Amazon Stock Vulnerable To Virginia Data Center Problems

| About:, Inc. (AMZN)

For the fourth time this year,'s (NASDAQ:AMZN) Virginia data center has been implicated in a major outage impacting customers across the country.

This time, Netflix (NASDAQ:NFLX) was the big loser. Just as millions of families were rushing to the rail for "It's A Wonderful Life," they lost service. The same sort of thing happened in October, in June, and in April. Each time the same cluster, in northern Virginia, was implicated.

What's that saying, fool me once, won't get fooled again? How about getting fooled four times in one year?

In June, blamed its power supplier for the outage. This time, journalists are writing darkly about "the risks in cloud computing."

It seems as if Amazon is depending too heavily on Virginia's operations -- it has others -- and it seems as if many customers are also depending heavily on it, especially for relational database needs. In the end, this is a failure in architecting -- cloud systems are supposed to be networked, redundant, and thus resist failures in a single data center.

But the most important news here for investors is that it may cause companies to seek alternative clouds with the coming year, and such alternatives are coming. Hewlett-Packard (NYSE:HPQ) and Dell (NASDAQ:DELL) are both building out their own cloud capabilities rapidly based on OpenStack, a system also used by Rackspace (NYSE:RAX), which can be fully compatible with what corporate "private clouds" run because it's based on open source code.

Companies don't save as much with private cloud, or with these new enterprise clouds, as they do with Amazon. But companies like privately held Eucalyptus are working hard to bridge the gap between Amazon EC2 and these new open source clouds.

After the last major Amazon outage, in October, Charles Babcock of Information Week suggested that customers use "multiple zones" -- redundant Amazon data centers -- to reduce their vulnerability. But a better strategy for safety may well be multiple providers.

In the immediate wake of the latest outage stock fell $10, and you can expect it to fall further, maybe as far as $200/share. Even there shares may be overpriced if, in 2013, the company's competitors can get their acts together and actually deliver on their promises.

The year 2012 will go down as the year of cloud outage. It needs to be the last such year. It can be -- with or without Virginia and

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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