Jeff Bezos' risky bet

Bezos believes he has identified a unique Amazonian edge: Like no other Internet or computer company today, the e-retailer is in a position to apply the efficiencies of the Net to tangible and corporeal assets like products and people. Bezos envisions embedding the tasks of product distribution and knowledge work right into the flow of more automated business processes such as order taking and payment processing. For instance, a new service called Fulfillment by Amazon lets small and midsize businesses send their inventory to Amazon warehouses. Then when a customer places an order, Amazon gets an automated signal to ship it out — no muss, no fuss, no servers or software or garages full of stuff. "Amazon's in the business of managing complexity," says Amazon director John Doerr of the venture firm Kleiner Perkins Caufield & Byers. "There's no other e-commerce player that does that."

Mundane as these business-focused services may sound, the implications for the economy at large are startling. Google, MySpace, and YouTube cracked open for the masses the means to produce media and the advertising that sustains it, creating tens of billions of dollars in market value and billions more in new revenues. Now, by sharing Amazon's infrastructure on the cheap, Bezos is taking that same idea into the realm of physical goods and human talent, potentially empowering a whole new swath of businesses beyond the Internet itself.

The upshot: While Wall Street yawns, Bezos' pioneering dot-com is actually starting to look almost hip again, at least to the all-important Web 2.0 geek gods who set the Net agenda today. More importantly, some venture capitalists have noticed, and they're encouraging their startups to consider using Amazon services to save money and get to market faster. "Amazon is becoming a very interesting company," says Crosslink Capital general partner Peter Rip. "They're taking their store in the sky and unbundling it."

In any case, this looks like Bezos' biggest bet since he and his wife, MacKenzie, drove west in 1994 to seek fame and fortune on the Net. Since then he has survived the dot-com boom and bust with his ambitions intact. Now with three sons, and a daughter recently adopted from China, Bezos still has managed to find time to start a rocket company, Blue Origin. The venture is building a test facility in West Texas not far from his grandfather's ranch, where he once spent summers branding cattle. A longtime space nut, he made a valedictorian speech in 1982 at Miami Palmetto Senior High School about the need to colonize space.

Amazon, however, commands his full attention, especially now that the groundwork is laid for the company's latest transformation. He began not long after the dot-com bust in 2001 with — big surprise — a huge project to modernize Amazon's massive collection of data centers and the software running on them. The result was that Amazon made it much faster and easier to add new Web site features. Small, fast-moving groups of five to eight Amazon employees now could go hog wild with new ideas, such as customer discussion boards on each product page and software to play music and videos on the site. Since then these "two-pizza teams," which Bezos calls them because each team can be fed with two large pies, have become Amazon's prime innovation engines. "There's a huge value in this small, nimble team approach," says tech consultant and author John Hagel III. "But you can't do that without this kind of computer architecture."

Next came an epiphany: If the new computer setup allowed folks inside to be more creative and independent, why not open it up to outsiders, too? So in 2002, Amazon began offering outside software and Web site developers access to selected Amazon data such as pricing trends, gradually adding more and more until this year. Now it's basically getting free help from more than 200,000 outside Web developers, up 60% from a year ago. They're building new services on top of Amazon technology, further feeding back into Amazon's core retail business. One service, Scanbuy, lets people check Amazon prices on their cell phones to see if they're better than prices in a retail store.

Starting a few months ago, Amazon upped the ante. It began offering not just data but computing power, storage, and more, all intended to turn even more of its internal operations into salable services. One of the most interesting is Amazon Mechanical Turk. A couple of years ago, Amazon needed to make sure photos it took of thousands of businesses for the online Yellow Pages on its A9 search site actually matched the right business. Computers are bad at recognizing and sorting images, but people can do so very quickly. So Amazon set up a Web site where it could farm out the sorting to people for a penny or two per photo, clearly more for fun than for big pay. Last November, it launched the site, naming it after an 18th century chess-playing machine that actually had a real chess master hidden inside it.

New spark plugs for startups
Since its debut, the service has attracted thousands of "Turkers" working for dozens of companies. They're doing jobs that Mechanical Turk Director Peter Cohen says "couldn't be done at all before," because there was no economical way to gather people for these tiny, often ephemeral tasks. Efficient Frontier has used the service to analyze tens of thousands of search keywords to see which best attract potential shoppers to particular Web sites. "There have not been any other services like Mechanical Turk that can do this so efficiently," says software engineer Zachary Mason.

MORE FROM BUSINESSWEEK

BusinessWeek Section Front

Stock Picks: Microsoft, TiVo, J.Crew Stocks Gain on Recovery Optimism Central Bank Buying Spurs a Gold Rush Experts Talk About FOMC Minutes, GDP, and Home Prices Stock Picks: Hewlett-Packard, Analog Devices Stocks Fall on Economic Data Checking the Health of the Housing Recovery Stocks Gain on Home-Sales Data Unions, Business Oppose Tax on 'Cadillac' Care Wall Street: Is It Good to Apologize for Greed? BusinessWeek Section Front