Amazon CTO Werner Vogels and CEO Jeff Bezos on stage at AWS: Reinvent

Here are a few things AWS (which after all, remains the cloud to beat) could do to shore up its defenses as GCE, Windows Azure and soon VMware’s AWS competitor (to be re-announced May 21) come online.

1: Get more granular in pricing

One headline item Wednesday was Google’s decision to rent cloud instances by the minute instead of by the hour (well, you have to buy a minimum of 10 minutes with incremental charges for each additional minute.) AWS rents by the hour, which is something it could well change. Both companies are late to this particular feature however: Both Cloud Sigma and Profitbricks have offered sub-hour models for some time.

2: Keep pounding on enterprise support …

And management options like Trusted Advisor, which instructs AWS users on how to deploy their workloads more efficiently and more securely.  The knock on Google remains that it (let alone its cloud) doesn’t “get” the enterprise — millions of  Google Apps and Gmail business users notwithstanding. A CIO might ask herself: “Gee, do I want to trust my workloads to a search and advertising company? I still can’t believe I’m trusting some of them to a book seller! “

If enterprise is a key business, you have to keep earning it.

3: Prove that AWS is an Amazon corporate priority

The perception that Amazon.com, Jeff Bezos and corporate don’t care that much about AWS continues to dog the cloud services arm. It was a big deal that Bezos showed up at AWS: Reinvent last year, but he really doesn’t talk about the cloud business all that much. What might help there? BREAKING OUT AWS REVENUE! If AWS is a $2 billion-a-year-plus business, get transparent about it. And talk profitability, not just revenue. Come on guys, it’s time.

4: Keep the services coming

Much was made of Google’s brand new NoSQL database service, which, as my colleague Derrick Harris pointed out, is “eerily similar” to Amazon’s DynamoDB. Google SVP Urs Hölzle noted that Google, 11 months after announcing GCE, rolled out 10TB persistent disk, something that an “unnamed competitor” hadn’t done in its 7 years. That may be, but AWS has lots of other services and perks and maturity counts — especially among corporate buyers.

So, Amazon. It’s your move.

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Analysts had expected earnings of $0.07 per share on revenue of $16.1 billion.

Operating income, considered by investors to be a key measure of the company’s financial health, was $181 million, down 6 percent from the previous year. Still, that figure beat the range of -$285 million to $65 million that the company had provided in the previous quarter.

Amazon is reportedly working on a set-top box, and in the release, CEO Jeff Bezos highlighted Amazon’s expansion into original television, focusing on the company’s recent release of 14 original pilots. “Our customers will determine what goes into full-season production,” he said. “We hope Amazon Originals can become yet another way for us to create value for Prime members.”

North American media revenues totaled $2.51 billion for the quarter, up 14.4 percent over last year. International media revenues were $2.54 billion, up just 1.27 percent.

For the second quarter of 2013, Amazon advises investors to inspect revenues between $14.5 billion and $16.2 billion, with broad guidance on operating income ranging from -$340 million to $10 million.

Amazon is holding an investor call at 2:00 PM PT, and we will be on the call.

This post was updated several times on Thursday afternoon.

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Amazon CEO Jeff Bezos

In his annual letter to shareholders (PDF) on Friday, Amazon CEO Jeff Bezos, reiterated his company’s rage to update features and functions (and then cut prices) on Amazon Web Services.

According to Bezos, AWS which he characterized as a “clear example of internally driven motivation” put out 159 new features and services in 2012 and cut prices 27 times since launching 7 years ago. (Frankly, 27 sounds like an undercount to me, but he’s the boss.)

He also touted Amazon’s commitment to enterprise customers. Amazon has

“… added enterprise service support enhancements, and created innovative tools to help customers be more efficient. AWS Trusted Advisor monitors customer configurations, compares them to known best practices, and then notifies customers where opportunities exist to improve performance, enhance security, or save money. Yes, we are actively telling customers they’re paying us more than they need to. In the last 90 days, customers have saved millions of dollars through Trusted Advisor, and the service is only getting started. All of this progress comes in the context of AWS being the widely recognized leader in its area – a situation where you might worry that external motivation could fail. On the other hand, internal motivation – the drive to get the customer to say “Wow” – keeps the pace of innovation fast.”

