About 25 months ago, when I first met Jeff Lawson, formerly of Amazon Web Services (AWS) and the founder and CEO of Twilio, I was skeptical of his chances. After all, he wanted to marry the world of voice to the world of web applications. This oft-discussed marriage of web and voice has been attempted many times and has often met with failure. So for the longest time I resisted writing about it.

Fast-forward to today and my skepticism about Jeff’s business is decreasing, for multiple reasons. For starters, the company, which has raised $4.3 3.7 million in total funding from the likes of Union Square Ventures, The Founders Fund and well-known angel investors, has been very smart about leveraging AWS to build a massively scalable telephony platform cheaply. Amazon CTO Werner Vogels, when describing his fascination with Twilio recently, remarked:

“Twilio excites me with their programmable voice platform and that is a company where you see the power of the cloud, of a startup becoming a platform to challenge any incumbent. The cloud is helping make an even playing field.”

More importantly, it’s gained traction with developers, its target market. In a marketplace where giants like BT (via Ribbit) and Telefonica are stalking similar opportunities, Twilio’s early traction is testament to the company’s laser-sharp focus on developers and their needs. It has taken what had been a complex task and made it simple. Using Twilio, developers can add new phone numbers in real time, allowing them to re-sell them to their customers.

The dead-simple service gives even voice newbies an ability to add voice-to-web apps. It’s garnered the support of nearly 6,000 developers, who have built 1,000 applications that utilize Twilio’s voice API in their web applications. From Heineken to Sony to Intuit — all are users of Twilio’s service.

Today Twilio is launching Twilio SMS, which allows app developers to add SMS-based functionality to their web apps for about 3 cents a message. By working with SMS wholesalers and developing such a simple SMS integration platform, the pay-as-you-go service means that any app can have notifications or can be made to do specific tasks via SMS. In addition, the company has cut the per-month, per-phone number price to $1 a month from $5. Toll-free numbers cost $2 a month. Lawson says that even at $1 a month he makes money, so he is happy to discount.

With my initial skepticism subsiding, it’s clear that I’m going to be keeping an eye on this little company, looking forward to their next disruption.

GIPS, a San Francisco-based company that licenses intellectual property including codecs for audio and video, says it’s come up with a technology that would allow third-party developers to embed video chat in their iPhone-related applications. The new technology is called VideoEngine (VEI) Mobile.

The VideoEngine utilizes H.263 (video codec), GIPS wideband/HD voice (iPCM-Wb) and G711 (audio codec) to provide functionality that would allow real-time video chat or multipoint video conferencing. GIPS is using the H.263 codec because it (and in turn the developers who use VEI) doesn’t have to pay royalties.

Despite GIPS’s statement, VEI can’t really offer real two-way video chat today. Why? Because the iPhone doesn’t have a frontal camera. At best, VEI can be embedded in a mobile application and thus can receive video from some PC-type application, say, from your PC using your IM client to the iPhone. Just not the other way around. Audio is bidirectional. In December 2009, Fring launched a one-way video calling service as well.

That said, I can only see one real value proposition of this new offering: tight synchronization of voice and video that will end up on the iPhone. And I’m not sure if that will be enough for GIPS to get the traction. For video conferencing to take off on the iPhone platform, two things need to happen: First, there needs to be a frontal camera for two-way video chats. Second, Skype needs to make available a video chat offering.

Skype it seems is unlikely to use VEI. It’s already licensed H.264 video technology, which is being included in many mobile phones. I wouldn’t be surprised if Skype ends up using some sort of scalable video version of H.264 for its mobile clients, one that adjusts the video quality based on the network conditions.

As for GIPS, let’s just hope the iPhone gets an upgrade of its dreams — one that involves a video on the front of the device.

The Wall Street Journal in a blog post today points to a research note by Credit Suisse analyst Bill Shope that he wrote in the wake of meeting with Apple executives. It reads:

Apple wants the iPad to be the best device for a few key use cases. For instance, the company believes it could eventually be seen as superior to both handheld and notebook devices for browsing the Internet, using the App Store, and consuming mobile media (video, photos, and e-books). Nevertheless, in other areas, notebooks, the iPhone, or an iPod may be more appropriate. This clear segmentation of capabilities suggests that cannibalization may be less of a concern than most currently believe.

As The Wall Street Journal then goes on to explain:

Shope also wrote that despite the seemingly aggressive pricing of the iPad — the lower-than-expected price points range from $499 to $829 — Apple seemed to indicate it would respond with price cuts if demand for the device wasn’t revving up the way it liked. ‘While it remains to be seen how much traction the iPad gets initially, management noted that it will remain nimble (pricing could change if the company is not attracting as many customers as anticipated),’ Shope wrote.

