CloudFront

I am a believer that Information Technology companies, at their best, export deflationary capabilities to their customers. Amazon's CloudFront, their Content Distribution Network, is a great example of a service that enables software/internet companies to export lower prices to their customers. Here's a quote that details their recent pricing announcement:

"Today, Amazon Web Services (AWS) is announcing new pricing tiers for Amazon CloudFront, our high-performance, pay-as-you-go content delivery service. The new pricing tiers decrease the price of delivering content to as low as $0.05 per gigabyte delivered for high volume users. As you know, we are committed to continually reducing our costs, and to passing those savings on to you in the form of lower prices." I find a few things significant here:

1. The pricing seems to be substantially below CDN market leader Akamai (maybe as low as 50%), and on a par with a perceived lower quality, yet large avaialablity, Level3

2. Unlike Akamai and many other CDN's, there is no minimum commitment, so it's available for young companies striving for capital efficiency when it most counts.

3. The sign-up is via self-service. No salespeople, limited marketing, and Support Engineers means a huge % of the gross margin comes down to Amazon's pre-tax line.

Sales, marketing and support is precisely the area where the majority of expenses for young internet/software companies is directed. By affecting the 50-60% of a firm's total spending directed to sales, marketing and support, the fundamental economic equation changes.

More value is available to be distributed back to shareholders, invested in the company, or returned to customers in the form of lower prices. Extending self-service, usually seen in application provisioning (see Reimage for a classic example) is a natural progression that, when properly implemented, totally disrupts a market's existing economics....as Amazon is now doing to CDN's. This is a broad opportunity that cuts wide and deep for investors, management teams and customers. The only losers I can see here are existing industry players, and a prospect for reduced employment as efficiencies in production and distribution are realized throughout the value chain.

It seems as if Amazon is busy seizing a broader market opportunity than visibly apparent in CDN. Take a look at the other relevant services, listed below, easily available for its customers. When you do, think WebOS and the emerging importance of Amazon to the internet development ecosystem. Then compare these attributes to MSFT's focus on its proprietary ecosystem. I doubt MSFT's client-centric approach, or their lusting after Yahoo's search business, will free them to embrace this market shift. Speaking of Yahoo, however, it could be a wonderful opportunity for them to leverage a vast global web oriented infrastructure (as Google is) to be a contender for primacy within the WebOS sweepstakes.

Here's the related Amazon services:

Amazon Associates Web Service™
Amazon Simple Storage Service™
Amazon CloudFront™
Amazon Simple Queue Service™
Amazon Elastic Compute Cloud™
Alexa® Web Services
Amazon Flexible Payments Service™
Amazon DevPay Service™
Amazon SimpleDB Service™
Amazon Fulfillment Web Service™
Amazon Web Services Premium Support

Of interest to developers building applications is rapidly layering application components/distros on top of such an ecosystem. In an environment where 80+% of code is recycled, having access to discover, understand, and use market tested components is a logical extension to the WebOS (see information on my investment in Cloudsmith for more details).

Building, and exporting, deflationary services is a time tested way for IT companies to build value and will be an important investing consideration for me.