The lastest tidbit for enterprise users was this week’s addition of support for Microsoft Hyper-V support in Amazon’s Storage Gateway. For more on Bezos’ letter, here’s  PaidContent’s Laura Hazard Owen’s take.

Bezos’ letter comes at a time when more observers question whether AWS really is the low-cost option when it comes to non-variable (inelastic) production workloads — as opposed to development and test jobs — but that’s a quibble. Until one or more of the OpenStack crowd or, more likely, Google Compute Engine, hits its stride, AWS remains the public cloud to beat.

OpenStack: the ABM (Anyone But Amazon) alliance?

The OpenStack crowd is getting larger. This week — barring last minute delays at Monday’s board meeting — Juniper Networks and Ericsson — should be aboard the OpenStack Foundation as Gold members, as GigaOM reported Friday. Both companies were already sponsoring companies but board membership brings a bigger financial contribution and presumably more influence. With them in the fold and especially after VMware joined last summer, it’s become easier to list which vendors are not in the OpenStack ecosystem than those who are. And that list would be Amazon, Google, Joyent, Microsoft and Oracle.

OpenStack, when it was born more than 3 years ago was an attempt by Rackspace and NASA to build an open-source alternative to Amazon in the public cloud and to prevent VMware from leveraging its virtualization lock in enterprise data centers into the cloud. The effort, as measured by by third-party vendor support has exploded since then, especially after Rackspace turned over the reins to the OpenStack Foundation two years ago. Since then the floodgates opened with HP, IBM, Red Hat, Cisco, Dell, joining younger companies — like Cloudscaling, Nebula, Piston Cloud (see disclosure) on the effort. Let’s see, that would be Amazon, Microsoft, Google, Oracle and Joyent. Or as Joyent CTO Jason Hoffman quipped — giving his company top billing OpenStack would be the “Anybody but JAMOG” alliance.

Piston Cloud updates

Perhaps seeking to beat the rush that’s bound to come next week at the OpenStack Summit, Piston Cloud (see disclosure) brought out Release 2.0 of its OpenStack cloud, or as InformationWeek called it “OpenStack on a stick.”

According to Informationweek:

“The customer sets a few configuration parameters on the cloud key memory stick, then inserts it into the USB port of a top-of-rack’s Ethernet switch. The system loads into the Linux server space of the switch, discovers the servers in the rack, and configures them into a system with virtual machine provisioning, pooled storage and networking and cloud management.”

Disclosure: Piston is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.

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And while Jeff Bezos thinks about the retail experience, some of the younger, more nimble and fashionable online brands are ready to experiment. The first one — Warby Parker, the online eyewear company that is challenging the existing giant Luxotica, which in turn has started copying Warby’s online tactics for its brands like Lenscrafters. The upstarts from New York are not taking it lying down and have just opened their first physical flagship store (beyond its showrooms) at 121 Greene Street in Soho district of New York.

But this isn’t just another retail store, co-founder Neil Blumenthal told me in a conversation a couple of weeks ago. Instead, the company is using sensors, Wi-Fi and other new technologies to understand how people use its retail space, taking that data and marrying it with its online sales trends and other information. As a result it can come up with unique business trends that not only lead to more interesting pricing models but also help give its design and sales teams vital intelligence.

“It is very clear to us who we are,” Blumenthal said. “We are a lifestyle brand that sells chiefly to consumers. It is a hundred year old concept and we use the same traditional metrics, because there isn’t really any fiddling with the business model.” So how should one value Warby Parker? How about like Michael Kors, Blumenthal countered. (The stock market places a value of $11.4 billion on Michael Kors fashions, about 22 times next year’s ending March 31, 2014, earnings of $2.45 a share, or 4 time sales of about $2.83 billion.)

