At first glance, Amazon doesn't appear to be in the telecommunications business. The company looks like an online retailer.
Amazon started as an online bookstore, expanded to other media (DVDs and music CDs) and then into other online retail. Today, it specializes in online ordering and fulfillment of both physical goods and media. They have, at a minimum, become a very efficient online marketplace and order fulfillment business.
But Amazon's fastest-growing and most profitable businesses are not margins on books, CDs, DVDs or other material goods. While online retailing is expected to continue to grow with Amazon gaining efficiencies in scale, the most significant influence on Amazon's bottom line and on the innovations they bring to market may be taking that scale into complementary online services.
It doesn't appear that telecom operators compete with Amazon. Telecom operators sell access and connectivity services (wired and wireless). Amazon sells neither.
But look deeper. Amazon Instant Video and the subscription-based Amazon Prime are video-on-demand (VOD) services that compete with cable operators, satellite operators and telephone companies. Amazon's MP3 marketplace and Cloud Player offer similar services for music downloads and streaming audio.
Amazon Cloud Drive — which is both sold separately and offered as part of the Prime service bundle — offers consumers or businesses online storage. Here they compete with cloud service businesses like Microsoft, Rackspace and Google, but also with smaller hosting providers like Verizon Business Services, GoDaddy, 1&1 and similar hosted or ISP hosted services.
The "big" play is Amazon Web Services (AWS), which sells storage, computing and other platform and infrastructure services. Where does telecom fit into this? When nearly everything is in the cloud, IP-VPNs will largely replace the demand for some of the largest business telecom services. VPNs are the "connectivity" (the circuits) of the cloud business.
If the majority of businesses and business services move their platforms to the cloud, Amazon could become the single largest telecom operator. Based on their success (the market share of AWS), this is a real possibility.
Beyond "connectivity" alone, AWS hosting directly competes with ISP hosting services. Amazon's Kindle competes for the same dollars against cellphones, tablets and mobile devices sold by mobile operators (although some Amazon Kindle devices with cellular service actually are just an MVNO or branded resold cellular service).
AWS takes advantage not only of the scale of Amazon's network and systems, but does so in a way that is computer- and time-efficient. AWS use is strongest at the times of day when Amazon's residential customers have the lightest use of its services. This is a strategy telecom service providers (including both telco and cable operators) have frequently taken advantage of — double-selling their network and infrastructure resources.
Telecom service providers have always imagined a world where consumers could see something they like and instantly buy it — with the service provider getting a cut of the revenue. This is exactly what Amazon is doing.
Whether it's magazines, video, books, news, music or any other form of media, Amazon has become a powerhouse multimedia distributor. It is now beginning to rival book publishers with Amazon original publications primarily via Kindle (ebook).
The one thing Amazon had not previously offered was live television broadcasts or services, but that final hurdle is about to be passed. Recently Amazon began promoting the NCAA March Madness Live application on the Amazon Kindle platform. "Elite Performance for Less ... Kindle Fire HDX: An official tablet of the NCAA."
What's left that Amazon isn't competing for? It is true that Amazon still relies on broadband residential services to get to its customers (cable, DSL or wireless). But it is possible for a consumer to get all of their entertainment from Amazon and its affiliates (still through Amazon). In the case of Kindle wireless services, Amazon is even "bundling" the monthly access fees.
Of course, one way to compensate or hedge against such possible losses of current or future business is to sell the infrastructure upon which Amazon is built. Cable operators have been selling cell tower backhaul to wireless network operators, and it is one of their fastest-growing businesses.
Selling national-scale transport (circuit) services to Amazon has been a business almost exclusively belonging to telcos. AT&T and Verizon are both of large enough national scale that they can provide end-to-end services between Amazon's data centers (and other facilities).
Comparatively, that’s been a challenge for cable operators that have not had a geographically contiguous national scale. A combined Comcast and Time Warner Cable, may, for example, offer a competitive source of services for Amazon. It is an opportunity for huge national-scale sourcing of wholesale ethernet or IP services to Amazon, and perhaps an opening for the kind of integration that Amazon has done with some wireless services, with wireline services.
Having entered the telecom and media businesses, Amazon is both a potential competitor and a potential partner for telecom service providers. They are certainly one to watch, not just in the retail business, but also in telecom.
