What's more, at the same time Bezos is thinking big thoughts, Amazon's retail business faces new threats. Its 25% sales growth tracks a little above the pace of overall e-commerce expansion and nearly double its own pace way back in 2001. But other sites are fast becoming preferred first stops on the Web. Google, for one, has replaced retail sites such as Amazon as the place where many people start their shopping. And more personalized and social upstarts such as News Corp.'s MySpace and YouTube, which Google is buying, have become the prime places for many people to gather online — and eventually shop. It's a trend Amazon could have trouble catching up to. Says consultant Andreas Weigend, Amazon's chief scientist until 2004: "The world has shifted from e-business to me-business."

With all those problems, some might view Bezos' latest tech toys as an attempt to take their eye off the ball. But spend some time with Bezos, and it becomes clear there may well be a method to his madness. Amazon has spent 12 years and $2 billion perfecting many of the pieces behind its online store. By most accounts, those operations are now among the biggest and most reliable in the world. "All the kinds of things you need to build great Web-scale applications are already in the guts of Amazon," says Bezos. "The only difference is, we're now exposing the guts, making [them] available to others."

And, he hopes, making money. With its Simple Storage Service, or S3, Amazon charges 15 cents per gigabyte per month for businesses to store data and programs on Amazon's vast array of disk drives. It's also charging other merchants about 45 cents a square foot per month for real space in its warehouses. Through its Elastic Compute Cloud service, or EC2, it's renting out computing power, starting at 10 cents an hour for the equivalent of a basic server computer. And it has set up a semi-automated global marketplace for online piecework, such as transcribing snippets of podcasts, called Amazon Mechanical Turk. Amazon takes a 10% commission on those jobs.

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Bezos is initially aiming these services at startups and other small companies with a little tech savvy. But it's clear that businesses of all kinds are the ultimate target market. Already, Amazon has attracted some high-powered customers. Microsoft Corp. is using the storage service to help speed software downloads, for instance, and the service is helping Linden Lab handle the crush of software downloads for its fast-growing Second Life online virtual world. Highly anticipated search upstart Powerset Inc. plans to use the Amazon computing service, even though it's still in test mode, to supplement its own computers when it launches in mid-November. And the search engine marketing firm Efficient Frontier uses Mechanical Turk to determine the most effective keywords that drive traffic to Web sites.

By all accounts, Amazon's new businesses bring in a minuscule amount of revenue. Although its direct cost of providing them appears relatively low because the hardware and software are in place, Stifel Nicolaus & Co. analyst Scott W. Devitt notes: "There's not going to be any economic return from any of these projects for the foreseeable future." Bezos himself admits as much. But with several years of heavy spending already, he's making this a priority for the long haul. "We think it's going to be a very meaningful business for us one day," he says. "What we've historically seen is that the seeds we plant can take anywhere from three, five, seven years."

A dark horse in a high-stakes race
Sooner than that, those initiatives may provide a boost for Amazon's retail side. For one, they potentially make a profit center out of idle computing capacity needed for that retail operation. Like most computer networks, Amazon's uses as little as 10% of its capacity at any one time just to leave room for occasional spikes. It's the same story in the company's distribution centers. Keeping them humming at higher capacity means they operate more efficiently, besides giving customers a much broader selection of products. And the more stuff Amazon ships, both its own inventory or others', the better deals it can cut with shippers.

But there's much more at stake for Bezos than making a few extra bucks selling services that his online store is already providing for itself. This is nothing less than a bid to lead the next wave of the Internet. A dozen years in the making, the economy that has grown up with the Internet by most accounts remains in its infancy. And leadership of that burgeoning economy remains up for grabs.

Google and Microsoft, in particular, are each angling to be the Net's kingpins: Just as Microsoft ruled the PC world (and its profits) with Windows software, so Google and Microsoft want to build what techies call the "platform" for the Web — the powerful layer of basic services on top of which everyone else builds their Web sites. "Amazon's a pretty serious dark horse" in that race, says Internet visionary Tim O'Reilly, CEO of tech publisher O'Reilly Media Inc. "Jeff really understands that if he doesn't become a platform player, he's at the mercy of those who do."

CONTINUED : A unique Amazonian edge

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