Warby Parker wants to go where no online brand has gone before — toe-to-toe with offline brands. And while the business might be traditional, there is nothing traditional about the Warby Parker approach. The company is slowly bulking up its data group and now with three years of data plus a deeply ingrained design aesthetic, Warby Parker can do things non-Internet native companies like Luxotica can’t do — just yet. (It is one of the reasons we love these guys and invited them to speak at our RoadMap conference in 2012, where the company first talked about its offline-online philosophy. To learn more about RoadMap 2013 see here)

Warby Parker is building the next generation retail experience for a quantified society, one that marries the digital and the physical, data and emotion. I wouldn’t be surprised if 121 Greene becomes the destination for offline companies looking to think differently.

Neil is convinced we are going to see more brands jump from online to offline, giving the old guard some serious headaches. I agree with him and if I wasn’t in love with what I do, I would be building such a business. Blumenthal, who recently raised a boatload of money and signed up folks like J. Crew CEO Mickey Drexler, feels that the recent trend of venture capitalists backing away from commerce is just plain silly.

“More people are talking online today than yesterday,” he said. “There is a lot of money to be made in e-commerce and we are a company that is going to do that.”

Here is my video conversation with Neil, captured on my RX-1 without the help of a mike. ;-)

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Merkoski ran technology departments for a number of companies and headed e-commerce initiatives at Motorola before joining Amazon as a technology manager in 2005. For the next five years, he served at the company in a number of Kindle-related roles, helping to launch the first two Kindle models and the Kindle DX. “I first joined a team that built the electronic books for Kindle, but I went on from there to do it all,” he writes. “I invented some of the technology used in ebooks and launched the first few Kindles. I’ve traveled to book fairs in New York and London and Frankfurt to evangelize ebooks. I’ve watched ebooks being made in the Philippines and supervised the assembly of Kindles in China. I’ve talked to the White House, former presidents, and astronauts about ebooks.”

I found Burning the Page the most interesting when Merkoski discusses his experience at Amazon, working directly for CEO Jeff Bezos. “I worked in a modern version of Gutenberg’s workshop,” he wrote. But he can’t share much:

• “I believe Jeff [Bezos] wanted Kindle to be his legacy to history. He wanted it to succeed.”
• “The Kindle organization was in some ways a startup within Amazon and benefited from Jeff Bezos’s venture capital infusions, long-range vision, and full support.”
• “Jeff originally wanted the Kindle code names to come from Star Trek, since he’s such a Trekkie, but more literate minds prevailed.”

While Merkoski describes himself as “the closest there was to an ebook shaman, a tribal elder who could talk to all the people who joined Amazon after me about the early days of Kindle, provide the inside scoop,” he doesn’t (and may be legally unable to) provide any inside scoops in this book. So the next best thing is when he can speak specifically about e-reading platforms — including the advantages of Amazon’s competitors. The development of the Kindle was highly secretive: “No outsiders had seen the Kindle because it was created in a perfect vacuum from the very beginning,” Merkoski writes. That resulted, in 2007, in a $399 device that sold out in five and a half hours, remained out of stock for months and got a lot of mixed reviews (facts that Merkoski doesn’t mention).

Kindle’s flaws — and what competitors did better

Future versions of the Kindle improved on some flaws: Merkoski calls the Kindle 2, introduced in 2009, “truly an incredible device.” But “in fits of wakefulness, I thought about how Kindle lacked nuance, style, fonts, and things like multimedia…Kindle’s success made new ideas paradoxically difficult, as if everyone was walking around on stiletto heels on a glass floor, careful not to run, not wanting to take the wrong risks.”

Kindle competitors, he says, have done better in lots of ways. Take Barnes & Noble: “Out of all the retailers who sell dedicated e-readers, they’re the most innovative. They’re the first to release new book-reading features and to innovate on the hardware side. They were the first to have touch-sensitive e-ink screens…They totally get the social experience of books in the way that it crosses over from the real world to the digital. They can innovate so fast because they’re not burdened with their own R&D group.” Likewise, “companies with more humanistic sensibilities than Amazon will win the e-reader war by making the experience more human, more playful…let’s face it: there’s still something emotionally bereft about a Nook or a Kindle.” The winner on that front, he says, is Apple’s iPad.

