An Amazon Engineer Had a Little Idea That Turned Into a Billion-Dollar Business

Ten years ago, if asked what company would revolutionize computing, a book merchant with a tech edge probably did not come to mind.

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Reuters

Once upon a time, Amazon was a dot-com-era technology company best known for selling books. Then, in 2003 and 2004, Amazon wanted to streamline its internal process between the programmers and the hardware engineers. It was a move that many other companies were taking, but an Amazon engineer had a brilliant idea: Why not use the same project to design an application that could rent chunks of Amazon's computing facilities to customers?

On August 24, 2006, the public beta of Amazon's "Infrastructure as a Service" (IaaS). And so, the ability to rent computing capacity managed by someone else was born. It was a gamble that has, so far, paid off. Amazon includes IaaS revenue in a larger unit called Amazon Web Service, which includes other cloud products. That, in turn, is under a part of the financial reports that includes non-cloud products called "other." Besides Amazon Web Service, Amazon's other revenue includes non-retail activities, such as marketing and promotional activities, co-branded credit card agreements, and other seller sites. Yet most analysts studying the industry believe that the mass majority of the "other" is cloud computing, and the growth is stunning:

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IaaS at Amazon went from a thought project in 2004, to a startup in 2006 and it is almost certainly heading toward a billion-dollar business, if it is not there already.

Renting computers, called servers, that were managed by someone else, somewhere else, was not a new concept. What was new was the pricing that allowed customers to buy servers by the hour with a click of a button. That rental concept allowed businesses with uncertain future demand to buy computing capacity rapidly, 24 hours a day, as needed. Other companies followed Amazon's lead. Rackspace, Terremark, CSC, Savvis, among others have similar options now, and technology research-firm Gartner estimates that businesses will spend $6.2 billion, or 45.4% growth, in 2012 on IaaS.

Here's why server space matters. In 2002, Friendster was the first site to introduce social networking to millions. The demand grew exponentially as news outlets jumped on the new phenomenon, yet the code behind the site was asking too much of the servers. (In comparison, Facebook uses a programming language called AJAX that taxes servers less.) Its popularity stressed Friendster's computing capacity and eventually, for a period of time, the site became unusable because it was too slow. It is unknown whether Friendster could have innovated rapidly enough to remain dominate over the more nimble MySpace and Facebook, but it never had a chance. Other companies were forming while it was down. Years later in 2007, Zynga combined gaming with social networking into online applications that became known as social gaming. It first received venture capital in 2008 and by April 2009 it was the largest app developer for Facebook with 40 million monthly active users. In 2011, Zynga brought in 12% of Facebook's revenue. Unlike Friendster, Zynga was able to handle the explosive demand of its service. It did so while not owning most of its own servers or hardware infrastructure. It was almost completely in the cloud. In Amazon's cloud.

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Chris Gaun is a technology analyst at Gartner.

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