Amazon Spreads Its Marketplace Magic
Amazon.com Inc.'s cloud-computing business made a quiet strategy shift that could emerge as another one of the company's classic sneak attacks to gobble more power.
Amazon Web Services announced late Wednesday a change in what is effectively an app store for business software. Just as iPhone users can download Candy Crush Saga from their iTunes accounts, a company that pays for AWS's computing network to run its website can also buy other companies' technology to use in tandem, such as New Relic Inc.'s cloud software to pinpoint technical hiccups on websites. AWS tracks the amount of software the customer uses and charges for all of it on a single bill.
AWS has operated this type of software store for several years, although the new changes make it much more appealing both for Amazon's partners and potential customers. Finding and buying software through AWS streamlines the process for potential business customers. New Relic and other companies that use AWS as a middleman can land more customers than they might on their own. Amazon makes more money through fees it collects on the software sales. It's a win all around.
This type of marketplace -- a consolidated bazaar for independent companies' products ---is not novel. In consumer technology, the app stores for iPhone and Android are marketplaces. EBay Inc. is a marketplace. AWS's main competitors, Microsoft Corp.'s Azure and Google Cloud at Alphabet Inc., also have marketplaces for other companies' business software.
The biggest difference is all those other companies are not Amazon.
AWS is the 800-pound gorilla in corporate cloud computing, so any moves it makes have a magnified impact. And the e-commerce part of Amazon already operates one of the most successful marketplace businesses in the world.
You may not notice when you put those bed sheets and running shoes into your Amazon shopping cart, but the goods might not be sold by Amazon but rather by one of the millions of merchants who use Amazon as a conduit. Amazon executives say this e-commerce marketplace business is one of the three pillars of the company, along with AWS and the Prime shopping club. The outside sellers account for nearly half of the total number of items sold on Amazon. And those marketplace sales will generate close to $15 billion in revenue, or 19 percent of Amazon's total North America revenue this year, R.W. Baird has estimated.
That's not to say AWS will ever become as big a middleman for independent software as Amazon's retail business has become for products. AWS introduces many new offerings, and some of them never seem to go anywhere. But AWS appears to be taking its software store seriously, and the size of Amazon's marketplace in retail shows the potential opportunity for AWS. Already, AWS generates more than half of Amazon's total operating income, and its fat margins are a salve for the e-commerce business's dinky profits.
You can imagine AWS improving its software marketplace by adapting tricks from Amazon's e-commerce business. If Amazon recommends cheese graters to people who are buying paring knives, then AWS in theory can recommend outside companies' data-analysis software to shoppers who are purchasing AWS's corporate databases.
AWS has shaken up the entire business technology sector, even though it captures just a fraction of the $450 billion companies spend on software each year. When Amazon's e-commerce operation started more than 20 years ago, it sold only books and then spread its tentacles into nearly every consumer product and service imaginable. In 20 years, we could look back at AWS's marketplace as the seeds of another world-spanning expansion, this time for corporate technology.
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