Ultimately, Merkoski believes, “Amazon is winning the ebook revolution, but it may lose the war…Competitors like Barnes & Noble and Apple have successfully blurred the lines and proven that they can provide a great media experience, so Amazon’s brand matters less in the eyes of readers now.” He says “it’s hard to love Amazon…at best, you respect Amazon for its obsession to detail, for its cheap prices, and for how it achieves the promised arrival dates for its products.”

Oddly, Merkoski doesn’t mention the Nook division’s terrible performance these days, or the company’s inability to cut into Amazon’s market share. Nooks, he claims, are “downright futuristic.” And that’s really where he wants to go in this book: How will ebooks, reading and writing change?

What’s next: High-speed head plugs and a “Facebook for books”?

Let’s be clear: Merkoski loves books. An endless number of sentences like “Books are priceless,” “Books can inspire us toward greatness,” “Books hold the repository of human knowledge, and then some,” “Reading is an act of bathyspheric descent into the depths of an inky-black ocean,” “For me, it really is about books. They’re not commodities, but soulful voices that actually speak to you” become increasingly irritating as the book goes on and weigh down Merkoski’s ideas on what the future of reading could actually look like.

Once you cut through the platitudes, Merkoski envisions some specific innovations that are interesting and imaginative. For instance, “the future might hold some sort of high-speed plug that goes into an author’s head, some way of taking an author’s imagination and converting it directly into a digital format. The same high-speed cables will connect you to the author’s original experience.” That sounds horrible to me, but another idea — a screenless e-reader that uses a pico projector to project an ebook onto a blank surface (like a ceiling or the pages of a blank book), pulls ebooks from the cloud and is navigated by voice commands — seems like something that could actually exist in a few years.

Ultimately, Merkoski believes there will be

“just one book, a vast book that includes all the others inside it, which I call the Facebook for Books. You’ll be able to start reading from an ebook and naturally segue into a different one, just by following a link. It could be a bibliographic link, or just a link to a book that influenced the author and that’s been annotated as such by a reader like you or me. You will be able to link forward or double-back and keep reading…The more content you get, the more cumulative the connections are between books, and the more intertwined and rich the network becomes.”

The company best situated to make this dream a reality is not Amazon, Merkoski believes, but Google — thanks to its knowledge of search engines and the vast number of titles it’s scanned for Google book search, “Google has digitized more of human culture than any other retailer or library.”

For now, rights issues are in the way, and so books, “our greatest repository of knowledge and inspiration, aren’t participating in conversations with us online, with the exception of public-domain books that lag by at least ninety years.” It will take “a sea-change in opinion about ebook pricing models,” Merkoski acknowledges, before such a hyperlinked database of books can legally exist — even though we have the technology to put it in place now.

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The new investment brings the total amount of money that Business Insider has raised to $18.3 million. In the memo to staff, Business Insider CEO and editor-in-chief Henry Blodget writes, “This capital will allow us to continue to invest aggressively in many areas of the business, including editorial, tech/product, sales and marketing, subscriptions, and events. As we mentioned last night, it will also allow us to expand our office.”

Blodget tells AllThingsD that “the new deal values the company above the $50 million valuation it earned during its last round in 2011.”

Business Insider reportedly lost about $3 million, or a quarter of its revenue, in 2012, though Blodget says the site turned a small profit in the first quarter of this year. Business Insider is known for its short news pieces and slideshows. According to the BI memo, Jeff Bezos said that he “sees some parallels with Amazon.” Blodget said the site will now include a disclosure statement whenever it writes about Amazon.

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Amazon bests Apple in consumer appeal

Amazon is the most widely admired U.S. company, edging out last year’s favorite, Apple, according to the new Harris Interactive Poll on most reputable companies. The online book seller and cloud services provider ranked in the top five in five of six criteria and its combined  reputation quotient or “RQ” score was 82.62. Apple scored 82.54. Harris takes factors including quality of products and services; workplace environment; social responsibility; financial performance; and emotional appeal to calculate the RQ, querying some 14,000 respondents.

