How to Turn Cloud Computing Into Big Business—A Peek Inside Amazon Web Services

3/5/09Follow @gthuang

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3 percent of Amazon’s total revenue as of 2008, the bandwidth (number of bits per unit time) consumed by its Web services division has surpassed the demand from its better-known retail websites as of 2007. Selipsky added that Amazon Web Services has tripled its customer base in less than three years—climbing from 160,000 customers in the first quarter of 2006 to 490,000 by the end of 2008. Its biggest customers include The New York Times, ESPN, pharmaceutical giant Eli Lilly, and WordPress, the open source publishing service.

Selipsky’s goal is to turn cloud computing into a much bigger business for Amazon. In order to do that, he says his team is focused on key issues like security, scalability, and performance (things like speed and reliability). “AWS eliminates the heavy lifting, so you have more time to focus on your business,” he says. One important growth area: big companies have started to use the service more in the past year. “That’s been really interesting to see,” Selipsky says. (That would seem to be a key to becoming a major profit center for Amazon—but big companies are also a harder sell, especially on issues like security.)

But mainly it has been startups and smaller companies that have been more aggressive in taking advantage of Amazon’s cloud computing service. Todd Fasullo, director of operations at Smartsheet (and formerly of Onyx Software), spoke about his company’s experience using Amazon Web Services to handle image rendering, file storage, and outsourcing of tasks. Smartsheet was founded in 2005 and makes collaborative software for project management. “There’s no sales negotiation, and no long-term contracts,” he said. “We really love the model.” Fasullo noted that the cost of using Amazon’s S3 cloud storage was only one-twentieth of what it would have cost to use Smartsheet’s hosting provider.

Mike Harrington, the co-founder of online photo-editing service Picnik (previously he co-founded Valve Software), echoed the sentiment. “We’re pretty conscious of where we spend our money and how we grow. [AWS] helps us smooth out the curves as we grow,” he said. Picnik is bootstrapped and has 16 employees. Founded in late 2005, the company rolled out one of the original Facebook applications—and that has led to major challenges in dealing with spikes and lulls in traffic. Harrington says Picnik is now getting 9 million unique visitors (and 30 million visits) monthly, and its daily peak traffic is seven times its daily low.

“It’s been a great tool to help solve problems,” Harrington says of Amazon’s cloud computing services. “EC2 and S3 have been a security blanket. Without it, I’m not exactly sure what we would have done.”

Stay tuned for WTIA’s next cloud computing event, which will be at Google Seattle (in Fremont) on March 30. It will be interesting to watch how Amazon’s competitors in cloud computing—not just Google, but Microsoft, VMware, and others—adapt their technologies and business models to capture some of the fast-growing developer market, as well as go after bigger companies’ IT needs.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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