Amazon: 'Strong Demand' for S3 and EC2

Shares of Amazon.com (AMZN) surged 40% last week after the company announced blockbuster first-quarter earnings, driven by strong performance in its core Internet retail business. With Amazon's re-emergence as a hot Internet stock, the company's Web services strategy continues to gain attention.

Amazon CEO Jeff Bezos discussed the prospects for the company's utility infrastructure services during its quarterly earnings call on April 24. Bezos said Amazon does not break out revenue numbers for its Simple Storage Service (S3) and Elastic Compute Cloud (EC2), but said the company is "seeing very strong demand for those services. ... We have been adding new capacity for those services and I continue to expect that to continue indefinitely."

Bezos said last week that Amazon S3 now hosts more than 5 billion objects, up from 800 million in July 2006. In the analyst call he was upbeat about S3 and EC2, but emphasized the long-term nature of significant returns:

We are very pleased with the traction that we are getting to date. It is certainly exciting to see, but it is very, very early. I think we are really on to something, given the early initial traction. This is new customer stuff for us. We have been working on it for just a couple of years now, and there are already a very large number of developers using these services. We have gotten very positive feedback from them. We keep enhancing the services. The team here at Amazon that is working on these web services is super passionate about this, very, very excited.

But he also noted that it has generally taken a long time for Amazon's new offerings to generate meaningful profits for the company's bottom line, and Bezos said he expects that to hold true for the infrastructure services as well.

We have seen that previously with things like international, new product categories, and so on, so it is going to require some patience in order to see that have a financial return but it is certainly just excellent early traction. ... The market sizes are potentially very large, and how large it can be, over what kind of time frame, we will have to wait and see.

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  By Rich Miller April 30, 2007 | Permalink | >Get Posts By E-mail

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