Home > amazon, business, smugmug, web 2.0 > Amazon + Two Guys + $0 = Next YouTube

Amazon + Two Guys + $0 = Next YouTube

November 4, 2006

The next YouTube will be built on Amazon’s Web Services by two guys in a dorm for roughly $0.

BusinessWeek: Amazon's Risky Bet

BusinessWeek has an article up about Amazon’s push into web services. GigaOM’s got a little coverage, and I see it spreading a bit over on TechMeme and TailRank.

SmugMug in BusinessWeek

We’re in the article, since we’re a big believer in this “new” vision of Amazon’s. Amazon calls the stuff they’re exposing the “muck” of doing business online, and I think it’s a perfect term. Some people see this as some radical departure from Amazon’s core business, but I don’t at all. Just like much of Amazon’s business, it’s an evolution. They began as a bookstore online (no-one remembers this, but they weren’t the first. BookStacks was relatively huge when Amazon launched), and eventually evolved by adding more and more products. They sell nearly everything, including groceries, now.

Why? Because once they had some of the infrastructure built to sell books, it made sense to add DVDs and CDs. And then once that was built, it made sense to add electronics and video games and gardening supplies and everything else under the sun. Why? Because they had even more infrastructure built. The average person doesn’t appreciate just how difficult the fulfillment piece of Amazon is, from warehousing, inventory control, packing, and shipping, but those who do boggle both at how difficult it is and at how well they do it. May as well leverage that expertise across other product lines where it makes sense, right?

Along the way, they also happened to get extremely good at systems. My father co-founded and successfully ran a direct competitor to Amazon, fatbrain.com, so we got a good, close look at just how good they were. While eBay was having massive outages, Amazon continued to purr along, scaling well and fast. When Toys R Us had a disastrous holiday season one year because they couldn’t scale their systems, who did they call? That’s right, Amazon.

I don’t have any direct knowledge of the chain of events, but I’ll bet it was something like that which caused the initial light bulb to start glowing. Dimly, at first, but glowing none-the-less. The thought process probably went something like this: “Hmm, you know, this letting other businesses like Target, Borders, and Toys R Us build their businesses on ours is turning out to be a good deal. It leverages our existing infrastructure and knowledge to grow our sales. I wonder how we can let other businesses build and grow on ours?”

Enter Amazon Web Services, zShops, Marketplace, and the other programs to let people sell things on Amazon without actually being a part of Amazon. The first Web Service, E-Commerce Services (ECS), allowed anyone to build their own shop online, using their own URL and look-and-feel to sell, say, TVs. But Amazon would handle all the nasty bits of the process, like actually acquiring and shipping the TVs. To use their terminology again, the “muck” of running an online retailer was taken out of the equation – the online TV shop could focus on customer acquisition rather than fulfillment headaches.

From there, it’s really a fairly small step, rather than a giant leap, for Amazon to say “Hey, we really like people building their businesses on ours. What else do we have hiding around here that would help businesses out?” And it turns out the answer revolves around their other core knowledge and infrastructure investment: datacenters, storage, and servers. Just like physical fulfillment, Amazon is one of the few truly experienced web-scale companies in the world. And just like physical fulfillment, the more volume you do, the more efficient you can get and the more you can lower costs. (Assuming you’re talented, that is, which is a large assumption).

As Amazon ships more items, they get better shipping rates. As they buy more bandwidth, they get better bandwidth rates. And that doesn’t even take into account the knowledge, software, and other intangibles that continue to get more precise as they scale, both in their warehouses and their datacenters.

It’s sorta silly that some of this stuff hasn’t become a commodity already. I think if you took a close look at how SmugMug has built and scaled, say, storage and how Flickr or YouTube or any other recent startup has, you’d see we’ve all done it in remarkably similar fashions. We’re all re-inventing and re-building the same wheel, over and over again. And it’s expensive, time consuming, and not core to our value proposition – except that without it, we can’t build our business. In other words, it’s “muck.”

At SmugMug, we want to focus on the customer experience, from user interface to customer service, and not have to worry about storage. For us, it’s a necessary evil that detracts from our ability to deliver better features faster. We’re actively investigating plenty of other web services at Amazon, both announced and otherwise, and are extremely excited about how much more time we’ll be able to spend with our customers instead of our datacenters.

Finally, I think it’s worth mentioning that we love web services of all shapes and sizes. We publish our own API, we consume web services from Google and Yahoo already, and we plan to add more to the mix. But while everyone else’s web services allow us to add whizzy features, like Google Maps, or Yahoo’s Geocoder, Amazon’s solve real hard problems down deep where no-one will notice them. The “muck.”

They’re really building the very foundation of future web applications.

Categories: amazon, business, smugmug, web 2.0
  1. November 4, 2006 at 12:47 pm

    Amazon seem to be pursuing the often-confusing-to-outsiders growth strategy of expanding on their core competencies, even if those have nothing to do with their core markets.

    Everybody has been expecting Google to become the “operating system” for the web, and from a consumer point of view—offering mail, search, calendaring, etc—they that may be the case. But from a programmer’s point of view, Amazon seems to be offering some nice core services. Between S3 and the compute cloud, they solve a lot of the infrastructure problems for a small web business that wants to grow into a large web business.

  2. frank F.
    November 10, 2006 at 2:25 pm

    “Enter Amazon Web Services, zShops, Marketplace, and the other programs to let people sell things on Amazon without actually being a part of Amazon… But Amazon would handle all the nasty bits of the process, like actually acquiring and shipping the TVs.”

    You’re a little off. Amazon does not acquire and ship items for marketplace and zShops sellers. They basically only handle the transaction, and matching buyers with sellers. You’re fully responsible, as a seller, for obtaining and shipping your own merchandise. At no point do marketplace/zshops merchandise ever enter Amazon’s hands. You ship directly to the buyer. Amazon takes a 15% commission on the sale price of the item, and around 30% of the shipping fee they charge the buyer; the seller gets the rest.

    I know you’re not in that market, so the mistake is excusable, but it is a gross misstatement.

  3. John D.
    November 10, 2006 at 5:10 pm

    In fact, Amazon is offering to take over the fulfillment end of the process. From the article:

    “For instance, a new service called Fulfillment by Amazon lets small and midsize businesses send their inventory to Amazon warehouses. Then when a customer places an order, Amazon gets an automated signal to ship it out–no muss, no fuss, no servers or software or garages full of stuff.”

  4. November 10, 2006 at 6:56 pm

    frank: Sorry, I wasn’t referring to all of those offerings as removing the acquisition and shipping. I was referring to the business that in general build on Amazon as well as the ones that specifically use fulfillment services, too. I probably should have clarified.

    Specifically, Amazon Web Services consumers have been able to do this for awhile. They build a shop online, but don’t maintain inventory. That’s not new – they’ve been doing it for awhile, and that’s what I was referring to with the TVs bit.

    New to Amazon, though, is the ability to acquire inventory and have Amazon warehouse and ship it for you. That’s pretty neat, and is new.

  5. Ben
    January 15, 2007 at 8:18 am

    I think they just did – flikzor.com.🙂

  6. February 5, 2008 at 7:58 am

    Great post, I think there sure are some real opportunities out there where developers can leverage S3 to build out some interesting web services. I think the biggest hurldle after the technology side of things is marketing (getting mentioned in popular media, websites, etc.).

  7. March 3, 2008 at 3:15 pm

    We’ve just gone live with S3…your articles were a great inspiration. HungryFlix is hoping to be those two guys with the next YouTube!

  8. Wiley
    September 27, 2009 at 6:35 pm

    I like these kinda of stories, two guys with ideas make their dream come true.


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