* Cloud business ties lead to startup investments
* Amazon backs Yieldex, Sonian, Engine Yard, Animoto
* AWS Start-up Challenge draws top venture capital firms
By Alistair Barr
SAN FRANCISCO, Nov 9 Amazon.com's investment
opportunities are under a cloud -- and that's a good thing.
Five years after launching its so-called cloud computing
service, the biggest Internet retailer is reaping the benefits
of what has become a unique window into the technology startup
So far, Amazon.com Inc has backed at least four
startups that are customers of its cloud business: Yieldex,
Sonian, Engine Yard and Animoto.
The investments help support a business, formally titled
Amazon Web Services, that could become larger than Amazon's
giant online retail operations.
High expectations for the cloud business or AWS are part of
the reason investors own Amazon shares at prices that value the
Seattle-based company at almost $100 billion.
"They're making sure the ecosystem that lives and breathes
on their infrastructure is healthy," said Harry Weller of
venture capital firm New Enterprise Associates.
"A lot of start-ups, particularly in the consumer area,
leverage Amazon Web Services to get started in a cost-efficient
way," he added. "They have a unique view into which businesses
are getting traction because they can see what their usage is."
AWS provides computing power by the hour through its EC2
service and remote storage through the S3 service.
Amazon can tell which AWS customers need a lot more of
these services quickly, giving the company clues on the
businesses and technologies that are gaining traction --
insights that VC firms do not have.
"Amazon actually has a bunch of unique data sources to
drive advantages in start-up investing," said Jeremy Levine of
Bessemer Venture Partners. "They do a pretty good job taking
advantage of them even though it's obviously not their core
focus as a company."
An Amazon spokeswoman said that AWS is not a window for
Amazon investments. However, Adam Selipsky, a vice president at
AWS, said the business has helped Amazon in this way.
"AWS has great relationships with many young companies and
there have been cases where we've been able to help with
investment opportunities," Selipsky told Reuters during a
Amazon's corporate development team, led by Jeff Blackburn,
makes the investments, while Peter Cohen oversees AWS'
strategic investment and acquisition activities.
NEA's Weller is traveling from his Chevy Chase, Maryland,
office to Silicon Valley for the final of AWS' Start-up
Challenge on Thursday.
AWS has run a competition for startups that use its
services since 2007. The winner receives $50,000 in cash and
$50,000 in credit for AWS services that can be used over three
On Thursday, Amazon dealmakers and AWS executives,
including AWS chief Andy Jassy, will join VC investors from
Accel Partners, Andreessen Horowitz, Draper Fisher Jurvetson,
Kleiner Perkins, Madrona Venture Group, NEA and Sequoia
Capital, to pick this year's winner.
The judges include Weller, Ping Li from Accel, Peter Levine
of Andreessen Horowitz, Sequoia's Alfred Lin and Madrona's Matt
Contestants are judged on their implementation of AWS
technology, the originality and creativity of their business,
the chances of long-term success, how easily business models
scale and how well they meet a market needs.
"There's a reason why I'm flying out from the East Coast,"
said Weller. "I'm getting to see things that I might not
normally see that may have organically grown on Amazon's
The finalists this year are Booshaka, Deputy.com, Fantasy
Shopper, FlixLab, Getaround, Intervention Insights and
Yieldex, which helps publishers with online advertising,
won in 2008.
Through the competition, Yieldex executives including Chief
Strategy Officer Tom Shields met Amazon corporate development
executives and got to know Madrona, a Seattle-based VC firm
that has been a panel judge for several years.
In February 2009, Madrona and Amazon invested in an $8.5
million Series B financing round for Yieldex.
"The AWS competition really put our technology on the map
and I think it was directly responsible for Amazon learning
about us and eventually making an investment," said Yieldex
Chief Executive Andy Nibley, a former editor at Reuters.
Yieldex used AWS early on because the services help handle
surges in online traffic and customer demand, Shields said.
"It's a fantastic way for businesses to get started, if you
can't afford your own infrastructure," he said. "And it's great
for Amazon to be able to see which ones are doing well -- to
see things that aren't immediately obvious to the rest of the
Yieldex does not use the AWS cloud anymore because its
business is larger and more stable now. But Amazon invested in
the company again in September as part of its $10 million
Series C financing round.
Sonian, which offers document storage, indexing and search
in the cloud, was a finalist in the 2008 AWS Start-up
Amazon invested in Sonian in a $9 million Series B round in
"Through the Start-up Challenge they learned a lot about
us," Sonian Founder Greg Arnett said. "It was understood
generally that startups doing interesting things in the cloud
would be of interest to Amazon from an investment point of
view. Then it turned into a traditional VC process, with
pitches, meetings and due diligence."
Amazon also invests in AWS customers that are not in the
Engine Yard, which helps software developers build and run
applications in the cloud, initially had its own
But when Benchmark Capital invested in late 2007, the VC
firm asked the startup to layer its platform on top of another
company's infrastructure to save money.
Engine Yard chose AWS because Amazon had the scale and
financial muscle to offer cloud computing infrastructure
cheaply, said Chief Executive John Dillon.
"As we built this out, we did a second round of financing
and Amazon expressed an interest in making an investment,"
Amazon was a key investor in that $15 million Series B
round in July 2008, alongside NEA. Amazon invested again in
Animoto, a cloud-based video creation startup, is a big
customer of AWS. When the company launched a Facebook app in
2008, it was inundated with new customers and went from using
about 100 of Amazon's remote servers to 5,000 in four days.
"Before cloud computing we would have been dead," Animoto
Chief Executive Brad Jefferson said.
Still, the extra computing power increased Animoto's costs,
so Amazon invested in the company in 2008 "to help keep things
going for us," he added.
In June, Animoto raised $25 million in another round of
financing. Spectrum Equity Investors led that round, but
Madrona and Amazon invested too.