Monday, July 20, 2009

Amazon (AMZN)

Amazon is truly a hidden gem of the modern technology age. I doubt that few investors fully understand the cloud technology that Amazon has developed and made into such a vital part of the company.

Aside from being one of the largest online retailers (focus on books), Amazon has drop ship services for merchants and sells a digital book reader called Kindle.

Below the surface of lives a hive of hundreds of thousands of machines at dozens of locations around the world. It is this massively scalable compute farm that gave engineers at Amazon a brilliant idea - rent out their unused horsepower to smaller organizations that could benefit from a massively scalable farm of their own.

Several years later, companies like Nasdaq, the New York Times, and countless unnamed government and Fortune 100 organizations now rely on the computing power in Amazon's cloud.

I'd love to go on and on about Amazon Web Services (AWS), but that's really a topic for a separate and highly technical discussion. The bottom line is that companies looking for short term horsepower or an outsourced core network can choose from a menu of services offered by Amazon.

For those needing to store large amounts of files (pictures, video, news content, backup files, etc), Amazon S3 charges a few cents per month per GB to hold the data. And it will also charge a few cents per GB transferred to host the data for the world.

For those needing 10 machines or 1000 machines, Amazon EC2 will provide this to you within minutes of issuing a command. There are no contracts or startup fees - you simply pay a few cents for each hour you use a machine. You can choose from a variety of hardware sizes, and you have the option to use Windows or Linux. This is a favorite of researchers, academics, and web startups looking for temporary or highly burstable traffic.

If you need a database, you can also rent this functionality by the transaction. Amazon's SimpleDB is internally scalable, so there's no need to worry about clusters or mundane maintenance.

Bottom Line
Amazon has positioned itself as a leader and early favorite in the cloud computing market. This, combined with a strong online retailer position should push Amazon into a highly profitable future.

Disclaimer: My company runs its services entirely through the Amazon EC2 farm. We also take advantage of S3 for file storage and are looking at modifying some apps to take advantage of SimpleDB.

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