Comments on: Amazon.com and the fabless semiconductor industry http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/ News About Tech, Money and Innovation Wed, 25 Nov 2009 12:19:57 +0000 http://wordpress.org/?v=2.8.5 hourly 1 By: Paul http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-795216 Paul Fri, 15 Feb 2008 07:14:50 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-795216 Interesting post. There are crucial differences however. Pure play data centres lower the barrier of entry for smaller companies that can't afford the upfront capex. Makes sense. However, data centres should benefit from Moore's Law and become cheaper over time. Therefore, scale is important but you are riding technology wave. Semiconductors get more expensive to design and manufacture as you are driving the technology wave. Intel's sales might be growing but look at their capex. Asset turns and their ability to turn that investment into profit is declining. And they are the biggest in the industry!. Interesting post. There are crucial differences however. Pure play data centres lower the barrier of entry for smaller companies that can’t afford the upfront capex. Makes sense. However, data centres should benefit from Moore’s Law and become cheaper over time. Therefore, scale is important but you are riding technology wave. Semiconductors get more expensive to design and manufacture as you are driving the technology wave. Intel’s sales might be growing but look at their capex. Asset turns and their ability to turn that investment into profit is declining. And they are the biggest in the industry!.

]]> By: Five Computer Clouds Are All We Need « GigaOM http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-646172 Five Computer Clouds Are All We Need « GigaOM Fri, 23 Nov 2007 00:00:12 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-646172 [...] — not for their ecommerce solutions, but for their web services, which I’ve previously compared to semiconductor fabs. They represent the consumer infrastructure cloud. Any consumer Internet app first needs to be [...] [...] — not for their ecommerce solutions, but for their web services, which I’ve previously compared to semiconductor fabs. They represent the consumer infrastructure cloud. Any consumer Internet app first needs to be [...]

]]> By: Jon http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-560156 Jon Tue, 02 Oct 2007 14:14:58 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-560156 yes i fulfully agree with Paco Nathan on what he has brought to the table in this discussion. yes i fulfully agree with Paco Nathan on what he has brought to the table in this discussion.

]]> By: tomo http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-17034 tomo Sun, 10 Dec 2006 17:47:20 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-17034 Paco, WRT to PacNW, Amazon's actual datacenters are in the northern VA area. They do have a small datacenter in Seattle but nothing when compared to VA. I am still questioning how much extra capacity do they really have and how on earth will they scale it once they reach 70% or 80% utilization. It's not like they can just add datacenters and other infrastructure with the snap of a finger. The notion of selling off excess capacity is a great one and one that has proven succesful for telcos and carriers but multiplexing wavelengths is a much more scaleable proposition than creating a new paradigm in the outsourcing of infrastructure/datacenter/computing services. The marginal utility to Amazon of adding customers will at some point hit diminishing return because there can't be infinite scale to datacenters based on todays environment....there is a sweet spot to actually benefitting from economies of scale when building datacenters and it is finite. One more thing to consider, the demands of supporting hundreds or thousands of customers on a service like this require a totally different support and service organization than what running an ecommerce site does and at some point, the two businesses may be equal or the AWS may dwarf the retail which is why I wouldn't be surprised to see Amazon create a new service company that is essentially "AWS" and whose first customer is a retail ecommerce site called Amazon. Paco,

WRT to PacNW, Amazon’s actual datacenters are in the northern VA area. They do have a small datacenter in Seattle but nothing when compared to VA.

I am still questioning how much extra capacity do they really have and how on earth will they scale it once they reach 70% or 80% utilization. It’s not like they can just add datacenters and other infrastructure with the snap of a finger. The notion of selling off excess capacity is a great one and one that has proven succesful for telcos and carriers but multiplexing wavelengths is a much more scaleable proposition than creating a new paradigm in the outsourcing of infrastructure/datacenter/computing services. The marginal utility to Amazon of adding customers will at some point hit diminishing return because there can’t be infinite scale to datacenters based on todays environment….there is a sweet spot to actually benefitting from economies of scale when building datacenters and it is finite.

