You have got to hand it to Jeff Bezos.  First he reinvented the book publishing industry.  Then he reinvented the overall ecommerce market — Amazon’s 2006 online revenue was more than Staples and Office Depot combined (the number 2 and 3 ecommerce players according to Morgan Stanley; page 29). Finally, he realized that he can more effectively utilize his fixed assets by layering web services on top and he opened his technology platform to the world.  Jeff Bezos is one entrepreneur who isn’t lucky.  He’s good.  Really good.

Amazon Web Services.

In the average data center, servers and storage are massively underutilized — estimates are all over the place and utilization of 15% is not uncommon while something between 25%-50% is probably close to average.  And these are numbers from large data centers.  Small and medium size enterprises are likely not even close to as efficient as large enterprises.  

The idea of utility computing was that customers would rent compute cycles and storage space on a pay as you go basis.  Only pay for what you need, when you need it.  Cloud computing is finally happening, and Amazon is leading the way rather than the traditional enterprise hardware and software vendors who predicted this evolution many years ago.  Amazon Elastic Compute Cloud (EC2), SimpleDB, Simple Storage Service (S3), and Simple Queue Service (SQS) are delivering on the utility computing dream.  

The amazing thing about this is the starting point — while the technology vendors started with a theoretical premise, Amazon started from a very simple place (at least, this is my impression of how it happened).  We have all of this unused capacity which is wasteful.  Our ability to deliver the best experience to our customers includes being able to offer excellent service AND low prices.  So how can we lower per unit costs?  Increase utilization.  And there you have it.  

Idea – Amazon Web Services for everything else.

This got me thinking, “how many other business can take their inefficiently utilized existing assets and dramatically increase leverage by layering on web services?”  Build software to automate the control, sharing, and billing of fixed assets.  Make the entire process self-service.  And, like Amazon Web Services, focus on web developers.  Imagine the Cambrian explosion once the world’s fixed assets can be rented on a pay-as-you go basis by any entrepreneur with a good idea.  As always, there are many hurdles.  But suspend disbelief for a minute and think about the possibilities.

1.  Manufacturing Web Services.  

A metals machine shop opens its infrastructure to third party developers.  A smart web developer builds a simple AJAX CAD application that allows users to quickly design a part, get an electronic estimate of costs, and submit an order with a credit card — all self-service.

A textile manufacturer with extra capacity opens up with web services and an enterprising developer builds an Flash-based fashion design application that allows fashion designers to design new items (e.g., purses, dresses, suits, comforters), get a quote, produce a prototype, and submit a credit card.

A cabinet manufacturer layers on web services and an entrepreneur builds a drag-and-drop application for consumers to design their own furniture — and this is as easy as configuring your new car on an online car site (e.g., pick the color, wood type, style).

The list goes on and on and on…

2.  Distribution Web Services.

Now that you have your virtual manufacturing facility in place, you need a distribution plan.  The metals shop is in the US Midwest, the textile manufacturer is in China, and the cabinet maker is up north in Canda.   What to do?

A logistics company which already has the rail, trucking, shipping, and air freight relationships in place could expose excess capacity through web services.  Developers could then pull these services into their overall offering.  So perhaps the manufactured party or small quantity of dresses can be shipped through Federal Express, but the cabinets need to be shipped by train.

3.  Communications Web Services.

Apple Computer and AT&T proved that this is feasible.  iTunes activation of my wife’s iPhone was the single best experience I have had turning on any communications service.  And there wasn’t even anyone from Apple or AT&T involved.  

AT&T and every mobile vendor should open up their system to allow third parties to buy and allocate accounts — similar to the notion of drop-shipping in manufacturing.  This would allow for add-on services.  

For example, imagine a service that allows a corporation to issues thousands of mobile phone numbers at the click of a button.  Like what corporations do today with a fixed-line PBX.  A third party developer could offer a [virtual] mobile PBX systems with group voice mail and integration of voice mail and email systems like Apple’s visual voice mail (for ease of use and for corporate compliance).  Today, you cannot configure a pool of mobile phones like a fixed-line pool with a PBX.  Why not? 

4.  Retail Web Services.

Many retail stores carry goods from various manufacturers (e.g., Wal-Mart).  Even those manufacturers who push mostly their own goods, often have complimentary goods from third parties (e.g., Apple has third party iPod add-ons and Macintosh software).

So rather than have merchandisers (central planners) use their overly mathematical models (e.g., economic order quantity), why not auction off shelf space?  Create web services which select shelf-space for auction and allow third party services to tap into the inventory through an auction.  

Retailers measure their productivity by sales per square foot — I will bet you cash money that this system will dramatically increase sales productivity.

5.  Finance Web Services.

When you buy a car, the dealer always pushes financing on you.  This third party coverage isn’t from the manufacturer, but it’s integrated into the sales process.  Why not enable the online equivalent for any ecommerce store?  Just before you consummate the purchase of a new Sony PlayStation 3 at Best Buy, the salesman asks you if you would like to buy a service plan.  Why not open up the system to third party developers?  Allow any online vendor to offer a service plan, insurance, or financing?  

Call it the virtualization of fixed-assets.  And while the virtualization of compute cycles and storage is great fun, the opportunity is so MUCH bigger.  I’m sure that we would all be amazed at the ingenuity of entrepreneurs who had the flexibility to experiment and strong economic incentives to motivate them.  It will take a few more Jeff Bezos’ to pull this off.  And, as was the case with Amazon, there is great opportunity for new entrants.  There is also a huge opportunity for incumbents who will wake up once others show them the way.