Initially everyone was expecting Apple to launch a device that would cost as much as $1,000, but instead the company came in at half that price — and it’s still getting criticized. Given that the iPad hasn’t even made it to the market yet, this conversation about price cuts is kinda moot.

Let’s assume that Apple does have to cut the device’s price — it still has lots of room to make a profit with it. According to Broadpoint AmTech analyst Brian Marshall, the base model $499 iPad will cost about $290 to manufacture and has a gross margin of 42.9 percent. Have you checked the gross margin on a netbook, Nokia smartphone or even a Motorola device lately? I rest my case.

Regardless, I’m amazed at the play being given to this iPad price cuts story. People seem to be overlooking the fact that Apple’s business model is in transition. In addition to being a hardware and software company, it’s becoming a “transactions” company.

Apple, thanks to its exclusive deals with phone companies such as AT&T, has learned the art of making money over a period of time. Selling digital media — video games, books, music, videos and periodicals — is just an extension of that very basic idea: an ongoing relationship with customers. Thanks to iTunes and the App Store, Apple has one-click access to customers. If Apple can sell a lot of video games, songs and videos (via iTunes) and books (via iBooks) and gets to keep 30 percent of the total sales, then it behooves the company to sell more and more iPads. Even if it means cutting iPad prices — which it won’t have to.

I am of the opinion — admittedly a minority opinion for now — that the iPad, despite all the early skepticism, is going to find its place in this world. In fact, over a period of time (admittedly longer), I believe its success will replicate that of both the iPhone and the iPod touch.

And I bet Steve Jobs believes the very same thing. As he told Rolling Stone back in 1994:

“I’ve always been attracted to the more revolutionary changes. I don’t know why. Because they’re harder. They’re much more stressful emotionally. And you usually go through a period where everybody tells you that you’ve completely failed.”

At our GigaOM company meeting, Simon Mackie, editor of WebWorkerDaily shared his views on why every weekend he publishes and shares a collection of articles & blog posts he had read over the week. Taking a cue from him and my friend Paul Kedrosky, I am sharing a list of articles/posts which I think you should read this weekend.

• Rolling Stone Magazine interviews Steve Jobs: One from the archives. This interview conducted in 1994 lays out Jobs’ vision of the future. Much of it is coming true.

• Google Me to the Moon: In a beautiful nostalgic essay, Angels Riechers writes on Google Maps, GPS and the lost art of navigation & discovery.

• Davos is for wimps, ninnies, pointless, skeptics: Michael Lewis, perhaps one of my favorite writers skewers the Davos set. Rightfully so.

• Why spray on glass is going to change everything: This could be one of those game changing technologies that changes everything we touch.

• A rebuttal to Fraser Speirs’ Future Shock/ iPad Essay: Brian Dear writes a coherent, spew-less piece that is a joy to read, even though I don’t quite agree with many things he says.

• Winners, losers from Apple iPad roll out. EE Times does a good job of breaking down the silicon winners and losers of the Apple iPad rollout.

• Better user experience with story telling: Francisco Inchauste outlines how we can use story telling as a way to stand out in our increasingly crowded digital world. He thinks we can use stories to connect “as real people, not just computers.” I totally agree and have used this technique in my work as a magazine writer. Now as part of the new new media, I am constantly striving to learn how to do that on the web.

And a bonus self-serving link to my post about MTV’s new logo in almost 30 years. Even though I was part of MTV generation, for me in this post Internet age, MTV is completely irrelevant. Have a read!

PS: If you would like to send interesting essays and writings, please drop me a note using the “contact” form.

As you know, we’ve been following Mozilla’s Weave Sync project for a long time. Last week, the Weave Sync add-on for Firefox was made available. Installable as an extension for Firefox, Weave is way to synchronize bookmarks, saved passwords, browsing history and open browser tabs across multiple browsers and computers.

Now Mozilla Labs is hoping that developers will adopt Weave Sync and build upon the service using a set of Weave Sync and User APIs. Mozilla is launching a whole range of developer resources that also include Python & Javascript client libraries.

The idea behind this effort is “to increase the number of places where you can securely access, and have your personal data readily available to you, independent of whether or not Firefox is available,” Mozilla notes on its blog. In other words, developers can use Weave Sync services in new products independent of Firefox and thus build new apps-based that leverage our browser & browsing specific data.

This first set of APIs focuses on enabling Weave clients to provide user’s access to their stored data from other devices and environments. Future APIs will provide third-party web sites and applications the ability to request permission and obtain explicit access only to specific user data to augment a users’ Web experience, e.g. providing personalized recommendations based upon a user’s bookmarks or search history.

