Bezos’ Dilemma

The whirligig that was Web 2.0 conference is finally beginning to spin down; but Amazon.com CEO Jeff Bezos’ talk at the conference will remain with me for a long time. Bezos was one of the handful willing to provide a vision of the future. It is hard to argue with Amazon’s ability to spot important trends before everyone else. We wrote about this over a year ago.

His talk, of course outlines his dilemma. On one hand, he runs a retailer; and on the other hand, he is leading a technological movement (on demand computing) that has had many false starts. His main revenue stream is a pennies-and-sense operation; but he sees the opportunity in the new on-demand/web services. It is a hard choice.

As an investor, you want Bezos to get Amazon’s retail business humming, but if you are a technology enthusiast, then his experiments in newer technology models are always intriguing. Our readers were equally divided, though given our community’s technological inclinations, no surprise that 50% of those who voted wanted Bezos and Amazon to experiment with S3 and EC2 type services. He gave a financial justification for Amazon’s move into on-demand computing type services.

For 11 years, we’ve been operating a web-scale application, with high reliability, in a high volume, low margin business, very conscious of our cost structure. I always think high volume, low margin businesses are more defensive – we look at the absolute dollar level of profit and free cash flow…we’re good at it, we know how to do it, and we think it can be a meaningful financially attractive business one day….Our biggest cost is not power, or servers, or people. It’s lack of utilization. It dominates all other costs.

Though, there are no plans to work this weekend, there is a good chance, that recent developments, Bezos’ comments and other random thoughts might inspire a new post, or perhaps would result in re-tweaking the current one. In case you were wondering about my whereabouts, I am answering emails – a whole pile of them. Have a good weekend everyone!

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