Infrastructure // PC & Servers
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10/23/2008
11:33 PM
David Berlind
David Berlind
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Amazon: Deserving Of Wall Street's Punishment?

With four tech titans -- Amazon, EMC, Microsoft, and Sun -- hitting their 52-week lows on Thursday, Oct. 23, and a bunch of others coming awfully close, I wondered in my last post if we should have called it Tech Black Thursday. In fairness, I didn't bother to do the same scan on some of Wall Street's other recent and horrific days. So, Thursday may not have been unique. But, at least in the case of Amazo

With four tech titans -- Amazon, EMC, Microsoft, and Sun -- hitting their 52-week lows on Thursday, Oct. 23, and a bunch of others coming awfully close, I wondered in my last post if we should have called it Tech Black Thursday. In fairness, I didn't bother to do the same scan on some of Wall Street's other recent and horrific days. So, Thursday may not have been unique. But, at least in the case of Amazon, one has to wonder if Wall Street has it right.When Amazon got punished after it released disappointing news earlier this week, I remember telling my wife (without looking at where the stock ended up) that the people who buy and hold Amazon are probably making a good buy.

First, Amazon is the 800-pound gorilla of e-commerce to beat. Consumer spending is down and so are the companies like Amazon that consumers spend their money with. But consumer spending will rebound and so long as more people are able to make online purchases from more places (in other words, from their desktops to their phones), Amazon still has plenty of growth ahead of it. But there's more.

Anybody who knows me or who has followed what I've written knows that I vehemently disagree with the critics of Amazon's Kindle e-book client. People can't see the Kindle for the game-changer that it is because they can't see past version 1 of the device. Not only can't they envision version 2 and 3, they can't envision what's on the other end of the wireless network that the Kindle so effortlessly acquires its e-Book, newspaper, blog, and other content from. They forget that Amazon also is in the business of selling music, movies, and all sorts of other things that could be browsed and acquired through that network onto other Kindle-like devices.

Think of it this way: In the iPhone and iPod Touch, Apple makes wireless devices designed for the frictionless acquisition and consumption of digital content, too (currently only over Wi-Fi). But compare what's available from the iTunes Music Store with what's available from Amazon.com. Who has more catch-up to do? Amazon with devices or Apple with stuff to sell? Important sidebar: Whereas you must be on Wi-Fi to download music to an iPhone or iPod, T-Mobile's G1, based on Google's Android, can purchase and download music from Amazon's MP3 store over the T-Mobile network (here's a good write-up about that).

But wait, there's more.

Today's news that Amazon's Elastic Compute Cloud (EC2) is officially out of beta, supporting Windows, and offering service level agreements (SLAs) in combination with EC2's pay-for-virtual-machines-as-you-go business model, will no doubt raise interest from IT managers looking to cut costs during these tight economic times.

For a treatise I wrote on the benefits of outsourcing during the last recession, see Long Live the CIO But Kiss the IT Department Goodbye (written almost six years ago). The only reason I even looked this up today was because of how NYU's Jay Rosen tweeted:

Edward Roussel, digital director of the Telegraph, says "do what you do best and outsource the rest." Dump newspaper IT department.

Six years ago, cloud computing was hardly an outsourcing option. Today, the benefits of cloud computing simply add more fuel to the fire of that column's rationale.

For the icing on Amazon's Web services cake, EC2 has achieved ecosystem status now that startups such as RightScale and rPath are offering and successfully selling solutions that help businesses to make better use of EC2. Tech history has proven that when such cottage industries sprout up around a new ecosystem, the chances of that ecosystem succeeding are greatly improved.

I'm not saying that Amazon's going to take over the world. Or that it will even be No. 1 in every market it enters. For example, if I were an enterprise interested in moving some of my apps to the cloud, I might prefer a .Net or Java utility of the likes that Salesforce.com offers in Force.com (which has its own language), that Heroku offers for Ruby on Rails, or that Google's App Engine offers for Python. With so much enterprise code being Java-based, Sun's soon-to-launch compute cloud (based on Project Caroline), which in one "personality" will likely be a Java Compute Utility, may prove to be a contender vs. EC2. Even so, Amazon's EC2 and its other Web services are players (shipping ones at that) with advantages that, at the very least, poise the company for great growth over the long run.

So, when I consider all these data points and see how today, Amazon traded at it's 52-week low of 43.31, I can't help but shake my head and ask if Wall Street doesn't understand this company. It also makes me wonder if now isn't a good time for Amazon to buy some of its stock back. Not only does it demonstrate executive confidence, it would give Amazon significantly more "currency" to work with when the stock does bounce back.

By the way, if you're trying to get the early heads up that Amazon is about to announce something, be sure to tune into Amazon CTO Werner Vogels Twitter feed. Leading up to today's announcements, Vogels was tweeting like a bird. In order, here were some of his pre-announcement tweets:

  • @jeffbarr Good morning Jeff, any special going on today? (DB's note: Jeff Barr is Amazon's lead evangelist for Amazon Web Services)
  • I guess this an appropriate #aws song to wake up to today http://twurl.nl/0sy0kr
  • The #aws clock is ticking very loudly this morning.
  • Congrats to Amazon EC2: no more beta, and an SLA and Windows Server & SQL Server are available http://twurl.nl/i2zqyp (DB's note, finally, the announcement itself)
  • Blog post: Using the Cloud to build highly-efficient systems: #aws http://twurl.nl/dv846w

PS: I do not own any Amazon stock but I'm certainly thinking about it (question for a future blog: so long as bloggers and journalists always disclose it, is it OK for them to own stock in the companies they write about?)

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