Paying by the Drink with Jeff Bezos

John Musser, November 16th, 2006

AmazonAt last week’s Web 2.0 Summit I had the opportunity to meet with CEO Jeff Bezos to talk about their API and web services strategy. While much of what Jeff had to say had already been covered elsewhere in the press, the thing that comes across in person is just how clearly he sees why the Internet is becoming a true platform and how intent he is on leading the way there. And not just for the visionary sake of it but because there’s a very real business case behind it.

“Pay by the drink” is a phrase he frequently uses these days to describe their web services pricing model. It is a pay-as-you-go, variable cost model with no up-front fees that scales along with demand, an approach that works well for a wide range of scenarios and companies. At the Summit a number of people commented to me they were surprised to see how many new startups were using, or seriously considering using, the Amazon EC2 and S3 infrastructure services.

Why do open APIs and utility services align with Amazon’s business? A few reasons:

  • They have already made the investment of billions of dollars in creating one of the world’s premier online infrastructures
  • Like most computing infrastructures, it has spare capacity, a resource they can now sell to others
  • They know how to handle millions of transactions a day
  • Much of what being a “utility service” means is the ability to generate profits in a low margin business, an Amazon strength

Amazon currently offers the 10 APIs listed here with a number of other, undisclosed, APIs in the pipeline. The two most common business models they use are the variable pricing model exemplified by Ec2 and S3, as well as the shared revenue affiliate-based model of their original E-Commerce API. (Speaking of which, there are now 110 Amazon shopping-related mashups listed here.)

In this new world of web service APIs there’s always a balancing act of being neither too early nor too late. In general Bezos says he’s more concerned about not rushing things out the door before they’re ready rather than being too late. “Ready” here means of sufficient quality — some of the APIs may incubate internally for years before making their way to a publicly visible service. Being late is less of concern because this is seen as a long-term game that won’t be winner-take-all. Are there risks? Indeed, as pointed out by reporter Robert Hof in last week’s BusinessWeek story Jeff Bezos’ Risky Bet, heading in this direction is not universally viewed as a sure thing.

You can read and hear more about Jeff Bezos at the Web 2.0 Summit from this TechCrunch podcast, Dan Farber at ZDNet, and Richard MacManus.

Much of what Amazon is offering with these services is the lights-and-pipes infrastructure that most online business need but would rather not have to deal with. As Bezos says “We make muck so you don’t have to”. That may not be the sexiest technology business out there, but it’s a real one.

Tags: Amazon, Money, News
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4 Responses to “Paying by the Drink with Jeff Bezos”

November 16th, 2006
at 7:48 pm
Comment by: Marc’s Voice » Blog Archive » Talking ’bout Turkey Day links

[...] Amazon Web services – summarized by John Musser.  I had Jeff Barr on our panel talking about Next Generation Internet Infrastructure.  DISCLOSURE:  We’re using EC2 to scale up PeopleAggregator. [...]

June 2nd, 2008
at 1:36 am
Comment by: Amazon and the Economics of Web Services

[...] when I spoke with Bezos at Web 2.0 about 18 months ago he was making the case that their AWS “pay by the drink” model was [...]

June 2nd, 2008
at 3:52 am
Comment by: Dream Incubator » Blog Archive » Amazon and the Economics of Web Services » ドリームインキュベータ

[...] when I spoke with Bezos at Web 2.0 about 18 months ago he was making the case that their AWS “pay by the drink” model was a [...]

August 13th, 2008
at 5:48 pm
Comment by: Red como computadora « Blog de JoseMPelaez

[...] correos, telecomunicaciones…, donde se paga según el consumo que se hace (“pay-as-you-go, pay-by-the-drink, [...]

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John Musser
Founder, ProgrammableWeb

Adam DuVander
Executive Editor, ProgrammableWeb. Author, Map Scripting 101. Lover, APIs.