Bezos’s Shout-Out for His Cloud Service

On Friday Jeff Bezos sent a mash note to the cloud.

That day Amazon published its annual report. In the accompanying letter to shareholders, the company’s founder and chief executive spends a great deal of space defending Amazon’s efforts to keep lowering prices and adding features to its products. This will, he says, win customer loyalty and repay the company over the long haul.

Not surprising stuff, for a company that has risen to dominance by all but ignoring profitability for the sake of scale. What is surprising is the amount of ink (or more properly, pixels, given that this was primarily an e-document) that Mr. Bezos gave Amazon Web Services, the company’s cloud computing rental service.

AWS is the world’s largest public cloud, as the rental of computing, data storage and associated applications is called. Within Amazon itself, however, it is small, accounting for most of the $2.5 billion in “other” revenue Amazon made in 2012. Total revenue for the year was $61 billion.

By next year AWS, which is growing fast, may well account for more than 5 percent of company revenue, at which time it should break into its own category. In the letter, Mr. Bezos singles out the service as “a very clear example” of giving the customer more than expected:

“In 2012, AWS announced 159 new features and services,” he writes. “We’ve reduced AWS prices 27 times since launching 7 years ago, added enterprise service support enhancements, and created innovative tools to help customers be more efficient. AWS Trusted Advisor monitors customer configurations, compares them to known best practices, and then notifies customers where opportunities exist to improve performance, enhance security, or save money. Yes, we are actively telling customers they’re paying us more than they need to. In the last 90 days, customers have saved millions of dollars through Trusted Advisor, and the service is only getting started. All of this progress comes in the context of AWS being the widely recognized leader in its area â€" a situation where you might worry that external motivation could fail. On the other hand, internal motivation â€" the drive to get the customer to say “Wow” â€" keeps the pace of innovation fast.”

It is an unusual shout-out at a time when most Amazon investors don’t know, or care, much about AWS. Remember, though, that Mr. Bezos is all about the long game. Over time, top executives at AWS say, they fully expect AWS to be as big a contributor to the business as Amazon’s third-party sales.

It is not too early to get ready for that day, particularly with both Google and Microsoft increasing their own efforts in the cloud.