Watch out for Amazon
If you're going to play follow-my-leader then it's always a good idea to make sure you get behind a winner. Everyone seems to be looking up to Google at the moment, but like I said last week, its reliance on advertising could be a big weakness, especially now that Amazon.com has started experimenting with monetizing the combined brainpower of its entire customer base.
Last month I mentioned that any analysis of top on-demand providers ought to take the likes of Amazon, Google et al into account when calculating who's top dog. This is a theme I'm going to return to frequently but what I'd like to do today is just take a look at where Amazon sits in the on-demand world in revenue terms compared to some of the other players, taking its recent Q3 financials as a starting point.
Most of Amazon's $8 billion-a-year revenues are irrelevant to this exercise. What I'm interested in is the small footnote in the detailed profit-and-loss called "Other revenue." This basically represents Amazon's services revenues, the majority of which come from providing online retailing services to other retailers, but which also include the contributions of Amazon Web Services. Scan down the detailed financial statements and you'll find that the trailing twelve months (TTM) figure for worldwide 'other revenues' reached $211 million in Q3. That's about 2.5 percent of the total, so it's small beer in the context of overall revenue, but it takes on a different dimension when you compare it to some of the more conventional names in the on-demand sector.
That $211 million in on-demand revenue still dwarfs the number 2 hosted CRM vendor, RightNow Technologies, for example, whose Q3 results brought its TTM revenue to $80 million. Salesforce.com's TTM to July 31st, its most recently reported quarter, puts it ahead of Amazon Services at $237 million — but only by a slim margin.
All of this is completely overshadowed, of course, by Google's five-and-a-quarter billion dollars of TTM revenue, pretty much all of which is directly attributable to on-demand advertising services. The problem that Google has to overcome if it's going to maintain that lead, however, is that it's currently a one-trick pony. Advertising is all it does, and while there's a huge amount of scope to make more money out of its unique advertising model, there are plenty of other forms of economic activity that haven't yet been monetized.
That's why Amazon's Mechanical Turk is such an eye-opener, and a reminder that there's still everything to play for in opening up new opportunities for on-demand services. Here's the view from Dion Hinchcliffe's Web 2.0 Blog:
"... the Mechanical Turk service is fundamentally open ended and not tied to any specific product type or service offering, as long as it can be quantified into something they call a HIT (human intelligence task). This makes the Turk a kind of meta long tail that has farther reach than a product specific long tail ... Amazon is clearly engaging in radical innovation years after entering the market and isn't afraid to keep taking risks in the market either."
And here's Peter Cashmore's warning not to underestimate Amazon (my emphasis added both above and here):
"While we’re all coming to terms with our Google obsession (apparently their lunches were more interesting than anything else on the web last Friday), companies like Amazon are quietly changing the world - and getting away with it! ... If Web 2.0 is about people, peer-production and massive scalability, then by anyone’s standards Amazon has just launched the ultimate Web 2.0 product."
The considered opinion of these observers (and mine) is that Amazon is clearly still a force to reckon with. I would say eBay probably also retains a powerful capacity to surprise us all. And along with Google and a few others, they all have the potential to make a huge impact on the way the on-demand market for conventional applications evolves too.