Mozilla has also released a couple of experimental clients such as the web-based Weave Client, an iPhone Weave Client, a WebOS Weave Client and a command line Weave client. Mozilla Weave has been over two years in the making. I first wrote about it in 2007

If you’ve know who Richard Rosenblatt is, chances are you’ve already formed some strong opinions about the man — especially if you work in media. Thanks to his position as the founder and chief executive officer of Demand Media, a Los Angeles-based company that’s often labeled as content factory, he has become a divisive figure. Not a day passes when he is not criticized for paying writers infinitesimally small amounts of money.

However, when you meet Rosenblatt in person and listen to him with an open mind, the logic of his business quickly becomes clear. Much as Michael Dell made the just-in-time production of computers his forte, Rosenblatt has brought a mathematical rigor to the world of content. Demand-owned sites such as eHow get more than 100 million unique visitors a month — and the company is valued at over a billion dollars.

Demand got its start by buying little-known Internet properties. Rosenblatt, who in the past was the head of both Intermix Media and iMALL (which collectively fetched $1.4 billion when they were sold), was able to raise $320 million in funding from the likes of Goldman Sachs, 3i Group, Generation Partners, Oak Investment Partners and Spectrum Equity Investors. That big slug of cash has not only helped Demand grow and scale its business, but to build a proprietary back-end system that’s become its secret sauce.

How Demand Media Works

The system allows the company to calculate the average cost per click of a particular search query and multiply it by the likely traffic in order to figure out how many dollars it would bring in over a period of five years. That gross revenue is then divvied up amongst the people who work on the creation of a related piece of content, including those who write the copy, fact-check and copyedit it. Essentially, the data tells Demand what’s a good and valuable piece of content and what’s not. The revenue potential is an overriding factor when it comes to making content decisions.

Such a system, used in combination with a domain registration business its owns, means Demand Media is able to generate content based on what people are searching for on the web. So much so that others — such as the newly independent AOL — have started to imitate his business model.

This approach has come under heavy criticism. Michael Arrington recently wrote:

These models create a race to the bottom situation, where anyone who spends time and effort on their content is pushed out of business. We’re not there yet, but I see it coming. And just as old media is complaining about us, look for us to start complaining about the new jerks.

ReadWriteWeb’s Richard McManus was even more blunt:

I can’t help but think that the rapid rise of these two companies may be bad news for the Web. If a small number of companies come to dominate a content market, usually blandness and lowest common denominator fare follows. The network television and radio markets in almost any country in the world are evidence of that.

Last week, when interviewing him onstage at the Twiist-up conference in LA, I asked Rosenblatt about allegations that his company was flooding the Internet with unwanted content. He dismissed my question with a laugh, saying, “People actually want the information and we are providing it,” he said.

About 2.0

Demand Media, according to Rosenblatt, is not in the news business, but the information business. Think of it as the long-tail version of service journalism. “Did you know that every month 50,000 people search on ways to make detergent at home?” Rosenblatt said. “We create content to answer those [types of] questions.” Some 100,000 pieces of every month, in fact.

What Rosenblatt is doing isn’t anything new. About.com created a network of low-cost, human-curated/generated web sites in the late 1990s and grew to great heights before losing its way. One of the reasons why About.com lost its way (after being acquired by The New York Times) was because it never developed a way to bottle the search genie.

Yet the approach taken by About.com has only become more relevant as our world has become more complex. And rather than look to just our friends for answers to questions on everything from how to set up a TiVo to buying art to filing for bankruptcy, we ask Google, Facebook and Twitter. A lot of this information is not available via traditional media sources.

A Content Factory or Not?

Rosenblatt bristles at the idea that he’s running a content factory, noting the Demand works with over 5,000 writers –many of whom are old media reporters — and has about 650 copy editors. Such an arsenal is bigger, he claimed, than “the three biggest publishing companies,” adding that he was hiring at a time when big media companies have been laying off people.

Writers can make anywhere from $15 to $1,000 for a piece of content. While some have alleged that Demand pays its freelancers next to nothing, Rosenblatt said that the people who make very little money spend very little time creating that content.

Demand already has over 500 employees; it did sales of over $200 million last year and is profitable. And 2010 promises to be even better, thanks to the return of online advertising dollars. When I asked him if the company would go public in 2010, however, he dodged the question. But if the current growth rate of Demand continues, I wouldn’t be surprised to soon see it try to raise capital on the public markets.

Kill the Old News Business

In his opinion, the newspaper business as it stands today needs to die and the industry needs to re-invent itself as an Internet-centric one. “News that is 12-24 hours old just doesn’t make sense,” he said. “Consumers don’t want their content that way.” He dismissed The Los Angeles Times as “public service” and not “a business, because it cannot make money by doing what they are doing.” He thinks some billionaire should buy the paper and run it as a philanthropy. Ouch!

