Amazon’s hot new item: its data center

By Jessica Mintz

updated 4:19 p.m. ET Feb. 1, 2008

SEATTLE - Critics thought it was over the top when Amazon.com Inc. expanded from books into music in 1998. When the Web retailer let competitors start selling things alongside its own inventory in 2000, they said Amazon had gone nuts.

In both cases, Amazon proved them wrong. Media sales now total in the billions each quarter, and third-party merchandise, more profitable for Amazon than its own wares, makes up nearly a third of everything sold through the site.

Now, Amazon is making an even greater stretch — selling storage, computing power and other behind-the-scenes data center services.

The venture, which Amazon expects will grow into a significant business segment, could help keep the company strong if retailers get hit by an economic downturn. More broadly, Amazon Web Services, as the business is called, could improve chances for a new generation of Web startups by slashing how much they spend up front on costly infrastructure.

MileMeter Inc., a Dallas-based startup that plans to sell auto insurance by the mile, started out running its own server in a data center. Recently, it moved most of its applications onto virtual computers in Amazon Web Services' Elastic Compute Cloud.

EC2 lets its customers quickly start up a virtual computer in the "cloud" — industry slang for data centers around the world — then use it as a Web server or for crunching data and shut it down just as fast.

"I don't need to have a systems administrator or a network administrator," said Chief Executive Chris Gay. "I don't have to worry about hardware becoming irrelevant."

Gay said he also uses Amazon's online payments service and is evaluating its data storage and simple database services. During the first dot-com boom, he said, "It was a badge of strength to have as much as possible in house.

"Now, unless that is your core business ... it's a liability."

Adam Selipsky, vice president of product management and developer relations for Amazon Web Services, said Amazon wants entrepreneurs to focus on their ideas, not on hardware leases and crashing servers.

"We want to let developers innovate and make money," he said.

Amazon is certainly not the only player. James Staten, an analyst at Forrester Research, said Akamai Technologies Inc., Enki and Terremark each offer at least a portion of the Web services Amazon is selling. IBM Corp. and Sun Microsystems Inc. offer pricier versions aimed at big businesses, while Google Inc. and Microsoft Corp. are thought to be working on services similar to Amazon's.

(Msnbc.com is a joint venture of Microsoft and NBC Universal.)

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