Any score over 80 is viewed as excellent. Amazon got nearly 100 percent positive rankings on “all measures related to trust and tremendous support  and “word of mouth,” according to Harris’ summary. Those words must come as music to Amazon CEO Jeff Bezos’ ears. He continuously champions Amazon’s customer service and low pricing as key to its success — although some bearish Wall Streeters might differ with him on that. (The top 10 “RQ” companies are listed below.)

.

To be fair, Amazon’s top score is more related to its consumer-focused e-commerce service than its less visible (to consumers anyway) Amazon Web Services IT-services-for- rent business

Other fun facts from Harris:

• Bank of America remained in Harris’ bottom 5 companies, but also saw the largest reputation rebound of 6 points.
• Google was the only other tech company in the top ten with an RQ of 81.32
• Microsoft ranked 15th an RQ of 76.46
• Dell came in 26th with 73.05
• IBM logged in at 28th at 72.21
• Hewlett-Packard ranked 34th with  70.01
• Facebook, new to the list, debuted at 42nd with an RQ of  65.63

NTT climbs aboard Cloud Foundry

NTT, Japan’s gigantic telco is making Cloud Foundry the basis of its upcoming Platform as a Service. It  joined Cloud Foundry Core,  a push launched last year by VMware to make its open-source Cloud Foundry the basis for a slew of compatible higher-level PaaSes. And a bunch of companies – AppFog, ActiveState, Uhuru, and Tier 3– now all offer Cloud Foundry-based platforms.

According to a February 12 NTT guest post by Hideki Kurihara, product lead for NTT Communications’ Global Cloud Services on the Cloud Foundry blog, the telco is reacting to customer demand for an agile, flexible development platform:

“But we also hear concerns about vendor lock-in and ability to meet the needs of a complex enterprise environment. We chose to build Cloudⁿ PaaS on top of Cloud Foundry because of its multi-cloud nature, ability to integrate with existing assets, and solid API foundation for adding management and monitoring features. Using Cloud Foundry as the base, we are extending Cloudⁿ PaaS for developers and enterprise customers in Japan. Together with other Cloud Foundry Core partners, we are delivering cloud portability to Japanese users as well as global users of Cloud Foundry.”

The Cloud Foundry Core Definition baseline includes runtimes and services built on Java, Ruby Node.js, MongoDB, MySQL, PostreSQL, RabbitMQ and Redis.

VMware launched Cloud Foundry two years ago  but is now in the process of spinning that work off into the Pivotal Initiative, a move which has some members of the Cloud Foundry ecosystem worrying about what changes could be in store.

States rethink cloud computing sales taxes

Fearing that cloud computing companies will flee for business friendlier environs, several states are moving to remove sales taxes levied on cloud computing services. Last week, a legislative panel in Idaho agreed to hammer out that topic once and for all, according to the Idaho Spokesman Review. The Idaho House’s tax committee said it will introduce legislation that will classify cloud computing services as, well as services, not tangible physical goods the sales of which are taxed.

Nineteen years ago, a state law held that software is taxable regardless of how it is delivered.

Meanwhile, cross country in Vermont, Governor Peter Shumlin is also working to remove a state tax on cloud services, according to VTdigger.com. 

Shumlin’s administration “backed a retroactive cloud computing moratorium that reimbursed businesses for about $2 million in taxes that had already been collected. This time, the proposal would make the exemption permanent,” according to the publication.

Removing yet another source of revenue from cash-strapped states is bound to stir up controversy however.

Feature art courtesy of Shutterstock  userGena96

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“We’re now seeing the transition we’ve been expecting,” CEO Jeff Bezos said in the company’s fourth-quarter earnings report, released Tuesday. “After five years, ebooks is a multi-billion dollar category for us and growing fast – up approximately 70 percent last year. In contrast, our physical book sales experienced the lowest December growth rate in our 17 years as a book seller, up just five percent.”

That’s impressive growth, but as the ebook transition moves forward, Amazon should worry that Kindle is not going to be the device leading the revolution. Apple and iPad will cut into its growth.

