Today Amazon Web Services launched the beta version of its content delivery network service called CloudFront. As Om mentioned in September when the service was announced, this is a good move for Amazon, and something that may put the hurt on fellow CDNs such as Limelight and Akamai. Amazon will charge a usage based fee, rather than a long-term contract, bringing CDN prices even lower for smaller web players who don’t have the scale to negotiate lower prices. Here’s how it works from the release:

The service caches copies of content close to end users for low latency delivery, while also providing fast, sustained data transfer rates needed to deliver popular objects to end users at scale. CloudFront works seamlessly with Amazon S3, where users store the original versions of objects delivered through the service. Customers need only put their objects into an Amazon S3 bucket and then register that bucket with the new service using a simple API call, which then returns a domain name used to access content through the network of edge locations.

With prices ranging from 17 cents per gigabyte for the first 10 terabytes sent out a month, to 9 cents per GB for everything over 150 TB, the service seems to undercut the pricing offered by other CDNs for small to medium sized customers. It might be a good thing that Akamai’s looking at advertising.

Today eBay said it would spend $945 million to buy online payment company Bill Me Later, but the folks over at Amazon.com aren’t likely to welcome eBay as Bill Me Later’s new corporate overlords. Amazon holds an equity stake in the payment processing company and is its top customer — with competitor eBay moving to buy it, Amazon has some thinking to do.

Amazon doesn’t have a board seat at Bill Me Later, and as such was probably not involved in the acquisition talks. The question now is whether it will continue to offer Bill Me Later as a payment option. As far as merchants go, Bill Me Later is cheaper than credit cards. But so far Amazon.com, which previously scorned PayPal because of its ties to eBay, has been non-committal about its plans. It said in a statement, “Currently, Bill Me Later is still available as a payment option on our site, but I can’t speculate as to whether we’ll continue to offer them going forward.”

From  a payments perspective, eBay has chosen wisely with this buy. PayPal is a debit-oriented program, while Bill Me Later caters to those who are shy about using their credit cards online but don’t want to deal with the hassle of PayPal by offering them credit after they enter their information. While that may seem downright foolish in this economic environment, Bill Me Later investor Mike Kwatinetz of Azure Capital Partners says the company is able to quickly adjust the amount of credit it offers customers.

PayPal has the largest number of the top online retailers using its service, but Bill Me Later has an opportunity to process more transactions, according to data issued last month by research firm Cowen & Co. PayPal’s penetration rate of the top 300 U.S. e-commerce companies rose to 35 percent as of September from 28 percent at the end of last year, but Bill Me Later has $31.6 billion in addressable sales, compared to $26.1 billion for PayPal. Bill Me Later’s top customers (other than Amazon) include OfficeMax, Apple, Newegg, and QVC. Underscoring Amazon’s eBay aversion? All of those merchants also accept PayPal.

It was a matter of when, not if, Amazon would launch a content delivery business in addition to its current suite of web services that include S3 storage service and EC2 on-demand computing. The Seattle-based company has announced its intention to offer a content delivery service that could shake the very nature of the industry and pose a serious challenge to not only dozens of CDN upstarts but also become a thorn in the side of existing giants such as Akamai Technologies and Limelight Networks.

In an email to its customers today, Amazon said that the service will be available later this year and will utilize the company’s points of presence in North America, Europe and Asia.

This new service will provide you a high performance method of distributing content to end users, giving your customers low latency and high data transfer rates when they access your objects. The initial release will help developers and businesses who need to deliver popular, publicly readable content over HTTP connections.

Ironically, Amazon was beaten to the CDN punch by New York-based Voxel that started offering CDN services based on Amazon’s S3 service. ”We are announcing this right now because we want to give a heads up to our customers,” said Adam Selipsky, Vice President of Product Management and Developer Relations for AWS. It is more like putting their competition on notice, but Adam was too polite to say that. “It is a more horizontal and broad offering.” In other words, while it is not going to replace Akamai tomorrow, it is going to make CDNs affordable even for the tiniest startup, without major cash outlays. 

Why is this service disruptive? Amazon is going to bring a level of transparency to a business that has a sales model much like an brokerage firm in the 1980s. Amazon wants to make buying CDN services as simple as buying a book. Amazon executives told me that company is going to be charging its customers on usage instead of long-term contracts current players foist on their clients.

In addition, the company will publish its prices on the web and most importantly it is going to be inexpensive.And that will make the service even more attractive to hundreds of small companies who are already using Amazon Web Services for their web operations, who don’t want to sign long contracts with CDN operators. When I asked Tal Saraf, General Manager of the AWS Content Delivery Service, if the company expected the video-delivery to be one of the most used service, he said the company expected to delivery all sorts of content including web-objects (images, JavaScripts etc.)