And what would he do with the LA Times, if given the chance? He was quick to answer: He would outsource most of the generic content creation to companies such as Demand Media, stop distributing the paper version of the publication and go all-digital. And he’d put in place an advertising strategy around content that people want. For instance, articles about hiking should attract an advertiser like REI. As for the truly important content — the news — he thinks that newspapers should focus all their resources on higher-end investigative journalism.

When I asked him what he thought of new devices such as the iPad and their impact on content, Rosenblatt said that “the iPad is symptomatic of what’s going on” because it shows that there are now even more new ways of consuming content. “Consumption on different devices is very exciting.”

Photo of Richard Rosenblatt by Jim Alden via Flickr.com/Techfrog

While Apple and AT&T have started allowing VoIP apps on the iPhone to use the 3G data network, it seems like the big kahuna, Skype, is staying away from making any such move for now, arguing it wants to wait till it can give decent audio performance. From the Skype blog:

You may have seen other apps offering calls over 3G, but we’re holding ours back for a little bit longer. Why? So that we can give you the very best audio quality we can. When our 3G-capable Skype for iPhone app is released, it’ll let you make calls in wideband audio, giving you greater clarity and fidelity – because that’s what you expect from Skype.

In other words, don’t expect Skype to offer a version that allows calls over 3G in the near term, though the company had made it abundantly clear that it will be releasing a 3g version of the app . We had earlier pointed out that Skype over 3G wasn’t working.

Earlier this year, thanks to our friends Andy Abramson and Pat Phelan, we offered up an alternative theory about VoIP over 3G : “The voice-over-3G experience is so bad, it makes sense for Apple, AT&T and others to not even bother with VoIP over 3G.” Skype it seems is merely agreeing with that alternative theory and making sure that its app actually works as expected over 3G connections.

Skype is also looking at developing a version of Skype for the Apple iPad. As the same blog post notes:

Last Thursday, Apple introduced the iPad, which we’re very excited about here at Skype. David Ponsford, who features in the video above, and his team are reviewing the device and its specs, and you can expect to hear more from us about Skype for iPad in due course. What does this have to do with calling over 3G? The SDK (Software Development Kit) which Apple provides to developers like Skype has been upgraded for the iPad. The new version, 3.2, removes the restrictions on calling over 3G, which is great news.

Sometimes when you see a well-made product with a high-value proposition, you know it’s going to sell. Whether it was my first BlackBerry Pager or the Titanium Powerbook — even my first pair of Joe’s Jeans — I knew they were all going to sell quite well.

I had that exact same (good) feeling about Nokia’s Ovi Maps, a free download app/service the company made available on Jan. 21. Last week, when I met with Tero Ojanperä, Nokia’s EVP of services, he was obviously pretty excited about the launch and adoption of Ovi Maps. He wouldn’t give me the download numbers, but his colleague Anssi Vanjoki, an executive VP at Nokia, was happy to reveal them.

Ovi Maps has been download about 1.5 million times, according to Vanjoki, who also recently claimed that the company was “averaging a download a second, 24 hours a day.” Nokia says that a million Ovi Maps apps were downloaded in the first week after launch alone. The top countries for the app are China, Italy, the UK, Germany and Spain. With 1.5 million downloads, it seems the idea of opening up the app as a platform for other developers wasn’t such a bad one.

One of the reasons why Ovi Maps has been successful is because it’s free, much like the increasingly popular Google and Apple mapping and navigation applications. The ramifications of this “free” move are clear when it comes to the fortunes of specialized device makers such as Garmin and TomTom. More importantly, these free apps will also severely limit opportunities for paid-for applications such as Verizon’s VZ Navigator, which sells for about $10 an app, and version 5.0 of which Verizon recently launched.

Evernote, a Mountain View, Calif.-based startup, says that Nokia has developed a version of its web service that allows users to capture and store information using the built-in sharing functionality of the Nokia N900. This is made possible using a plug-in. Nokia is using the Evernote API.

Nokia N900 owners can send snapshots from the camera and photo gallery, as well as audio and other content into Evernote as part of their normal interaction with the N900 device.

After a one-step installation process, users gain the ability to send various types of content directly from the device’s sharing menu. Once in Evernote, everything is processed and made searchable. Notes created from the device, or from desktop and web versions of Evernote, can be accessed through the built-in web browser on the N900.

Evernote has raised over $16.5 million in funding from Morgenthaler Ventures and other investors. It’s a poster child of the freemium business model.

Thanks to my recent travels, which took me from San Francisco to Munich to LA and back again — all in less than a week — I got to thinking about the past four years. It’s been nearly that long since I first started working on GigaOM, the business, and thus crossed over to becoming a founder.