Amazon has mastered the art of the press release that doesn’t say much. Several data points are missing from Bezos’s statement — here are some questions I have:

• What’s Amazon’s actual ebook revenue? The company’s worldwide media sales were $19.9 billion in 2012; what percentage of that came from ebooks, and what percentage came from print books?
• What was print book growth for the entire year — and for past years? Bezos refers to annual ebook sales, but print book sales for just one month. Print books are also starting from a much larger base; they make up over 70 percent of trade book sales in the U.S.
• Which ebook categories are growing the fastest?
• Where’s the ebook growth coming from? 70 percent growth is a lot. Is most of it coming from within the U.S. or internationally? And is it coming from owners of Amazon devices — Kindle e-readers and Kindle Fire tablets — or is it coming from iPad and other tablet owners reading ebooks with Kindle apps?

Amazon’s not going to answer those questions (though I did ask them), but they’re important in part because U.S. book publishers are reporting slowing sales of adult ebooks: What was once triple-digit growth has fallen to the double digits. The revolution has also been largely limited to text-based titles — adult fiction and nonfiction — and categories like cookbooks and travel haven’t seen nearly as much growth from ebooks.

If the digital market for certain kinds of books is settling, as it appears to be, Amazon will have to find growth in other areas (though it doesn’t have to, and likely can’t, sustain 70 percent ebook growth for long). The company can expand Kindle internationally, as it’s been doing already, and it can still grab a certain number of ebook newbies.

Eventually, though, Amazon will have to tackle the genres that have remained rooted in print — children’s books and heavily illustrated books like cookbooks, coffee-table books and the huge textbook market. The company clearly sees potential on the children’s front: It’s launched new children’s book imprints and offerings like Kindle Free Time Unlimited. And Kindle Format 8 supports HTML5 and illustrated content.

But the biggest company it has to compete with in this area is Apple. Publishers of heavily illustrated content — both traditional publishers and digital-focused startups — are likely to focus on developing for iPad first, since it’s by far the most popular tablet. The next five years of the ebook revolution are not going to look like the first five.

Photo courtesy of Shutterstock / Stacie Stauff Smith Photography 

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Net income for the quarter was $97 million, or $0.21 per share, on revenue of $21.27 billion — compared to profits of $177 million on revenue of $17.43 billion a year ago. Operating income rose 45 percent to $405 million.

Analysts had expected earnings of $0.27 per share on revenues of $22.3 billion, and $506 million in operating income.

In the release, CEO Jeff Bezos called out ebooks in particular: “We’re now seeing the transition we’ve been expecting. After five years, ebooks is a multi-billion dollar category for us and growing fast — up approximately 70 percent last year. In contrast, our physical book sales experienced the lowest December growth rate in our 17 years as a book seller, up just 5 percent.” The company didn’t share actual ebook numbers, but North American media revenues were $2.9 billion for the quarter and $9.19 billion for the year — up 13 percent and 15 percent, respectively, over 2011. International media revenues were $3.6 billion for the quarter and $10.75 billion for the year.

As usual, Amazon did not disclose Kindle device sales. The company released new Kindle Fire tablets and the Paperwhite e-reader in September 2012. The earnings release noted that Kindle Fire HD is still “the #1 best-selling, most gifted, and most wished for product” on the site, but didn’t tout any specific holiday sales nuggets the way it did in 2011. In an investor call following the earnings report, CFO Tom Szkutak said the company wasn’t able to fulfill all the orders it got for Kindle Paperwhite: “We would have had more sales in Q4 if we were able to keep up with the demand, and so the team is working very hard to make sure we have good in-stock going forward on that product.”

North American sales of electronics and other general merchandise were $8.5 billion for the quarter and $23.27 billion for the year — up 24 percent and 34 percent, respectively, over 2011.

Sales of Amazon Web Services — which get lumped into the “other” category —  looked like a bright spot for the quarter. “Other” sales in North America logged $769 million for the quarter, up 68 percent from $459 million a year earlier. That category also includes things like branded credit cards, but most analysts say AWS makes up the bulk of the number. However, it’s unclear how profitable AWS is.