You’ll start by storing the original version of your objects in Amazon S3, making sure they are publicly readable. Then, you’ll make a simple API call to register your bucket with the new content delivery service. This API call will return a new domain name for you to include in your web pages or application. When clients request an object using this domain name, they will be automatically routed to the nearest edge location for high performance delivery of your content. It’s that simple.

Amazon executives declined to talk about the pricing. “We will talk about the pricing when we launch the service,” Selipsky said. He declined to comment on the impact of their pricing will have on their competitors – nearly two dozen content delivery networks – and how much their business is going to suffer. DowJones Venture Source estimates that from 2005 through second quarter of 2008 nearly $980 million was invested in content delivery companies.

If Amazon delivers what it is promising – a simple API based CDN – then it would put then not only ahead of all CDN players, but also force rivals to meet the rules (and pricing) set by Amazon. There is a good chance that it is going to drive weaker players right out of the game. 

My final take on this news: Akamai is less likely to be impacted in the near term, but it further commoditizes the CDN business and forces a big shakeout in the industry, taking down the small and the weak. Akamai has been focusing on value add services, as a way to stay ahead of the commoditization of the basic CDN services.

Best Buy said today it would spend $121 million to buy former file-sharing poster child, Napster. The move gives Best Buy the ability to offer DRM-free movies and music downloads that would compete with Amazon.com’s download services as well as proprietary files offered by Apple in its iTunes store.

Coming on the heels of Best Buy’s newly launched GifTag online shopping registry and its efforts to beef up its cell phone department, I’m thinking the bricks and mortar store might be serious about becoming a knowledgeable hybrid retailer with an equally robust Web presence. This would be a huge step for a company that was in trouble with the Connecticut attorney general for using a different version of its Web site in stores to cheat customers out of the lower online prices, so it depends on Best Buy being willing to execute.

This time around, Best Buy is taking some worthy steps, such as signing up to sell the iPhone and using open standards to develop its online gift registry service. A consumer can essentially sign up to the GifTag service, and then grab any content from around the web to create a wish list. So far it’s only a one-way registry, as items are not marked off the list automatically after purchased. Best Buy says in a few weeks it should have the APIs ready to enable that function.

If Best Buy can create a series of compelling web services (I love in-store pickup) that combine its 1,300 retail locations with web services and digital content delivery, it has a chance to offer a hybrid retailing strategy that keeps its bricks-and-mortar shoppers happy, while attracting those who have defected to Amazon.com. I will admit that when shopping for electronics I’d much rather buy at a place where I can return an item easily than at Amazon.

When was the last time you bought software that came in a box, an actual CD that you put into your disc drive in order to load it onto your computer? It’s probably been a while, since most applications are now downloaded straight from the Internet. Today a growing number of companies are buying their computing capabilities that way, too. Instead of buying a rack of servers from IBM, Dell or HP, or a dedicated box hosted in a data center, businesses are buying compute power in the form of services from companies like Amazon, GoGrid and Mosso.

Such services are generally referred to as cloud computing, and the game-changing potential of those services has venture firms sitting up and taking notice. Indeed, after spending the past few years pouring money into Facebook applications and me-too social networks, venture firms are starting to invest in infrastructure again, with both hardware and software plays tied to the cloud.

“Clearly there is a renewed interest and investment in infrastructure,” says Bernard Dallé, a partner with Index Ventures. “Twenty-four months ago it was all about the consumer Internet and still a lot of money is going after that, but it has been rebalanced. Now firms see the value that EqualLogic and virtualization has generated, and it’s time to invest.”

So far this year, companies providing cloud services or building services on top of the cloud have raked in more than $70 million. That’s nothing compared to the $14.9 billion that VCs invested during the same six-month period overall, but interest is picking up.

Just this week, 10gen raised a $1.5 million first round from Union Square Ventures to create a platform for programmers to build products on top of the cloud. Appirio, a company trying to help enterprise customers link their data among clouds offered by Google, Salesforce and Amazon raised $5.6 million from Sequoia. And earlier this month, EngineYard raised $15 million from New Enterprise Associates, Amazon and Benchmark Capital to build out a development platform for programs built using Ruby on Rails.

These companies join a growing ecosystem of startups trying to create utility and business models built on top of thousands of servers. If you peel back the fog surrounding cloud computing there are several layers of services. It all starts with a virtualized server running a hypervisor. Between the hypervisor and the operating system — such as Linux or Windows — sits a class of service providers, among them Elastra and Enomaly. They provide tools and services that help an IT manger build out, monitor and manage the virtual hardware inside the cloud.

