45 cents a square foot per month for real space in its warehouses. Through its Elastic Compute Cloud service, or EC2, it’s renting out computing power, starting at 10 cents an hour for the equivalent of a basic server computer. And it has set up a semi-automated global marketplace for online piecework, such as transcribing snippets of podcasts, called Amazon Mechanical Turk. Amazon takes a 10% commission on those jobs.
In my view Amazon is doing some very interesting innovation. As with most true innovation it is not easy to understand if it will succeed or not. I believe Amazon uses technology very well. They have done many innovative things. They have been less successful at turning their technology into big profits. But I continue to believe they have a good shot at doing so going forward (and their core business is doing very well I think). Innovation often involves taking risks. Bezos is willing to do so and willing to pursue his beliefs even if many question those beliefs. That means he has the potential to truly innovate, and also means he has to potential to fail dramatically.
Related: Bezos on Lean Thinking - Making Changes and Taking Risks - 10 Stocks for 10 Years Update - A9 Toolbar for Firefox Browser
Web 2.0: Amazon.com’s Jeff Bezos:
* O’Reilly suggested that it was a little surprising to Amazon, rather than Google (GOOG) or Microsoft (MSFT), offering services of this variety. Bezos disagreed.”We’re the opposite of a dark horse. A lightly colored horse.”
* Bezos on why Amazon is entering the services business: “For 11 years, we’ve been operating a web-scale application, with high reliability, in a high volume, low margin business, very conscious of our cost structure. I always think high volume, low margin businesses are more defensive – we look at the absolute dollar level of profit and free cash flow…we’re good at it, we know how to do it, and we think it can be a meaningful financially attractive business one day.
* Bezos on Amazon’s biggest costs: “Our biggest cost is not power, or servers, or people. It’s lack of utilization. It dominates all other costs.”
Update: Smugmug explains how using Amazon S3 saves them $500,000 a year
November 10th, 2006 at 3:21 pm
Amazon stocks 1 million unique products in inventory, whereas grocery stores stock roughly 50,000, and supercenters stock around 125,000. What’s more, Amazon sells out its entire inventory 14 times per year, which is more than Costco, Wal-Mart, and Best Buy, whose inventory turns are 12, eight, and eight times…
April 25th, 2007 at 8:57 pm
[...] Wow. I have been a believer in Amazon’s long term strategy. Earnings have not been as positive as many expected (over the last few years) but I continued to believe Jeff Bezos’ long term strategy [...]
July 24th, 2007 at 11:58 pm
[...] Amazon Innovation - 10 stocks for 10 years (April 2005) - 12 Stocks for 10 Years Update (June 2007) - Very Good [...]