For the full year, revenue was $61.09 billion, up 27 percent from 2011. Operating income fell for the full year to $676 million, from $862 million in 2011. The company saw a net loss of $39 million compared to net income of $631 million the previous year.

For the first quarter of 2013, the company told investors to expect revenues between $15 billion and $16.6 billion, with guidance on operating income ranging from -$285 million to $65 million.

A previous version of this story stated Amazon’s revenues in millions, not billions. I’ve now fixed that. The story was updated several times throughout the afternoon and during the investor call.

Amazon is holding an investor call at 2 p.m. PT, and we will be on the call.

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In theory that arrangement would let Amazon focus on what it does best — sell physical and digital goods on the cheap — and let AWS to do what it does best — create and maintain efficient rentable IT infrastructure, which, by the way, runs most of Amazon’s retail operations.

A Seeking Alpha blog post resurfaced the topic earlier this week. In it, Andre Fernon, a former private equity guy, argued that Amazon has to sell off AWS, which he characterized as Amazon’s “runaway success and crown jewel in an otherwise highly competitive, low margin business.” It should be stressed here that by his own statement, Fernon is short Amazon stock, so keep that in mind.

In his view, Amazon will sell off AWS the same way insurance giant AIG sold off its huge Asian business to survive the financial meltdown.

He wrote:

 ”In 2010, AIA, the jewel in AIG’s Asian crown, was floated on the Hong Kong Stock Exchange, raising much needed funds to help stabilise the parent company. AIG maintained a minority interest in the AIA but, in 2012, that too was sold to pay off outstanding debts … While Amazon will clearly “spin” this as another great success story, the reality is that Amazon has no choice and is essentially a distressed seller of an excellent business, just as AIG was forced reluctantly to dispose of AIA. The further tragedy is that any sales proceeds from an AWS spin out are likely to be reinvested in a loss making retail business that it less efficient than most people fully appreciate.”

Judging from the reaction, Fernon is in the minority. One Seeking Alpha commenter wrote:

“Now I have heard them all…..hmmm, lets sell our future at the wrong time. Have you ever studied [Amazon CEO Jeff] Bezos long term approach to this company? You shorts will try anything won’t you, but this one is so far fetched it’s laughable. I’ll be looking for that big announcement in three weeks……and a four leaf clover. Thanks for the scoop.”

Just how strategic is AWS to Amazon?

It is worth noting that Bezos, who introduced AWS at MIT in 2006, hasn’t talked much about it since. But he did attend the inaugural AWS: Reinvent show in Las Vegas where he talked about AWS’ ability to scale as a key advantage. Bezos was, as usual, unapologetic about his goal of delivering huge volumes of low-margin goods to customers — a stance that irks Wall Street types that put shareholder value above customer satisfaction.

One AWS partner said he sees utility in an AWS spinoff. “I wouldn’t be surprised  if [Amazon] kept majority ownership but spun AWS off to generate lots of cash for their own balance sheet — but not for a couple of years — the secrecy is worth too much now.”

Move would force a disclosure-averse company to disclose

Indeed, secrecy is Amazon’s byword, especially when it comes to AWS revenue and profit. As we’ve stressed repeatedly, Amazon lumps AWS revenue under “other” with revenue from other activities.  That “other” revenue amounted to about $2.2 billion over the past 12 months. Bezos seems to enjoy that no one really knows whether AWS is a profitable enterprise on its own (which I suspect) or a loss leader.

Jeff  Matthews, founder of hedge fund Ram Partners — and who is a fan of Bezos  – said a spin-off is possible in theory but not likely. “Then everyone would know how profitable [AWS] is and all kinds of stuff about it they can only guess at now. Bezos is so secretive I think he’d prefer it this way. eBay isn’t under pressure to go spinning off PayPal so why would AMZN need to do this?”

For the record, Amazon said it does not comment on speculation. But that shouldn’t stop us — GigaOM readers, let’s hear your take in comments: Would Amazon be made lesser or greater if it spun out AWS?

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