The role of a startup founder is a pretty unique. A great startup founder is a heady blend of The Rock, Woody Allen and Winston Churchill — and Harry Potter. In other words, a fearless, neurotic creative, and a stubborn visionary — one that believes in the power of magic. It also requires an entirely different level of obsessiveness, which can lead you to greatness or the grave. But somewhere along the way, many founders develop what I call founderitis.

Founderitis is a side effect of being a startup guy. Using my own experiences, talking to a handful of my close founder friends and channeling knowledge acquired after years of writing about entrepreneurs, I have come up with a list of signs that you might be suffering from founderitis. If you’re exhibiting three or more of them, perhaps it’s time for you to dial it back a bit — even for a brief period of, say, 24 hours.

1. You mistake insomnia for work ethic.
2. You are constantly looking to add hot new features to your products such as Tweet This & Facebook Connect.
3. You obsess over features/details over which you have no control.
4. You have the constant urge to do everything.
5. You have attention deficit disorder, in that you’re constantly checking Twitter/Facebook/Google Reader and have set up Google Alerts to monitor what people are saying about you and your company — when you should be actually working.
6. Your idea of dining out is picking up take-out food rather than having it delivered.
7. In moments of great weakness, you regret not just starting a virtual farm application and selling virtual goods via cell phones.
8. Your favorite “vacation” over the past year consisted of going to a conference for 72 hours.
9. The last time you cried was last night.
10. You mistake half a dozen T-shirts with company logos for your wardrobe.
11. When people ask how your day went, you tell them it’s only half over.
12. You have more gray hair than equity.

Here is a bonus symptom from my friend Aaron Levie of Box.net.

Because your startup has 70 people, you begin to think you’d do a better job than Obama. And you’ve begun regularly saying things like, “Please don’t come to that meeting without a chartered project plan.”

If you have any more additions to this list, please feel free to add them in the comments.

Facebook engineers have come up with a way to turbo-charge PHP, a programming language preferred by web developers. And the Palo Alto, Calif.-based social networking and identity provider is now open sourcing this technology called HipHop for PHP, a source code transformer which programmatically transforms PHP into highly optimized C++ and then uses g++ to compile it. HipHop for PHP was developed internally to boost the performance of Facebook applications while also lowering hardware costs. From the Facebook blog:

With HipHop we’ve been able to reduce the CPU usage on our web servers on average by about fifty percent depending on the page.  Less CPU means fewer servers.  This project is incredible, has had a tremendous impact on Facebook and we are releasing it as open source in hope that it brings a new focus toward scaling large complex websites with PHP.

HipHop for PHP is the latest in a long list of products that were developed internally by Facebook and have been open sourced to the world. PHP -– aka Hypertext Preprocessor -– is a scripting language much like Perl, Python and Ruby that was created by Rasmus Ledorf in 1995. In terms of CPU and memory demands, scripting languages are less efficient than compiled languages such as C++. PHP is currently used by popular and large, dynamic web sites such as Facebook, WordPress.com and Digg.  It was viewed as one of the hottest new technologies in 2005, when venture capitalist Marc Andreessen, founder of Netscape and current Facebook board member, told the Wall Street Journal that “PHP is to 2005 what Java was to 1995.”

Of course, since then the web has scaled many times and as a result some severe shortcomings in PHP have been exposed. Many folks have subsequently looked for alternatives, opting for languages that have cleaner syntax, a more vibrant community and perhaps even better frameworks. Well-known PHP programmer Terry Chay in a blog post defending PHP recently noted:

Obviously, I think PHP is very frequently the right choice. The reason I choose PHP is that it is a web-based templating language that is simple, scalable, and pragmatic. Choices have consequences. Everyone knows what consequences are. If not, there’d be a One Language to rule them all. And, we’re not Java developers. ;-) One consequence of PHP is that it is now stuck between a rock and a hard place. On one end, the ubiquity of rich, Ajax-driven, web sites means the inherent advantage of a templating language is no longer there, having been replaced by a much larger demand for design….On the other end, social networks have sped up demands of data, so that they live more in RAM in the form of memcached than on disk in the form of a relational database. When making a web page was tied to a disk-bound database, performance discussions are pushed to database performance discussions, which really is a discussion of disk performance. …web performance is now a complicated beast.

Facebook, which bet on PHP early on, has had that quandary for a long time. It had no option but to innovate around PHP and its resource hog-like habits. The reason PHP can be so resource-intensive is because it’s interpreted on the fly.

You can make it perform better by using tricks such as output caching, recycling the compiled code that’s generated at runtime (aka opcode caching) and writing extensions that are essentially bits compiled as C++. However, all these techniques have their own set of issues. Given than I am no programmer, here is my understanding of what Facebook has done: It came up with a way to analyze the PHP code and convert it to optimized C++ code, which is in turn compiled to a very speedy machine-specific code. HipHop benefits from the maturity of g++, a C++ compiler.