On top of those are development platforms that can be tailored to a specific cloud, such as Amazon’s, or tied to a programming language, such as Ruby on Rails. Startups here include Bungee Labs, EngineYard and Coghead. Once developers have their programs built on the cloud, they need to monitor and tweak them using tools from the likes of RightScale and Hyperic. With the exception of Enomaly and Coghead, all of these startups have scored venture funding this year.

Coghead raised $8 million last year, and Reuven Cohen, co-founder and CEO of Enomaly, says he’s fielding about 40 calls a week from venture firms that want to invest in his profitable, boot-strapped company. “I’m not in any desperate need to raise funding to keep the business afloat, but we could grow substantially faster,” Cohen says. “We are open to it and from what I can see, there won’t be a better time for valuations.”

Valuations might be on the rise, but VCs are still focused on capital efficiency. For example Sunil Dhaliwal, a general partner with Battery Ventures, says he’s not interested in investing in any cloud provider that wants to build out thousands of servers as there are plenty of companies — among them Google, Amazon and Rackspace — doing that already. In fact, he’s approaching the entire cloud space with caution.

“We’re so early and there’s still plenty of money to be lost — and I underline lost here — and plenty to be made,” Dhaliwal says. “I think there is going to be a lot of trial and error. People are defining and building solutions without people knowing how they really want to consume them.”

He believes the big opportunities will lie with firms that can help corporate customers connect their existing IT networks to the cloud, as well as with those that provide computing as a service to small and medium businesses that don’t want to manage their own IT networks. One way or another, the move to computing delivered as a service is a huge change in the way businesses and even consumers will consume information technology. As far as venture dollars floating amongst the clouds, this is only the beginning.

This was originally published on BusinessWeek.com.

With an undisclosed investment in Social Gaming Network by his personal fund, Amazon founder and chief executive Jeff Bezos is proving Om right. Back in May when Bezos invested in Kongregate, another casual gaming site, Om thought it might be the first of many. May is also when SGN raised a $15 million round from Greylock Partners and the Founders Fund.

SGN makes games for social networking sites such as Facebook and MySpace, and has titles that include WarBook and Superlatives. Now that casual gaming has exploded onto the web, the business case isn’t too far-fetched. Revenue comes from ads, selling virtual goods, subscriptions or some mix of those options, with advertising being most prevalent but least effective for casual games.

Gaming has made money, but monetizing social networks is still struggling, which makes SGN worth watching. Succeeding with advertising depends on getting large numbers of users, and Social Gaming Network with 1.1 million daily users has those. It’s facing a Facebook crackdown on spammy applications, which could hinder growth on that site, but is still growing on MySpace and Hi5, which have recently opened up their sites to outside apps. To bank, it needs to really push the sale of virtual goods over the platform. That might make it the most likely Bezos investment to succeed.

For those of you helping make eBay on of the most frequently visited web sites on mobile phones, the news that retailers need to pay attention to mobile shopping should come as no surprise. I haven’t actually purchased anything from a retailer from my mobile, but according to a survey out today from Cisco, I will soon.

While less than half of online retailers currently have a mobile optimized site and only 15 percent allow folks to purchase things using their mobile, Cisco points out that there are more mobile Internet users than those sitting at a desktop. Additionally, Gen Y is already using phones (especially those with intuitive user interfaces) to buy gifts, download movies and even bid on auctions.

Startups such as Digby, Unwired Buyer and mPoria are taking advantage of this and Cisco says retailers of all stripes should follow suit. Personally, I’d like better mobile e-tailing sites, if for no other reason that to be able to check what Amazon is charging for an item when I’m in a bricks-and-mortar store.

Another site billing itself as an eBay killer is launching today. Fididel offers real-time negotiation and trains negotiators that can work on behalf of sellers to help them get good prices, which makes it a potential shopping place for those disillusioned with eBay’s auction sniping. Yes, sellers and investors are unhappy with eBay at the moment, but I look at the online auction giant like I look at Wal-Mart; it’s a behemoth that might piss a lot of people off, but lots of other people still shop there.

Of course, the Internet has lots of room for other online auction or e-commerce sites, ranging from other giants such as Amazon.com to upstarts such as Etsy or last week’s launch of Wigex. As for Fididel, I think it will face the same difficulty other online auction or swap meet sites face: getting enough buyers to shop there to make it worthwhile for sellers to participate, and to a lesser extent, getting enough sellers so buyers will congregate.

The most likely path to success for these upstart online swap meets is a vertical one (think Etsy or Replacements.com). I may go onto the eBay to search out pieces of my grandmother’s Havalind china to replace cracked cups, but I’m also inclined to check out Replacements.com to double-check pricing and such. If Replacements.com (which is more of a broker than an auction site) were to branch out into a related field, such as lamps or household kitsch, I might end up checking that out too and turn to Replacements.com for all my Tiffany stained-glass needs (I don’t actually have this need, but you guys see where I’m going).

