My buddy Al, who works at Amazon, posted an interesting comment on my recent next-gen web hosting post. In it he mentions this Forbes article, The Death of Hardware, that discusses the pendulum swing back to timesharing, a.k.a. utility computing.
The company divulges almost nothing about its costs or margins but is said to run its Web Services business on huge networks of computers costing as little as $300 each. Ten cents an hour adds up to $876 a year in revenue (assuming nonstop usage). If hardware lasts two years and if, let’s say, electricity and other overhead cost as much as the hardware, Amazon would have a gross margin of 45%, better than what it gets on books.
In the last two months of 2007 the number of items stored at Amazon Web Services grew 40%, to 14 billion units. (Units vary in size from a couple of bytes to 5 gigabytes, and Amazon keeps the totals secret.) That’s a faster growth rate than in the April-October period.
Amazon’s s3 storage service now handles 30,000 requests to its database per second.
Surely it is just a matter of time until Google and Microsoft do some flavor of this.
I can see two strategic challenges that would make it tough for Microsoft: deciding which platform to use (versus offering naked or nearly naked linux boxes like Amazon does and Google probably would) and putting together a billing infrastructure for purchasing cloud software and services.
Thanks for the link and your thoughts, Al.