PICNIC 08 – The Future of Business Creation
Werner Vogels: CTO amazon
The future of business creation
Yesterday at 16.15, the last lecture of a three day picnic was given. Dr.Werner Vogels, now CTO of Amazon.com, took the mic and started talking on how to start a profitable business with the help of new online services provided by companies like the one he works for, amazon. Amazon provides services that drive creation of new businesses, Werner tells the audience, and he will explain how this new phenomenon called “cloud computing” works by showing some successful start-ups.
Animoto is your prototypical start up. Some guys in college develop a new set of algorithms and after they’ve graduated start thinking on what to do with these. They come up with the idea for a web-service where users upload a movie-file together with a sound-file which gets rendered by Animoto for free. This is a computational intensive business, also because Animoto wants to give the users instant gratification: the video and audio must be rendered within a 5 minute time frame. To do this you need a lot of servers, and these guys have none, but use the services amazon provides; they store their whole business online with amazon, no initial investment needed, you pay as you go.
Animoto is initially quite successful with 25.000 customers, using around 50 server-units of amazon to get this done. Then the 15th of April 2008 they launched a facebook app and from that moment they we’re signing up 25k people per hour. An enormous growth that couldn’t have been done without the scalability of the services provided by amazon.
CAPEX to OPEX
According to Werner Vogels, this shift from having to invest initially in hardware, the capital expenditures (CAPEX), to only having to pay for what you use, the so called operating expenditures (OPEX) makes it much easier for people to start new online businesses. Werner Vogels takes us back in time and gives the example of electricity; in the early electricity days companies like a brewery had their own electricity generator which initially cost them a lot of money to buy the hardware needed to make the product they wanted to sell: beer. Then later companies started to specialize in delivering electricity to other businesses. This is what amazon now does for the e-business world.
As said, scalability is an important factor and Vogels gives a nice example: the Indy 500. Three times a year, the Indianapolis 500, an automobile race, is held in America which is a huge event. This event can be followed online on two websites which provide a live stream of the race but also some technical data, statistics, and so on. Around the year these sites don’t get much visitors, but when a race is being held they instantly need to handle loads of people wanting to access these sites. And the only way to be able to handle these visitors is because the scalability of the services amazon provides. All pay as you go: if you don’t use it, you don’t pay for it and you don’t need the initial investment costs.
Consumer driven world
‘Out there’ the competition is murderous with the consumer being in control, the pull-model, of what to watch when they want it, a totally consumer driven world. Therefor when you start a company you want the upfront investments to be minimal as possible. And this is what the amazon services make possible.
Companies like jamglue, an online audio workstation, or ‘digital chalk‘, an environment where instructors can build educational packages for their students, use these services.
Or vimeo: video online a prototypcal video service where you can upload and render video for you to use. Mogulus: create your live online tv chanel. Now they have 25 thousand live tv channels, and they deliver great software, a complete professional environment for making live tv channels.
Vogels gives an example to create your own youtube with the help of Pandastream, which is open source software to create youtube like service. Then take this software, go to amazon, and run it on their services.
The facebook, myspace, youtube stories of instant success have brainwashed most of us. The chances that this will happen to you are very, very small. So when you start a business make it viable from the start. Vogels tells us that it is good to grow your business slowly and that the notion of making money as a startup is somehow lost on the web, but not impossible to do. Take for instance the company 37signals; they have been profiting from the beginning. When you don’t have to invest a lot of money upfront, your business is likely to be more viable.
Of course Werner Vogels’ talk is one huge amazon commercial, but he does signal a new way of starting and running your business and providing services to your users. The whole cloud computing makes an initial big investment less important, as you only have the costs of running your e-business as you go.