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Why utility compute works for Amazon as a business

Interesting insight from Nick Carr on why it makes sense for Amazon to be in the utility compute business in a way that has resulted in market dominance for them and not much for IBM, Sun, and others.

Bezos goes on to note that Amazon’s retailing operation is “a low gross margin business” compared to software and technology businesses, which “tend to have very high margins.” The relatively low profitability of the retailing business gave Amazon the incentive to create a highly efficient, highly automated computing system, which in turn could become the foundation for a set of cloud computing services that could be sold at low enough prices to attract a large clientele. It also made a low-margin utility business attractive to the firm in a way that it isn’t for a lot of large tech companies who are averse to making big capital investments in new, low-margin businesses.

…This is the great advantage that, at this early stage in the evolution of the utility computing industry, is held by companies like Amazon and Google. Building an efficient cloud-computing infrastructure does not represent an added expense for them; it’s a prerequisite to the success of their existing business.

Good stuff.

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