Scaling Facebook is particularly challenging because almost every page view is a logged-in user with a customized experience. When you view your home page we need to look up all of your friends, query their most relevant updates (from a custom service we’ve built called Multifeed), filter the results based on your privacy settings, then fill out the stories with comments, photos, likes, and all the rich data that people love about Facebook. All of this in just under a second. HipHop allows us to correct the logic that does the final page assembly in PHP and iterate it quickly while relying on custom back-end services in C++, Erlang, Java, or Python to service the News Feed, search, Chat, and other core parts of the site.

Earlier this week I spoke with Haiping Zhao, a Facebook senior software engineer; Scott MacVicar, the company’s open-source developer advocate; and David Recordon, a senior programs manager, who explained to me that the company first started working on solving the scaling problems in 2007 and tried to fix it using various methods before coming up with the current solution.

Recordon said that the company wasn’t done optimizing but wanted to open source its code mostly because it wants other people to use it and also help extend it. He was confident that there will be many takers for HipHop for PHP, especially among the enterprises looking to save on their hardware spending. “When you can slash your hardware costs by half, that is significant,” said Recordon.

In addition, Facebook’s engineers believe that performance gains should help PHP re-attract developers who might have opted for the more fashionable programming languages such as Ruby and Python. Any switchers would help solve Facebook’s more pressing problem: a desperate need for more and more developers in order to keep growing its web empire.

Related GigaOM Pro Content:

• Will the Real-Time Web Bring High Performance to a System Near You?
• Social Networks Need to Grin and Bear Infrastructure Costs
• Why the Hoopla About Hadoop?

Werner Vogels onstage at our Structure 08 conference

Over the past four years, I have watched with amazement the rise of Amazon Web Services. What started out as a basic S3 storage service and now includes a content delivery network and virtual private clouds has disrupted — and transformed — the entire technology landscape. Wall Street doesn’t know what to make of AWS, but here in startupville, its utility is pretty clear.

While there is a lot of talk about lean startups and agile startups, had it not been for Amazon’s web services, Internet startups would still be stuck spending on infrastructure without knowing if their service was every going to be  a hit. What if San Francisco-based online storage service Dropbox had been forced to start by building its own infrastructure, like back in the old days? It never would have been able to grow and scale as quickly as it has. More importantly, it would have had to spend hundreds of thousands of dollars to just hang its proverbial shingle. Instead, it used Amazon’s S3 storage service.

At the DLD Conference in Munich last week, over a cup of tea, I sat down for a casual chat with Werner Vogels, Amazon’s chief technology officer. I asked him about the company’s role as a catalyst for innovation. In classic Amazon style, he dismissed the notion, instead choosing to focus entirely on the “cloud.”

“With the cloud comes unconstrained thinking and willingness to tinker and experiment without worrying too much about cost,” Vogels said. I agree — success-based scaling is perhaps one of the biggest disruptions of our times. In the old days they used to call it getting your money’s worth. Today, it’s more commonly referred to as getting the most out of your startup capital.

“The cloud allows lot of businesses to scale aggressively, like Facebook apps,” he said. Indeed, it means makers of Facebook apps don’t have to invest huge upfront capital for what is a hit-driven business. After all, in this era of extremely fickle customers, a hot app of today is left to rot tomorrow.

“We are enabling a lot things in a way that will be long-term beneficial as it would help build more sustainable businesses using a lot less capital,” said Vogels. “The fact is that because of the cloud, today a young upstart can take market share without an incumbent having time to react.”

He cited San Francisco-based Twilio, whose platform offers a way to easily merge web and voice offerings, as one such company that is benefiting from the cloud. “Twilio excites me with their programmable voice platform and that is a company where you see the power of the cloud, of a startup becoming a platform to challenge any incumbent. The cloud is helping make an even playing field.”

Just like Twilio, Vogels said he was excited about the emergence of cloud-centric companies like Dropbox, Foursquare and Soundcloud. “Just imagine if you could combine Twilio with location and media and build a whole new mash-up of apps, all running off the cloud,” Vogels mused.

From the outside it is hard to quantify Amazon’s success in the cloud services — the company doesn’t break out AWS revenues and profits (or losses). It refuses to give guidance on how big this line of business is, often serving up somewhat ambiguous data sets such as “Amazon’s S3 now has 82 billion objects.” Such numbers are meaningless to me. What matters to me is how many developers — hundreds of thousands, according to Vogels — who are building on Amazon Web Services.

Just as developers help Microsoft dominate the PC era and more recently, helped Apple to reign with its iPhone, the endless army of developers working for startups that use Amazon’s web services are going to ensure two things. One, that AWS remains a platform of innovation for a long time to come. And two, that Amazon has an advantage over newer cloud providers — for the more such developers use AWS, the tougher it is to switch to another cloud platform.