Though slow, it seem that this is how most online auctions could reasonably grow large enough to compete with eBay. Another option would be taking an existing base of buyers and adding an auction section to the site, much as Amazon.com or Overstock.com have. The path that startups like Fididel and Wigix are taking is more akin to building a shopping mall out in the middle of nowhere and hoping that buyers will take the time to search it out. It might work, but it’s less sure than building out a good niche retail store and slowly expanding your goods.

Sun Microsystems is getting ready to talk about its Cloud Computing efforts including some kind of a deal with Amazon for its Amazon Web Services, according to CEO Jonathan Schwartz, who delivered a short keynote at Startup Camp in San Francisco. Startup Camp is an adjunct event to the Java One Conference that kicks off later this week.

Following his keynote, I got on stage with Schwartz and asked him a few questions. I queried him being about Sun and its cloud computing efforts, given that it was nearly a decade ago the then Sun CEO Scott McNealy started talked about “network is the computer.” In response, Schwartz said they have some interesting news later this coming week, but refused to give the details, but he seemed pretty excited.

When I asked him about Sun and cloud computing especially in the light of recent trend where start-ups now have more affinity with Amazon Web Services than Sun, Schwartz replied with a question: “Do you think it would make sense for us to partner with Amazon to offer free info on the cloud?” I guess, I said. “Then you’ll be paying attention to the announcement we make tomorrow with what we’ll be doing with Amazon.”

He pointed out that while Amazon has done a great job of evangelizing the whole notion of Cloud Computing, and bringing infrastructure as a service to start-ups. “Amazon knocked the ball out of the park,” he said. For Sun the opportunities are with midsize and large corporations – like banks, pharma & financial companies – who need to build their own clouds because they cannot use Amazon type on-demand computing because of certain legal and regular limitations.

Schwartz said that start-ups are important for his company, because as they grow, they create demand for internet data centers which ultimately boosts demand for his company’s products – hardware. When I was asking him questions, at one point he admonished me for thinking of Sun as a server company. Sorry Jonathan, I can’t be blamed, having followed Sun for such a long time, to think that way!

He pointed out that Sun means different things to different people. To web developers, Sun is MySQL, for teens it is the Java logo before they start playing a game on their mobile phones, for high performance computing community Sun is Lustre. At the end, all these efforts including companies’ backing of open source and free software movements are meant to drive sales of more hardware, Schwartz explained.

I think it is part of the challenge Sun faces as a company, because it is hard to outline the new complexity of Sun to Wall Street. The explanation becomes harder to explain in the light of financial results that were well light, and lead to 2,500 people getting the pink slip.

When I asked him about that decision and how it weighed on him, Schwartz turned the question back to me. My response, I suppose as a capitalist, are tough decisions that come as part of doing business. That kind of attitude, Jonathan said, leads to sweat shops, and doesn’t result in lasting cultures. “We are a company who’s assets go home every night.” I think this one time, he gets to have the last word!

Google, with its new Application Engine product, has taken aim squarely at the web services market — and companies from Amazon.com to Bungee Labs should be running scared. The search giant’s Application Engine allows developers to build a web application “in their garage” and then host it for free on Google’s existing infrastructure. Take that, Jeff Bezos!

The App Engine will run in the same Google data centers that host GMail, Google Docs and other online programs. Initially up to 10,000 developers will have access to the preview edition of App Engine. Every developer will be able build up to three applications, each of which will have 500 MB of storage and the CPU cycles and bandwidth to support about 5 million page views a month. All of this will be free, and when the service is out of preview Google will announce the ability to buy more storage, bandwidth and CPU cycles.

For some developers, a service like this eliminates the need for Amazon Web Services. It could also cause problems for startups such as online storage company Elephant Drive and platform-as-service vendors such as Bungee Labs. However, the App Engine does have its limits, some of which will be addressed as time goes on. For now, no files larger than 1MB can be uploaded to the site and Python is the only language supported by App Engine. Other limits include the inability to buy extra time and a focus only on web applications.

Even with limits, this is exactly the type of service Dave Winer last week, after a conversation with a pig, predicted. This type of loss-leader service gets startups in the door with Google, giving the company access to the freshest ideas and an entrepreneurial talent pool that it can tap. Kevin Kelleher called it the way Google can eat Amazon’s lunch.

He’s right, but it will come at a cost to Google in terms of its margins. Providing that kind of infrastructure isn’t free. It also will have a ways to go before it can compete with the 330,000 developers Amazon says are using its Web Services as of January.

Still, it’s a start. And it puts the competition on notice. There’s also the potential for Google to use this as an home base for its other development platforms, such as Open Social for social networks or Android for the mobile phone. A place where developers could build applications that could work anywhere would be the holy grail.