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Wednesday, December 22, 2004

Amazon : Giving Away The Store Through Amazon Web Services

The MIT Journal reviews the history of Amazon Web Services(as seen from two different vantage points), talk about some interesting sites powered by AWS, and much more. They talked to Amazon insiders and to a number of outside pundits and third-party developers. Excerpts with my edits added:

While companies such as Google and Microsoft are also experimenting with the idea of letting outsiders tap into their databases and use their content in unpredictable ways,none is proceeding more aggressively than Amazon. The company has, in essence, outsourced much of its R&D, and a growing portion of its actual sales, to an army of thousands of software developers, who apparently enjoy nothing more than finding creative new ways to give Web surfers access to Amazon merchandise—and earning a few bucks in the process. The result: a syndicate of mini-Amazons operating at very little cost to Amazon itself and capturing customers who might otherwise have gone elsewhere. It’s as if Starbucks were to recruit 50,000 of its most loyal caffeine addicts to strap urns of coffee to their backs each morning and, for a small commission, spend the day dispensing the elixir to their officemate.

The strategy behind Amazon Web Services is to give programmers virtually unlimited access to the very foundation of Amazon’s business—its product database—whether they are inside or outside the company’s walls. Developers can grab product data, reformat it, add related services, and use it to attract eyeballs to their own sites. If they feel like it, they’re even free,to create parallel-universe Amazons that have the added features they crave. Amazon demands only one thing in return: that visitors to these satellite sites complete any purchases through Amazon.com itself. The site owners, meanwhile, earn a decent commission on each sale. Exposing the world’s largest product database—along with the editorial content and personalization functions that make Amazon.com so uncannily useful—is such a counterintuitive business strategy that analogies are hard to come by. In a way, the risk the company is taking is like the one Apple Computer has always avoided by refusing to license its Macintosh operating system to other manufacturers. Some observers still think Apple missed its golden opportunity to mount a comeback against Microsoft, while others maintain that the Mac OS is Apple, and that putting it on other machines would have diluted the brand. In Amazon’s case, outside programmers could find cleverer ways of using Amazon’s data than Amazon itself and end up sucking away so much traffic that Amazon’s own site cedes e-retailing’s center stage.

Amazon CEO Jeff Bezos put it in a speech at October’s Web 2.0 conference in San Francisco, “Web 1.0 was making the Internet for people; Web 2.0 is making the Internet better for computers.” Web services, whose name became a marketing meme years before the technology to make them work had actually matured, boil down to the simple but powerful idea that the Web should be more than just a way for human users to call up preformatted documents. It can also be a medium for software programs to communicate and share data with one another. Through a nonproprietary formatting scheme called the Extensible Markup Language, or XML, a string of data can be labeled according to type—as, say, a phone number, a price, or a book title. Web software can then harvest the data from a remote site and re-present it to the end user in any way a programmer wishes. That means a company with a trove of data it wants to share need only put it on the public Web and give programmers a few simple tools for accessing it.

By November 2004, the number of developers participating in Amazon Web Services had grown to 65,000. To keep up with their demands, the company has kept updating its APIs to open up more types of product information and more functions, such as wish lists and advanced searches. How many purchases originate each day with Amazon’s growing web of syndicated storefronts? The company won’t say, but experts have estimated that sites using the company’s Web services send 10 million requests a day to Amazon’s servers.Amazon is far from the only company exploring Web services. IBM, for example, has opened its Websphere server software to outside developers and expects to invest $1 billion this year in new business-to-business Web services, according to Michael Liebow, director of Web services for IBM Global Services, the company’s consulting wing. One IBM creation: a system that uses XML and other standards to tie together the disparate databases used by merchants, banks, and credit-card firms, helping to resolve disputed credit-card charges faster. In fact, Web services’ biggest impact may not be the syndication of individual businesses’ information, as in Amazon’s case, but the standardization of business processes across whole industries, such as finance, electronics, or automobiles, according to Liebow. “Amazon is unique,” he says. “It’s kind of a closed system, and there’s a level of control.” That’s true—and Amazon reserves the right to shut down its Web services at any time. But doing so would destroy the rare symbiosis that has emerged from years of careful community building. “Developers are another kind of customer for us,” says Jeff Barr. “The work they do is going to bring even more diverse types of customers.” In other words, by sharing not just its data but also its retailing tools and a modest slice of the profits, Amazon has turned a programming subculture typically ruled by anticorporate suspicion and paranoia into a wellspring of evangelism, not to mention a funnel for revenue. Surely, that’s one for the books. Absolutely amazing - The Amazon Way!! Some say the business model pursued by an enterprise is the crucial determinant of success for the enterprise - That seems to be very true in the case of Amazon as well.

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