A second installment of this post will appear later this week. In that post, I will focus on what Vogels had to say about the recent announcements made by Amazon, the impact of EC2 spot instances and his general views on the cloud computing landscape during 2010.

This article also appeared on BusinessWeek.com.

Location-based upstarts Foursquare and Gowalla may not have a lot of users, but they sure have the buzz (and millions in backing). Thanks to them, “checking in” is the new black — even Flixtser is jumping on the location-based bandwagon. Here are three news items from today:

• Gowalla is working with Alice Radio and others in an effort to raise funds for Haiti earthquake victims. As past of the “Hearts for Haiti” efforts, Gowalla is encouraging its users to contribute to relief efforts by checking in at two Bay Area Peet’s Coffee & Tea locations on Monday, Feb. 8, or at a special Barenaked Ladies concert that evening. As part of the campaign, for each person who checks in with Gowalla, $50 will be donated to the American Red Cross, with a goal of reaching a total of $20,000. Good work, Josh Williams and team!
• Foursquare, my favorite location app, has signed a deal with Bravo Media, the company behind kitschy pop-fashion TV channel whose intellectually bankrupt television offerings include reality shows such as “The Shear Genius,” “The Millionaire Matchmaker” and “The Real Housewives” series. As part of the deal, Foursquare will offer network-branded “badges” and special prizes for “check-ins” at Bravo-themed locations. For its part, Bravo will create on-air spots aimed at driving users to “check in” at Foursquare from various locations across the country that have been featured on Bravo series, as well as venues recommended by Bravo talent.
• Skyhook Wireless says it will help add more location-related information to Flixster’s “Movies” Android app. Flixster’s “Movies” iPhone mobile app is also Skyhook-enabled.

Microsoft, after talking about it endlessly, has finally opened up its cloud platform, Windows Azure, for business. Windows Azure and SQL Azure are now available in 21 countries worldwide, the company said. So today the rubber meets the road — and we get to see how Azure does in the marketplace.

What will Azure’s financial impact be? It’s hard to say, but I think it’s safe to assume that Microsoft, which has gotten used to the 50 percent (or higher) margins on its products, will see those margins shrivel in the face of the competition. Azure is joining a crowded marketplace, one dominated by Amazon and its web services, which now boasts of thousands of developers in addition to an entire ecosystem.

And if that wasn’t enough, Azure will be competing with offerings from IBM, Cisco Systems, EMC Corp. and VMware, Rackspace and other small players. Microsoft says it’s not worried, though and claims companies like 3M and GXS are already using the Azure cloud.

Not only are established partners and ISVs looking to the Windows Azure platform as a way to extend their revenue capabilities, but startups like Lokad are betting their businesses on it. Lokad has deployed a scalable forecasting cloud-based service to its retail and manufacturing customers that provides real-time forecasting data to allow for inventory optimization and ultimately bring them to profitability.

Notably, Microsoft’s Azure is part of Redmond’s “software-plus-services” strategy that also includes its Hyper-V server virtualization platform launched in October 2009. Microsoft also sells Windows Live, Microsoft Office Live, Business Productivity Online Suite, and Microsoft Dynamics CRM as SaaS, making it part of the company’s larger cloud strategy.

Given how closely we at GigaOM have followed the Azure saga, I though it would be good to highlight some of our past coverage containing relevant details about Azure and Microsoft’s plans.

1. Windows Azure is a cloud operating system on which developers can build using .NET, Java, Ruby on Rails, Python and other languages. (From Everything You Need to Know About Microsoft’s Azure. )
2. Compared to infrastructure-as-a-service providers such as Amazon with Ec2 or Rackspace with its CloudServers products, Azure attempts to handle more of the actual management and provisioning of virtual machines for a user. (From Microsoft Azure Walks a Thin Blue Line)
3. If we view the data center as akin to a machine, Microsoft wants folks to be able to create applications that can run on a Microsoft Azure cloud or internally on an in-house cloud. Newly launched AppFabric is the solution for that. AppFabric is software that folks can run in their own data center to create an internal cloud that can talk to and share information with the public Azure cloud if the client wants. (From Stacey’s Microsoft Azure Walks a Thin Blue Line)
4. GigaOM Pro’s Derrick Harris thinks that AppFabric is the big edge for Microsoft. In a note he writes (subscription required): “Windows Server AppFabric will help users build application fabrics in their Windows environments to minimize the complexity of delivering enterprise applications as services. AppFabric achieves this through supporting RESTful or SOAP-based services, workflows and application-level monitoring. Additionally, AppFabric marks the first commercial presence of Microsoft’s distributed in-memory caching technology (codenamed ‘Velocity’). Its inclusion ensures that apps can scale at will without experiencing performance bottlenecks at the data layer.”

