 where we extract the signal to the noise. We bring you the best guests that we can find. I'm here with my co-host, Jeff Frick. We're here at the Moscone Center in San Francisco, California. Jeff, welcome. Thank you, Dave. This is our first gig together. First gig together. Yeah, I'm glad you made the big trip all the way out from the other coast. I'm very excited to be working with you. I love the fact, I love when West Coast guys put on ties and so it's really a pleasure. We're here at Moscone at the AWS event. Last fall, Amazon had the re-invent conference and it was really, to me, the coming out party for Amazon, specifically in the enterprise. Their Senior Vice President of AWS, Andy Jassy, came out on stage and he gave a very compelling overview of Amazon web services, its customers, its services, its innovations, its pace of price declines, et cetera, et cetera, et cetera. Today's keynote by Andy Jassy struck a very similar theme. He used a lot of the same slides. We're going to talk about that stuff today. We're going to talk about Amazon and its remarkable 17-year history and specifically we're going to focus in on Amazon web services. Amazon web services was announced in 2006. Jeff, it's completely changing the industry. You heard Andy Jassy this morning. You heard him talk about Amazon's pace of innovation. What were your thoughts? Well, what's amazing to me, Dave, is how this company just keeps reinventing themselves as a company, as Amazon from, you know, just a bookseller many moons ago and not only do they reinvent themselves but the way in which they do it forces the industry to change, you know, the AWS and the perception that it was kind of a ghost IT asset that a couple developers could use their credit card and drop some money down and run a side project has really evolved into something that is very significant, which I was amazed at some of the numbers Andy shared with us and also is now a fundamental part of this shift to cloud computing and cloud infrastructure. And Amazon, I don't know and I think we'll get a lot of information over the next day, has the perception of being a true enterprise solution with really fantastic uptake and mission critical applications. But based on the keynote, we just saw Dave and some of the examples that they talked about and some of the folks that we'll talk about later today, clearly Amazon is a power in this space. So let's break it down. As I said, Amazon launched AWS in 2006. Andy Jassy gave some stats today in 2007, they introduced nine new significant functions and services, 2008 that number went to 24, 2009 it went to 48, and 10 it went to 60, and 11 it went to 80. Last year Amazon introduced 159 new significant features and services and year to date through April 70. This company is on the move, AWS is absolutely taking the world by storm. We've been covering this right now for quite some time. We've got AWS pegged last year, Wikibon revenue estimates are just under $2 billion and we're forecasting a three, three plus in 2013. I was working on some modeling with David Floyer at Wikibon and we've got this AWS division pegged at $10 billion by mid-decade. This is an astounding story. Now the thing that people don't really understand about AWS, and this is somewhat Jeff an accounting anomaly, but AWS accounts for its expenditures on technology in a line item under the Amazon P&L called technology and content expenditures. As a result, the AWS gross margins are literally 100%. So the point is that AWS is growing at nearly triple digits while Amazon as a company is growing in the 20, 25% range. As a result, when the mix shifts toward AWS, Amazon gets more profitable, it throws off more cash flow. We've seen estimates, people have made claims that even Jeffrey Bezos has said over time that AWS could be as big as Amazon, which today is a $70 billion behemoth. Yeah, it's amazing. The other big, of course, accounting issue that they can apply to their customers is kind of the CAPEX versus operating expense. So not only can you get that computing resource off your capital expense line, but then it's so flexible as an operating expense based on the needs and when you need it. So you don't have a bunch of dead assets laying around. And to be able to dynamically add and subtract computing resources as you need it and pay for it as you need it, something we've heard about. But again, I think what's going to be interesting to learn over the next day is really the scale at which they're executing this, which is much larger than I think most people give Amazon credit. Yeah, so financially, Amazon Web Services is a very attractive proposition for Amazon. As a company, as they say, the more mix shift toward AWS, the more profitable Amazon becomes. But the company continues to invest. It has always taken the long view. Those of you who read Jeffrey Bezos' annual letter, it's worth reading, it's up there with Warren Buffett's. This year's letter really emphasized the long view, investing in the customer really with the belief that long term, by doing that, they're aligning with shareholder goals, even though near term, you know, they'll take a lot of heat and did last quarter. But clearly Amazon, Amazon Web Services disrupting the industry. Amazon, in my view, is taking aim at the traditional enterprise players. We're talking about IBM, HP, Oracle, EMC and VMware. Even though many of those companies that I just mentioned, Jeff, are partners of Amazon, Amazon is disrupting the business model. What Andy Jassy said, and I somewhat disagree with what he said, is that these companies will always try to sell you more at the same or higher prices. They'll always try to get more money out of you. Now while that is true, his contention is that Amazon will cut prices regularly and proactively. I have seen examples where enterprise customers or suppliers have said, hey look, we can save you money through, for example, a consolidation or we can lower your monthly costs. But in general, it's true they're not as proactive as Amazon. One of the things they talk about is their frequent price cuts over the last seven years. I think about 30 price declines. The reality is, compute and storage declines. Prices decline every quarter. The difference is that Amazon is really good about proactively communicating those price declines and incorporating them in their swipe the credit card methodology. Yeah, yeah, they've certainly benefited from the great crash of crisis between networking, computing horsepower, and storage. But as he said, the nice thing is they've passed along to their customers, trying to take the long view, the lifetime value. They want everyone doing everything on AWS and get a larger and larger share of that compute horsepower, that compute resource. And again, the other thing I think that's just interesting is how they've taken kind of a culture, it's something I want to explore with some of the folks here. A culture of kind of a single app customer facing website for continuous innovation and rolling things out very quickly as they come up with them. He said almost 159 improvements this year. That's what almost one a day. And then taking that and now they're delivering that in an enterprise application in the form of AWS and service to their enterprise clients. It's an astounding story, a very strong customer story. I mean, we're talking about Nasdaq, Shell Oil, startups, you know, Foursquare, I mean, on and on and on. We're going to be breaking it down today. This is theCUBE, SiliconANGLE's flagship product. SiliconANGLE is the reference point for tech innovation, wikibon.org. Go to wikibon for all the research. We'll be covering this show end to end. What does this mean for CIOs and IT organizations? What do these cloud trends mean for competitors specifically in the traditional enterprise? How will the market respond? How will Amazon continue to innovate now that they've put down the playbook? Can Amazon, what Andy Jassy talks about is the flywheel, this virtual cycle of flywheel. Can they continue to speed that flywheel and gain on competitors? Or will competitors close the gap? We're going to be breaking it down here at the Moscone. This is theCUBE. I'm here with my colleague, Jeff Frick. You can tweet me at atdVolante. He is at Jeff Frick. We'll be here all day. Keep it right there. We'll be right back after this message.