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Why Amazon is gambling so heavily on the cloud

CEO Jeff Bezos explains how Amazon's many cloud services have helped the company become a technology juggernaut.

With Amazon's Kindle Fire launching today, one would think that the e-retail giant would want to focus all its efforts on promoting the tablet. Think again.

"What we really built is a fully integrated media service," Amazon CEO Jeff Bezos said of the Kindle Fire in a wide-ranging interview published recently with Wired. "Hardware is a crucial ingredient in the service, but it's only a piece of it."

He might have a point. The Kindle Fire, which is shipping a day early today, is really more about the cloud-based services it offers than the hardware. The tablet features the ability for customers to stream music from the Web, buy Kindle e-books, watch movies and television shows from Amazon's Netflix streaming competitor, and even store content in Amazon's cloud locker. Even the tablet's browser, Silk, relies upon the cloud.

"One of the things that makes mobile Web browsing slow is the fact that the average website pulls content from 13 different places on the Internet," Bezos told Wired in the interview. "On a mobile device, even with a good Wi-Fi connection, each round trip is typically 100 milliseconds or more. Some of that can be done in parallel, but you typically have a whole bunch, as many as eight or more round trips that each take 100 milliseconds."

So, to address that issue, Amazon relies upon its cloud services to speed up page load times. As Bezos points out, the 100 milliseconds can be cut down to "less than 5 milliseconds," thanks to Amazon's Elastic Compute Cloud, a service that helps Web developers resize computing capacity based on their needs.

But for Amazon, its focus on the cloud goes beyond just the Kindle Fire. In fact, the company is lurking in the clouds behind several prominent sites on the Web, hosting Foursquare, Netflix, and Yelp, among others with its Amazon Web Services. And as Bezos pointed out to Wired, his company's success with Amazon Web Services has, like just about everything else with the company, come about from affordable pricing.

"We were determined to build the best services but to price them at a level that customers couldn't match, even if they were willing to use inferior products," Bezos said. "Tech companies always have high margins, except for Amazon. We're the only tech company with low margins."

And, in some cases, even negative margins. In September, Piper Jaffray analyst Gene Munster said that he believes the Kindle Fire costs Amazon $250 to produce--$50 more than the device's $199 price tag.