Here are the pricing plans for Azure:

Azure compute costs 12 cents per service hour, while storage service costs 15 cents per GB of data per month, with an additional penny for every 10,000 transactions. The .Net services platform costs 15 cents for every 100,000 times the applications built on .Net Services accesses a tool or chunk of code. Moving data costs 10 cents per GB of inbound data and 15 cents per GB of outbound data. SQL Azure is $9.99 for up to a 1 GB relational database, and $99.99 for up to a 10 GB relational database. (From Everything you need to know about Microsoft Azure)

Other related posts you might find worth reading:

• Will Microsoft Drive Cloud Revenues in 2010?
• The Hidden Cost of the Cloud: Bandwidth Charges.
• The GigaOM Interview With Ray Ozzie, Chief Software Srchitect of Microsoft
• Can Microsoft (or Rackspace) Dethrone Cloud King Amazon? (GigaOM Pro, sub req’d)

At Apple’s iPad launch event last week, I spoke with uber venture capitalist John Doerr (of Kleiner Perkins Caufield & Byers), The New York Times media critic David Carr and my former boss, Josh Quittner (who is now helping Time Inc. figure out its devices strategy.) I wanted to know if they believed the device would have a far-reaching impact.

Last week, when down in Los Angeles, I had a chance to interview Paul Graham, co-founder of Y Combinator, onstage at the Twiistup conference. The conversation, which spanned a good 45 minutes, was wide-ranging but generally focused on Internet startups and entrepreneurship.

Given that I was on stage, it was hard to take notes. Nevertheless, I have re-constructed the conversation from memory, some of my own notes and with the help of tweets being sent out by the audience members. Only the comments that appear in parenthesis can be attributed to Paul, while rest is paraphrased. Some folks on Twitter are misconstruing these notes as an interview, which it is not. I hope I have made myself abundantly clear.

What should entrepreneurs think about to start company?

Think about finding the right co-founder. He compared co-founder of your company to location to your real estate property because once you buy your property, you’re stuck with the location. And similarly you can’t morph your co-founder. “The (startup) idea does not matter as much as having the right co-founder.”

What makes a startup successful?

Success of a start up is dependent upon whether co-founders want it enough. People tend to over emphasize the brilliance of idea. For any successful start up idea, you can find 20 bitter losers who say “I had that idea 20 years ago.” This shows you that it’s the people, not really the idea that matter. “The most important thing is to be DETERMINED. Measure of determination is not quitting and not giving up.”

What is the biggest challenge for early stage startup?

The enemy is the “back button.” Once people leave they don’t come back. In order to get people to return and install your product or a service, “You got to understand what people need.” And you do that by finding out what people need, what you need need.You’ve got to create something that a real person needs.

Is starting a company easy these days?

The startups are cheap in the beginning, considering that founders don’t have to pay them selves. And everything you need to do a start up you already have. Computer, internet, and you can buy server per usage. So it doesn’t really cost anything more to do a start up than ordinary life.

What is the right time to start looking for money?

You should only start looking for money when you can convince investors to give it to you. In fact, raise money when you don’t particularly need it and not because you are broke.

Do you feel some start ups don’t think big enough?

Some startups don’t think big enough, while some do. Paul in an email later clarified:

“The point there was that I ask founders what huge thing is what you have now version 1 of?”  and a good way to come up with answers to that is to imagine themselves being interviewed 10 years from now when they are big successes, and telling the story of how they did it.  E.g. “The first thing we made was x, and then we expanded into y, and then we tried z, and that really took off.”  That implies the next thing to try after x is y.”

explained that he asks founders about “what huge thing is that you now have version one of?” One way of finding an answer to that question is to imagine themselves being interviewed 10 years from now when they are big successes, and telling the story of how they got there. In other words, “the first thing we made was x, and then we expanded into y and then we tried z, and that really took off.”

The following question was from the audience: What do you think about other incubators such as Techstars?

I checked with Paul and this is how he remembers it. “Partly annoyed, like JK Rowling would feel if someone wrote a book about a boy wizard called Henry Porter.  But one good thing about them is that they tell us when we make mistakes.  If it weren’t for them, we’d be less likely to know if we turned down someone good.”

Slightly annoyed. It is like how JK Rowling would feel if someone wrote book called Henry Potter. One use is that it tells us when we have made mistakes and passed on good applicants. So if it was not for other incubators,  Y Combinator would never know that they turned down successful start up.

Related GigaOM Pro Content:

• Why Startups Aren’t Changing the World
• What the VC Industry Upheaval Means For Startups
• New Opportunities in the Smart Grid

Photo of Paul Graham by Jim Alden via Flickr.com/Techfrog