This May Hurt The Web Services Business
February 21st, 2008 | Posted in Other |
It appears that Amazon.com isn’t happy with just being the largest online retailer. So, what’s their plan? They’re now going after the web services market. That’s right…Amazon Web Services is now selling storage, computing power and other data center services.
Their idea is to slash how much Internet startup companies have to spend on infrastructure. Their system, the Elastic Compute Cloud (EC2), allows customers to quickly start up a virtual computer in the “cloud” (industry slang for worldwide data centers), use it as a web server or for processing data, and have the ability to shut it down quickly. The system is billed out “utility” style, similar to your electricity bill. The more data that is sent and received, the higher your bill will be at the end of the month.
So, the obvious question here is: What does all this mean to you and me? The answer…is complicated. In the short term, it means unfortunate “big box style” competition from a company with huge name/brand recognition in a field that many of us have spent a lot of painstaking time in refining our skills. Their foray into this market sector is going to create headaches for many web designers, IT staffers, and system/network administrators. Are people going to lose their jobs? Probably. At the least, there will be fewer jobs available.
When I first read about Amazon’s plan, my first reaction was, “why?”. They aren’t satisfied with reporting billions of dollars in sales each quarter? For a long time now, Amazon.com has been touted as a “niche” market leader and a company founded on The Long Tail economic principle (we’ve even written about it here in this blog). Now though, it looks as if they are trying to cover every niche they can possibly find. Why? The only answer I keep coming back to is comprised of one word: greed. Nothing else really makes sense other than sheer greed. The fat cat just wants to get fatter. CNN.com had a story about Amazon’s plan and used a quote which I think sums it up fittingly: “It is hard to get your head around: ‘Why is this retailer that ships me toys for my kids for Christmas … also my supplier of IT services?” Does not compute…
To add more fuel to the fire, Wal-Mart has also announced that it is now providing SEO and SEM services. Oy Vey! Cut-rate SEO and SEM? Yep, $25/month and $50/month packages are what they are promoting. What exactly is a business owner hoping to achieve by enlisting Wal-mart to optimize and promote their website? In the long run, this might prove advantageous to good, qualified SEO and SEM companies and individuals. One approach might be, “So, you tried the budget approach to promoting your website with Wal-Mart and it didn’t yield results, huh? Well, why don’t you give us a shot and see how REAL SEO/SEM works.” Good grief.
After reading about these two giants entering into the web services industry, my mind started to wander off, words such as ‘monopoly’ and ‘antitrust’ began emerging. What force drives these two companies to enter into a market sector that lies completely out of their normal scope of business? Well, again, greed comes to mind along with control, manipulation, and power. Keep in mind that none of those words are real consumer friendly.
In my opinion, this is a trend pointing us toward an oligopoly, in which four or five large companies compete against each other in an individual market – that market being the Internet. Right now, we have three…maybe four big players (Amazon, Wal-Mart, Yahoo!, and Google).
While doing some research about oligopolies, I came across an article that was written about the Microsoft antitrust suit and thought it contained some nuggets of relevance for what is taking place with Amazon and Wal-Mart.
“The economy is so much bigger today that even its largest companies play a smaller role than U.S. Steel, Standard Oil or AT&T did a century ago. The Microsoft case cannot have as much economy-shaking impact. Technology also seems to be moving sufficiently rapidly to make whatever antitrust remedy is reached in that case of doubtful relevance: The market and the industry will have changed too much. The smaller impact of any single case and the difficulty of keeping pace with changing technology may end up making judicial antitrust remedies irrelevant. Perhaps courts and prosecutors will try to maintain the standard pattern: Tolerate oligopoly, break up monopoly. If so, antitrust authorities will have a busy time as they watch economies of scale create a dominant natural monopoly in sector after sector, then move to break up the monopoly and restore competition. Will such a pattern lead to an efficient and productive economy? We are not sure.
A second possible direction would be to have greater tolerance for monopolies that played fair: to focus on establishing and monitoring a code of conduct for information-age natural monopolies that allows us to reap all the efficiency benefits of bigness and still maintain a degree of virtual, if not real, competition. But can such a code of standard-setting friendliness be specified and enforced? We are not sure.” (http://econ161.berkeley.edu/TotW/microsoft_history.html)
For now, my suggestion is this: network hard with everyone you know and develop a strong, happy core of customers who are pleased with your services. Get out in your local community and let people know about your services. On the local level, there is fortunately still an element of loyalty in working with other local service providers. Use this to your advantage! Encourage word of mouth referrals, join your local Chamber of Commerce if necessary and get the word out to potential customers. Promote your business and services as much as possible. The bottom line in all of this too is that you need to do your job well, thoroughly, and honestly. Your reputation will be about the only edge you will be able to use to battle these two companies.
Let me know your thoughts on the announcements from Amazon.com and Wal-Mart. I’d like to hear other suggestions on how you plan to handle their ‘intrusion’ into a highly targeted, customer specific (SEO and SEM), labor intensive, technical field that doesn’t lend itself to flat rate pricing and impersonal handling.
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