One more thing to consider, the demands of supporting hundreds or thousands of customers on a service like this require a totally different support and service organization than what running an ecommerce site does and at some point, the two businesses may be equal or the AWS may dwarf the retail which is why I wouldn’t be surprised to see Amazon create a new service company that is essentially “AWS” and whose first customer is a retail ecommerce site called Amazon.

]]> By: Computing at Scale » Blog Archive » Infrastructure as a Service http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-17011 Computing at Scale » Blog Archive » Infrastructure as a Service Tue, 05 Dec 2006 15:56:47 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-17011 [...] Amazon.com and the fabless semicinductor industry [...] [...] Amazon.com and the fabless semicinductor industry [...]

]]> By: Paco NATHAN http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-16956 Paco NATHAN Fri, 24 Nov 2006 19:09:54 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-16956 Quite interesting comments. One thing that seems to be missed in the discussion about Amazon AWS is the "cleantech" aspect. In a sense, they are leveraging intellectual capital (know-how for providing infrastructure) to refine natural resources (cheap, plentiful, sustainable energy) into a global export (data services). I believe that trend will continue, whether AWS succeeds or not. A key limiting factor for AMZN or any other competitor in this space is utility costs. The biggest cost as server farms scale is electricity. Secondary limiting factors are network latency (how fast can customers in major population centers access results?) and access to technical talent (quality service, responsive to the changing needs of high-tech entrepreneurs, English speaking?). The apotheosis of services like AWS may tend to follow a geographic distribution like aluminum production - based on requirements for cheap energy. Perhaps even more closely, it may tend to follow aircraft production (energy + tech talent). As an interesting coincidence note that AMZN and Boeing both emerged from the same region. Proximity to the northern polar circle would balance cheap energy with network access for population centers. Pacific Northwest seems ideal, but other likely locations include Quebec (PQ Hydro + NorAm population), Iceland (geothermal + both NE NorAm and NW Euro population), Norway (tidal energy + Europe), and Russian Far East (Siberian hydro + Far East Asian population). Any of those five regions could certainly supply the tech talent as well. Following the smart money, I wouldn't be surprised to see either Reykjavík or Oslo take the initiative. Quite interesting comments. One thing that seems to be missed in the discussion about Amazon AWS is the “cleantech” aspect. In a sense, they are leveraging intellectual capital (know-how for providing infrastructure) to refine natural resources (cheap, plentiful, sustainable energy) into a global export (data services). I believe that trend will continue, whether AWS succeeds or not.

A key limiting factor for AMZN or any other competitor in this space is utility costs. The biggest cost as server farms scale is electricity. Secondary limiting factors are network latency (how fast can customers in major population centers access results?) and access to technical talent (quality service, responsive to the changing needs of high-tech entrepreneurs, English speaking?).

The apotheosis of services like AWS may tend to follow a geographic distribution like aluminum production – based on requirements for cheap energy. Perhaps even more closely, it may tend to follow aircraft production (energy + tech talent). As an interesting coincidence note that AMZN and Boeing both emerged from the same region.

Proximity to the northern polar circle would balance cheap energy with network access for population centers. Pacific Northwest seems ideal, but other likely locations include Quebec (PQ Hydro + NorAm population), Iceland (geothermal + both NE NorAm and NW Euro population), Norway (tidal energy + Europe), and Russian Far East (Siberian hydro + Far East Asian population). Any of those five regions could certainly supply the tech talent as well. Following the smart money, I wouldn’t be surprised to see either Reykjavík or Oslo take the initiative.

