Rough Type had an interesting post on how Amazon’s web service platform evolved from their own need to build infrastructure for the Amazon online store. Nicholas argues that Amazon is in a good position to succeed in this first phase of the fledgling utility computing space. I’m a huge fan of AWS, and I absolutely agree with him on this point. However, I’d argue that while Amazon web services have a solid first-mover advantage in this valuable space, I’m not sure that Amazon will win in the long run. Why? Because at it’s core, Amazon is an e-commerce company, not a platform company.
Who cares more about gaining web API share on the web, Amazon or Google? Who cares more about gaining database share on the web, Amazon or Oracle? Who cares more about gaining server share on the web, Amazon or Sun? Who cares more about gaining developer mind share on the web, Amazon or Microsoft?
While web services are a great high-margin business for now, as these other large companies build out their could computing strategies, the competition will drive margins lower and lower. What’s more, these existing platform companies can afford to offer these services at or below cost, in exchange for a greater share in their respective categories. As these services become commoditized and the price drops lower and lower, at what point does Amazon’s web service strategy stop making good financial sense for them?