Jeff Bezos' risky bet

Forget for a moment whether this will eventually turn us all into low-paid piece workers. The important thing is that the service is nurturing startups. CastingWords co-founder Nathan McFarland uses Turkers — who he says are largely the "bored and nothing-on-TV" set who treat the tasks like crossword puzzles — not only to transcribe 10-minute podcast segments but also to assemble them into full transcriptions and to check the quality. Eighteen-year-old Eric Cranston, a onetime Turker living with his parents in Visalia, Calif., plans to use the service for a company he's starting that will retouch photos for Web sites. Essentially, Bezos sees the thousands of people from all over the world working inside Mechanical Turk's online marketplace as a big "human computer."

Amazon's other new services are getting even more serious attention. Last March, Amazon introduced its Simple Storage Service, which offers cheap space on its disk drives for any programmer or business to use to store data. Right away, Amazon approached an online photo-sharing startup called SmugMug Inc. Ironic choice: President and co-founder Chris MacAskill had fiercely battled Amazon in an earlier startup, an online bookstore called Fatbrain, later bought by Barnesand- Noble.com. But his son Don, SmugMug's co-founder and CEO, says that when he heard how easily and cheaply SmugMug could back up its photos on S3, "my eyes got all big." Now, by zapping customers' photos to Amazon to store on its servers, he's avoiding the need to buy more storage devices of his own — and saving $500,000 a year. "Everything we can get Amazon to do, we will get Amazon to do," says Chris MacAskill. "You're going to see all kinds of startups get a much better and faster start" by using Amazon's services.

They already are. Consider Powerset, the secretive search startup backed by A-list angel investors, including PayPal Inc. co-founder Peter Thiel and veteran tech analyst Esther Dyson. Co-founder and CEO Barney Pell harbors ambitions of out-Googling Google with technology that he says would let people use more natural language than terse keywords to do their searches. By analyzing the underlying meaning of search queries and documents on the Web, Powerset aims to produce much more relevant results than the current search king's.

Problem is, Powerset's technology eats computing power like a child munches Halloween candy. The little 22-person company would have to spend more than $1 million on computer hardware, two-thirds of that just to handle occasional spikes in visitor traffic, plus a bunch of people to staff a massive data center and write software to run it. That's when Pell heard about Elastic Compute Cloud. He was sold. Based on tests so far, using the Amazon site for part of the company's computing power could cut its first-year capital costs alone by more than half.

Not least, Amazon is now opening its vast network of more than 20 distribution centers worldwide to all comers. For years it has handled distribution and even Web site operations for the likes of Target Stores Corp. and Borders Group. Recently it has started providing customized handling, packing, and customer service people for upscale retailers and manufacturers such as fashion boutique Bebe. And with Fulfillment By Amazon, it's opening all that up to small and midsize businesses.

With all these initiatives, Amazon empowers new startups, which are hungry to knock off Internet leaders that happen to be  ... Amazon competitors. Has Bezos thought about how he may be creating an army of allies to fight his rivals? His answer: "Absolutely!"

It's hard to dismiss another possibility, though: Amazon is biting off more than it can chew. Some of the new tech projects have come out with a thud. Compared with Google's, Amazon's A9.com search site never got traction, and its features were recently downsized. The new Amazon Unbox Video downloading service struck many early reviewers as clunky and slow.

Mostly, it's unclear whether Bezos can escape his and Amazon's linoleum-floor image. Amazon's mission to be the place where "customers can find and discover anything they might want to buy online" doesn't especially mesh with the goal to be the prime source of services needed to run an Internet Age business. By contrast, nearly all of Google's services are clearly aimed at building the dominant digital utility. Likewise, IBM is much better known as a provider not only of technology services but also of expertise in automating a wider range of business processes, from inventory management to sales tracking. Can Bezos manage a company that simultaneously sells the most routine stuff to consumers and the most demanding business services to entrepreneurs and corporations?

So it is that Jeff Bezos faces a managerial moment of truth. Having saved Amazon from oblivion years ago, he still must prove his latest big bet can help transform the company into something truly enduring. Not only does he make no apologies for such wagers, he revels in them. Every year in his annual letter to shareholders he resurrects his 1997 letter, which reads in part: "We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages."

Today, it's just the same. "We are willing to go down a bunch of dark passageways," he says, "and occasionally we find something that really works." As always, investing in Bezos and his company will require faith that there's light at the end of his newest tunnel — not just a money pit.

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