]]> By: Baris Karadogan http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-16845 Baris Karadogan Tue, 14 Nov 2006 07:33:40 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-16845 That could be the case but they frankly, most companies who are very successful do these kinds of things. Some do it more carefully than others though :-) That could be the case but they frankly, most companies who are very successful do these kinds of things. Some do it more carefully than others though :-)

]]> By: Pranav http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-16844 Pranav Tue, 14 Nov 2006 05:46:31 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-16844 Baris, Microsoft does it -- but alongwith it comes all the detest and the notoriety. If Amazon chooses to do it, and the details become public (courtesy Digg / blogging), its gonna hurt their reputation in the long run. That one scar is going to act as a barrier from getting any future customers for its AWS. Besides, building it themselves would make sense if it fits into their biz model. This doesnt mean that I totally disagree with your point -- only that I'm not 100% convinced :-) Baris,
Microsoft does it — but alongwith it comes all the detest and the notoriety. If Amazon chooses to do it, and the details become public (courtesy Digg / blogging), its gonna hurt their reputation in the long run. That one scar is going to act as a barrier from getting any future customers for its AWS.
Besides, building it themselves would make sense if it fits into their biz model.

This doesnt mean that I totally disagree with your point — only that I’m not 100% convinced :-)

]]> By: Baris Karadogan http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-16843 Baris Karadogan Tue, 14 Nov 2006 02:41:54 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-16843 What I meant is that Amazon will know what's working and what's not because they'll by definition know the storage, bandwidth and infrastructure requirements. If say one app is getting a lot of traffic and not using much in the way of resources, it may be a clue to them to build it themselves. That's the early look. Amazon could decouple them, instead of the other way. Think of Microsoft. They allow people to write apps to their OS, but every release they take some of the key apps and make it part of the OS, thereby capturing the value themselves. Amazon could give webapps the cheapest and simplest way to go live, but the tradeoff is that they can replace you easier than you can replace them. What I meant is that Amazon will know what’s working and what’s not because they’ll by definition know the storage, bandwidth and infrastructure requirements. If say one app is getting a lot of traffic and not using much in the way of resources, it may be a clue to them to build it themselves. That’s the early look.

Amazon could decouple them, instead of the other way. Think of Microsoft. They allow people to write apps to their OS, but every release they take some of the key apps and make it part of the OS, thereby capturing the value themselves.

Amazon could give webapps the cheapest and simplest way to go live, but the tradeoff is that they can replace you easier than you can replace them.

]]> By: Pranav http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-16839 Pranav Mon, 13 Nov 2006 22:35:57 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-16839 Baris, First of all, great post. I do need some clarification towards the last paragraph though. [i]So I applaud Amazon’s strategy. It’ll get an early look at the apps, and maintain control of a critical piece of know how. This has got to be Amazon’s biggest move so far to ensure its sustainability. [/i] do you mean that Amazon is trying to thwart competition by these efforts -- by getting an insight into their apps and a pseudo-lock-in ?(once my app gets integrated into Amazon and reaches critical mass, it will be difficult to rearchitect the app and decouple amazon from it)... hmm...If my understanding above is correct, then I dont see the point you make...Why would Amazon invest so many resources if its goal was to thwart competition - wouldnt it be simpler to acquire the startup ? Baris,
First of all, great post. I do need some clarification towards the last paragraph though.

[i]So I applaud Amazon’s strategy. It’ll get an early look at the apps, and maintain control of a critical piece of know how. This has got to be Amazon’s biggest move so far to ensure its sustainability.
[/i]

do you mean that Amazon is trying to thwart competition by these efforts — by getting an insight into their apps and a pseudo-lock-in ?(once my app gets integrated into Amazon and reaches critical mass, it will be difficult to rearchitect the app and decouple amazon from it)…

hmm…If my understanding above is correct, then I dont see the point you make…Why would Amazon invest so many resources if its goal was to thwart competition – wouldnt it be simpler to acquire the startup ?

]]> By: tomo http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-16822 tomo Sat, 11 Nov 2006 06:16:52 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-16822 I like the anology of the datacenter market to semiconductors. This strategy makes sense if they're able to keep scale which will be a challenge should this be successful. Amzn has deployed a bunch of assets, most have a fixed cost and aren't being used to maximum efficiency. So they take the excess capacity, for lack of a better term, and sell it off. The question becomes how ineffcient is their current use or how much capacity do they have to sell. How many youtubes, facebooks, myspaces or whoever can they support and at what point does selling off your excess capacity stop or does it? if it doesn't and they must continue to scale to support their customers requirements and build datacenters and everything else that this initiative could easily become and this is extremely expensive. I like the anology of the datacenter market to semiconductors.

