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Summary:

Amazon.com’s S3 storage web service is proving to be quite a hit amongst the very early stage start-ups. Despite my early skepticism, the growing number of early-stage start-ups signing up for Amazon S3 indicates that something big is afoot. One of the reasons for the growing […]

Amazon.com’s S3 storage web service is proving to be quite a hit amongst the very early stage start-ups.

Despite my early skepticism, the growing number of early-stage start-ups signing up for Amazon S3 indicates that something big is afoot. One of the reasons for the growing popularity of S3 is because the service is optimized for developers and offers REST/SOAP access to its system at pretty affordable prices. Amazon currently charges $0.15 per gigabyte of storage per month and $0.20 per gigabyte of data transferred.

These prices, as Jeff Barr of Amazon explained at SF TechSessions in June, will trend lower, thanks to constant commoditization of hardware and Amazon’s scale. “We are not speculating on the future except to say that we will continue to offer Amazon S3 at extremely competitive pricing by passing along Amazon’s own benefits of scale to Amazon S3 customers,” a company spokesperson said.

S3 is proving to be particularly attractive to community-based media companies – homegrown photos, video, even music. Altexa, Elephant Drive, Jungle Disk, MediaSilo, Ookles, Plum and SmugMug are some of the start-ups that are currently using Amazon’s S3. Online photo sharing company SmugMug CEO Don MacAskill seems to be one happy customer, with a good reason!

He was facing a hefty tab for storage – Smug Mug is adding about ten terabytes worth of photos every month and claims he saved almost $500,000 in storage expenses. His monthly tab just in storage is around the $1500. An Apple 7TB XServe RAID costs about $13,000. Of course there are cheaper options, but still it is a lot of savings.

S3’s early success makes you think that if the on-demand infrastructure can be delivered at an affordable price, the cost of setting up an online business is going to decline even further, perhaps prompting a whole cycle of new entrepreneurial activity. Amazon’s Alexa platform plays into this trend quite well since it allows developers to process and analyze data on Amazon, store it (on S3), and serve it back out to the world.(Amazon, after all is the harbinger of Web 2.0 trends.)

Is this extreme commoditization? In the first stage of commoditization, we say the value shift from specialized chips to all-purporse processors, only to be followed by an appliance movement. The value moved into the software. Maybe what we are seeing is the early signs of value moving into user experience and developer skillset. (Nick Carr, if you are reading this, do let us know what you think. Jonathan Schwartz, chime in, for I know, you know a lot about this trend, first hand!)

Despite its early adoption, it is hard to say if S3 (or Alexa) are a financial success. Yet, it is not hard to imagine S3 as a rallying symbol of on-demand infrastructure, just like Salesforce.com turned software-as-a-service (SaaS) as a viable business option. What do you think?

Nick Carr’s take on this is here.

  1. Amazon should be applauded for S3. However, I can not imagine walking into a VC’s office on Sand Hill Rd. and telling a VC that I’ve implemented my business on top of S3. What if Amazing pulls the plug for some unforseen reason? Or what if there is a global recession and Amazon changes its mind about pricing and decides to raise its prices? Or another scenario — some fiend later sues Amazon on patent infringement ala Blackberry / RIM problems? Oops, we have to shut down the S3 service because some judge forced us to do so due to a patent lurking that we didn’t know about in July 2006?

    There’s an old saying — never put your eggs in one basket. It would be great to see a similar large player with “web scale” capability (e.g., Yahoo) offer a competing service to S3 in order for a healthy market place to develop. Until such time, I think Om Malik’s cautiousness is valid when he says:

    “Despite my early skepticism”

    Note: no reason why a startup can’t build a nice prototype service on S3.

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  2. I’d echo Harrold’s skepticism about the potential reliability issues with S3. I’d also worry about using it for a real-time, online task where the latency of contacting a remote service over a WAN might be an issue for customers.

    By the way, the $1500/month number sounds suspicious to me. If SmugBug is adding 10T of data per month, the cost of transferring that to S3 is $.20 * 10000 = $2000 and the cost of storing it on S3 is $.15 * 10000 = $1500/month, so the total cost appears to be $3500/month just from adding the new data.

    In addition, all the old data is charged $.15 per G per month for storage and $.20 per G per month for the fraction of the old data that is accessed. That’s on top of the $3500/month for each addition 10T of data stored.

    So, it is not clear how these numbers from SmugBug add up unless they have some special deal from Amazon.

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  3. Om,

    Have you heard how much data (on average) any of the bigger S3 customers are transferring to and from S3? If my math is right, SmugMug is pushing about 30 Mbps to S3 just from uploads. Do you have any info on whether S3 been keeping up from a performance perspective?

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  4. This week we’ve seen two disparate views on the future of storage: Sun’s X4500 “Thumper” $2/GB server and Amazon’s S3. Luckily they’re both cheap; the own vs. rent decision seems to come down to operational skill instead of pricing.

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  5. We’ll see how it turns out. MyBlogLog is going to depend on S3 at least for a while. We’ve got about 30k images up there now (e.g. the GigaOm screeen shot from Om’s blog community http://s3.amazonaws.com/buzzsh/2006031413475299sh.png ), which will grow out to several hundred thousand in the next month or so.

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  6. Glad to read such a nice piece of information.

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  7. SmugMug demonstrates the need and the ability of every serial entreprenuer to be ABLE to upload and download photo’s and video’s at affordable pricing…this backs my Level3 Investment cause those 10T’s of data only indicate to me that everything is going digital and everything is IP…and the Video explosion is about to HIT come July 25th…
    skibare

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  8. Jake Kaldenbaugh Monday, July 17, 2006

    Doesn’t this raise the question of, IF this service is successful and becomes supported by additional players (SalesForce’s AppExchange, GoogleBase, etc…), what happens when the provided platform becomes competitive with the core offering? Won’t people want a pure-play provider that won’t have those logical conflict issues?

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  9. I don’t know why everyone still claims that Amazon S3 is very cheap (especially for large scale deployments like SmugMug)

    Let’s look at the facts:
    – the price per Mbit in most co-location facilities is ~$30/m (if you buy > 10mbits). For 1000Gbytes you need ~3Mbit or ~$90/m

    • a dedicated server with 1,000Gb of transfer included is ~$100/m

    • S3-based transfer of 1,000Gb cost $200/m

    So unless you are very small operation — there is no so much business sense to use S3…

    But if they add akamai-like service that allow locality-balancing of these files (as they use for their own web site), I may consider them as a replacement of our home-grown CDN in SiteKreator (assuming they keep the same prices).

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  10. lenkov,

    Buying a dedicated server means you have to “pre-pay” for all that bandwidth and storage.

    S3 provides “pay as you go”. In addition, S3 copies your data to several Amazon data centers, effectively giving you multiple copies of the same data. You would have to buy 2 servers just to get 100% data redundancy.

    Plus, less headaches on “scaling”.

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