Last fall, I had a unique opportunity to visit Amazon and learn more about their web services (AWS) strategy. From where I sit as a VC, it was obvious they were winning. You could see it in the number of startups that were building on their platform, and you could see it in the number of startups that were adding to their platform. All that said, at the time it still wasn’t obvious to me what Amazon’s strategy was to differentiate itself from the others certain to rush into the business — folks like IBM, Microsoft, and Google.

Amazon suggested that the strategy was two-fold, and that it borrowed heavily from the ethos the company has nurtured as the leading web retailer. First and foremost, as a “retailer” Amazon was comfortable running a low-margin business. This may sound more like a capitulation than a strategy, but think about the competition here. Do you really think Microsoft or IBM wants to run a low margin business? Recent stories, like this one last week on Gigaom, suggest that neither of them do. The more I read about these larger companies trying to “add extra value” to avoid the obvious low margin structure inherent in the cloud business, the more I think that Jeff Bezos is crazy like a fox.

The second piece of the strategy leverages the company’s prowess in customer support. One may ask, “how would a platform company differentiate with customer support?” The answer is that they would have the best developer relations attitude and execution in the business. This also appears to be playing out in the marketplace. No cloud platform vendor is more communicative and more of a “listener” than Amazon. In my mind, this is where Amazon has a huge advantage specifically over Google. While Google is slowly opening up their App Engine these days, it feels like they are being pulled into this mind set, especially when compared to Amazon’s approach. I think back to the glory days of Microsoft, and the immense effort that Tod Nielsen put into wooing the developer community. To me Amazon is executing right out of that playbook.

One last comment on Amazon’s cloud strategy. Many in the IT world are quick to point out that its only small businesses and rouge developers in large organizations are using AWS. This is exactly how these markets develop. Amazon is simply selling to the innovators and early adopters in the market — the exact customers that are prescribed in Crossing the Chasm. These are the customers that others will follow, and by the time the laggards come into the market, the game will be over. At Benchmark, we were lucky enough to have a front row seat during the growth of some of the most successful Open Source companies ever (Redhat, MySQL). And their early customers were these exact same early adopters. The huge irony is that the Fortune 500 doesn’t know that their rogue developers are already using AWS inside their company without approval, simply because its easier than traversing the red tape inside their organization. In two years, when they officially decide to “be” a cloud customer, they will find that they already “are” a cloud customer many times over.

As is common practice, I should disclose that I am a shareholder of Amazon in my personal account, and that I was inspired specifically after learning of their AWS strategy. It is truly amazing to see a company the size of Amazon successfully launch a new product initiative so different than its core product offering. Remarkable.