Goliath vs Goliath...Amazon takes on Apple and Google

Among Amazon founder Jeff Bezos’s more surprising investments is a 10,000-year clock.

The Mayans may have been expecting the world to end this month, along with their calendar, but the technology entrepreneur has been ploughing more than $42m (£26m) into building the gargantuan timepiece in a Texas cave.

It will produce one special visual spectacle for each year that passes, and another when the clock strikes a decade.

Bezos has committed to planning for both of these major events, but he is leaving the problem of how to mark the first century to future generations.

To some, his scheme might sound off-the-wall, but for Bezos it is “a symbol for long-term thinking”. “

If we think long-term, we can accomplish things that we couldn’t otherwise accomplish. Time horizons matter. They matter a lot,” he told an Amazon conference in Las Vegas last month.

It is a long-term view that runs right to the heart of the company.

Amazon started life as an online books retailer and spent many years as the underdog of that industry, losing money hand over fist while it perfected its supply chain.

“Why do you think we started off selling books? They are easy to store and easy to ship, the perfect guinea pigs,” says one Amazon executive.

“Amazon never wanted to end up just selling books. They were always the entry point to a much, much larger plan.”

Now Amazon is one of the biggest retailers in the world, selling everything from groceries to electronics, and notching up $934m of profits on $48bn of sales last year.

It was the same concept of gaining a foothold to win a market that informed Bezos’s decision to offer Amazon’s Kindle e-reading device to consumers at a loss.

It wanted to cement its position in people’s daily lives. The company realised that the firm that owned the technology in people’s hands also owned their information and would be the first port of call when it came to buying books, films and other content.

But, while Amazon’s efforts on the retail and gadget fronts are well documented, there is another, bigger, game in play that has received much less attention.

The company is investing heavily in “cloud computing” – essentially a way of storing information remotely, accessing it via the web and offering this to businesses alongside software and data services as a pick 'n’ mix selection.

Instead of buying their own warehouses of computer servers, or even ordering a spot in the warehouse of some other technology giant, customers that sign up to Amazon Web Services [AWS] can activate storage capacity at a few moments’ notice on a pay-as-you-go basis.

Instead of focusing on how many servers they would require in six months’ time and what to do if they failed, went the theory, companies could turn their attention on the things that would set their businesses apart.

What’s more, the scale of Amazon’s investment in cloud capacity, initially for its own retail operation, means it can charge third-party customers a fraction of what they might have paid to store the same information elsewhere.

“By removing a lot of the cost and a lot of the muck of managing their infrastructure, we thought we could do a lot for innovation,” Andy Jassy, senior vice president of AWS, explained to The Sunday Telegraph.

He should know, Jassy was the man who wrote the business plan for Amazon’s cloud venture nearly seven years ago.

Jassy likens Amazon’s cloud project to the launch of the first power companies towards the end of the 19th century.

“One hundred and fifty years ago, most companies generated their own electricity on the premises and it was a completely natural thing to do.

But then, with the advent of the grid, the economies were such that it didn’t really make sense to generate your own electricity, even though you could. I think that we’re at the beginning of a similar shift with computing,” he says.

“It is such a strong-value proposition.”

Web services are becoming the “technology bedrock for the emerging IT landscape,” agrees Colin Sebastian at Baird Equity Research, because they offer “building blocks” without the need for capital expenditure.

“AWS is a misunderstood and potentially underappreciated asset.

"[It] is a key part of the company’s non-retail operating segments, and an increasingly important part of the company’s overall growth and profitability,” he says.

There is mounting speculation that Amazon could end up spinning off the company in the long term, although there are no plans to do so at the moment.

The Seattle business would have established AWS for its own use regardless of whether any other companies wanted to pay for the service.

Amazon has made it more widely available to be helpful to third parties, it argues.

On that view, it is something of a happy accident if it brings in serious money.

Amazon has never split out figures for the cloud computing business but analysts estimate it notched up around $1.5bn of revenues last year.

This is nothing compared with the long-term plan, however.

“At the highest levels of this company, we believe that it’s quite possible that AWS ends up being the largest business in Amazon,” says Jassy, who joined the business in 1997 and was Bezos’s chief of staff, or “shadow”, before launching AWS.