This strategy makes sense if they’re able to keep scale which will be a challenge should this be successful. Amzn has deployed a bunch of assets, most have a fixed cost and aren’t being used to maximum efficiency. So they take the excess capacity, for lack of a better term, and sell it off. The question becomes how ineffcient is their current use or how much capacity do they have to sell. How many youtubes, facebooks, myspaces or whoever can they support and at what point does selling off your excess capacity stop or does it? if it doesn’t and they must continue to scale to support their customers requirements and build datacenters and everything else that this initiative could easily become and this is extremely expensive.

]]> By: R Clark http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-16821 R Clark Fri, 10 Nov 2006 22:29:22 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-16821 I would liken Amazon's new new thing to the old line "those who can't do teach" and add "those who can't teach rely on marketing", which is what Bezos is good at. What other company do you know that would have any crediblity after years of failed promises. Notice in this article that a Consumer Reports analysis place Amazon behind Cosco.com, Crutchfield.com, and buydig.com in satisfaction. http://www.informationweek.com/news/showArticle.jhtml;jsessionid=OFWYS10ON31YUQSNDLPSKHSCJUNN2JVN?articleID=193700621 I would liken Amazon’s new new thing to the old line “those who can’t do teach” and add “those who can’t teach rely on marketing”, which is what Bezos is good at. What other company do you know that would have any crediblity after years of failed promises.

Notice in this article that a Consumer Reports analysis place Amazon behind Cosco.com, Crutchfield.com, and buydig.com in satisfaction.

http://www.informationweek.com/news/showArticle.jhtml;jsessionid=OFWYS10ON31YUQSNDLPSKHSCJUNN2JVN?articleID=193700621

]]> By: Baris Karadogan http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-16820 Baris Karadogan Fri, 10 Nov 2006 22:28:38 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-16820 I did mention in the article that we'll see data center/hosting providers roll up. But will they every reach the scale of Amazon, or Google? Can they offer the service as cheap as Amazon can? If they can't, will Amazon beat them out? I did mention in the article that we’ll see data center/hosting providers roll up. But will they every reach the scale of Amazon, or Google? Can they offer the service as cheap as Amazon can?

If they can’t, will Amazon beat them out?

]]> By: Rod Recker http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-16819 Rod Recker Fri, 10 Nov 2006 21:30:35 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-16819 Seems to me the analogy isn't quite right. Is Intel, like Amazon, leasing its fabs to fabless startups? Would a fabless startup want to allow the gorilla in the room to control their operations? Won't a startup jump to a more independent "cloud" vendor as soon as they start to compete with Amazon? Seems like the real opportunity is for an independent company to provide the services Amazon is providing. Then you get rid of this basic conflict of interest. Seems to me the analogy isn’t quite right. Is Intel, like Amazon, leasing its fabs to fabless startups? Would a fabless startup want to allow the gorilla in the room to control their operations? Won’t a startup jump to a more independent “cloud” vendor as soon as they start to compete with Amazon?

Seems like the real opportunity is for an independent company to provide the services Amazon is providing. Then you get rid of this basic conflict of interest.

]]> By: aishwarya rai http://venturebeat.com/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/comment-page-1/#comment-16818 aishwarya rai Fri, 10 Nov 2006 20:58:57 +0000 http://www.venturebeat.com/contributors/2006/11/09/amazoncom-and-the-fabless-semiconductor-industry/#comment-16818 Great analogy. BTW clark - read jeff's comment on how he believes in high volume low margin businesses since they dont have a underbelly Great analogy. BTW clark – read jeff’s comment on how he believes in high volume low margin businesses since they dont have a underbelly

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