“We believe [that] passionately. Now that is saying a lot because our retail business, which is a $40bn business, is still growing 25pc to 30pc year on year. We’re not there yet and I don’t know how long that will take but we see that as a real possibility,” he said.

What’s more, AWS could help Amazon overtake Apple as the largest technology company there is, he adds.

“It is possible. We don’t say to ourselves, 'What we’re really doing is trying to build the largest technology company in the world’.

"We just happen to think, with how much computing is going to move to the cloud, and with the breadth and global footprint that we have, and our continuing [commitment] to iterate at a very fast pace, it just has the chance to be the largest technology company.”

Whether or not this is the goal, there is always a more complex game plan afoot with Amazon. In this case, analysts argue, it is trying effectively to “own” the internet.

Rival technology company Google has arguably already achieved this by dominating web search but Amazon is making a grab for the same prize, via a different back-door route, analysts claim.

Jassy won’t quite go that far but his account of how AWS came about is revealing: “We asked ourselves, if you believed developers would build [web] applications from scratch using these web services, then the operating system became the internet.

And then we said, if there is going to be an internet operating system, what could we meaningfully contribute to it?

“In mid-2003, none of the key components of that internet operating system had been built and we realised we could contribute most of the key components of the internet operating system. It’s a happy outcome if we get a lot of adoption.”

Amazon is not alone in recognising the importance of cloud computing, of course. Google is at it. Microsoft is at it.

Every one of the major technology giants is at it. All of them advancing their own positions by pouring money into storage capacity and largely pouring a light level of scorn on their rivals’ offerings.

In this, Amazon is no different.

Jassy used the conference in Las Vegas, attended by 6,000 web developers whose companies have signed up to AWS, to attack what he termed “cloudwashers” who combine old-fashioned data storage services with virtual networks and pass the whole thing off as a “private cloud”.

What’s more, the need of these companies to keep flogging legacy software and hardware, means customers are sometimes restricted in terms of where they buy products, or what operating systems they can use, he said

Amazon did not name names, but embarrassing quotes from “anonymous” executives at these companies flashed up on screens behind Jassy in the easily recognisable type faces of Hewlett-Packard, Oracle and IBM.

“Here’s what I think is going on. You have these large, old-guard technology companies who’ve had very successful, big businesses over the last 30 years, [which] operate at 60pc to 80pc gross margins,” he says.

“When you see a new technology that’s going to make those margins go much lower, self-preservation often dictates that you try to convince people to stick with the model that you’re operating.

“I think the primary reason that you’re seeing these companies push the cloud so hard and spread 'FUD’ [fear, uncertainty and doubt] about what we would call the 'proper cloud’, is that the economics are very disruptive for their businesses.”

Even though Amazon’s cloud business has yet to pass its seventh birthday, it counts as an old hand in the nascent cloud industry.

Jassy is confident that its “first mover” advantage puts a significant gulf between the Seattle business and its next nearest competitor.

“There isn’t a compression algorithm for experience. You can’t learn a lot of the lessons without having [our] scale and diversity,” he says.

As well as Amazon’s own retail business, AWS counts the Nasdaq stock exchange and Netflix, the online film rental business, among its customers.

It was also used to relay pictures back from the Curiosity spacecraft when it landed on Mars earlier this year.

Every technology company in this sector is marching in quick-step, and a number of them are thought to have spent considerably more on servers to support their projects than Amazon’s $1.8bn expenditure last year.

But some analysts think the game is already up. Amazon, Google and Microsoft have pulled into the lead, and gained enough momentum to make it difficult for other players to get a look in.

“I don’t know if it’s too late [for them]. A lot of it depends on what your view of the world is,” Jassy says.

But one thing he is sure of is that the old economics of computing are over. “People should make no mistake about it, the model that we’re pursuing is going to be the dominant way that computing exists in the next 10 years,” he says.

“You can jump up and down all you want. You can raise all the objections that you want. You can take any bump along the way and say, 'Look, look, look!’ and try to scare people.

“But the reality is that if the value proposition is that compelling it is going to happen. You can’t stop gravity.

“At Amazon, we are very long term-oriented thinkers, so we think about the fullness of time.”

Retail and gadgets might grab most of the headlines, but beside them is an ever-growing giant that is only now starting to flex its muscles.

In terms of Amazon’s plans for this business, AWS hasn’t even passed the first decade on Bezos’s 10,000-year clock.