Wed Dec 26, 2012 7:28pm EST

n">(Reuters) - A Christmas Eve glitch traced to Amazon.com Inc that shuttered Netflix for users from Canada to South America highlights the risks that companies take when they move their datacenter operations to the cloud.

While the high-profile failure - at least the third this year - may cause some Amazon Web Services customers to consider alternatives, it is unlikely to severely hurt a fast-growing business for the cloud-computing pioneer that got into the sector in 2006 and has historically experienced few outages.

"The benefits still outweigh the risks," said Global Equities Research analyst Trip Chowdhry.

"When it comes to the cloud, Amazon has got it right."

The latest service failure comes at a critical time for Amazon, which is betting that AWS can become a significant profit generator even if the economy continues to stagnate. Moreover, it is increasingly targeting larger corporate clients that have traditionally shied away from moving critical applications onto AWS.

AWS, which Amazon started more than six years ago, provides data storage, computing power and other technology services from remote locations that group thousands of servers across areas than can span whole football fields. Their early investment made it a pioneer in what is now known as cloud computing.

Executives said last month at an Amazon conference in Las Vegas they could envision the division, which lists Pinterest, Shazam and Spotify among its fast-growing clients, becoming its biggest business, outpacing even its online retail juggernaut. Evercore analyst Ken Sena expects AWS revenue to jump 45 percent a year, from about $2 billion this year to $20 billion in 2018.

The service has boomed because it is cheap, relatively easy to use, and can be shut off, scaled back or ramped up quickly depending on companies' needs. As the longest-running player in the game, Amazon now boasts the widest array of datacenter products and services, plus a broader stable of clients than rivals like Google Inc, Rackspace Inc and Salesforce.com Inc.

Outages such as the one that took down Netflix and other websites on the eve of one of the biggest U.S. holidays are part and parcel of the nascent business, analysts say. Moreover, outages have been a problem long before the age of cloud computing, with glitches within corporate datacenters and telecommunications hubs triggering myriad service disruptions.

COMING SOON: POST-MORTEM

Amazon's latest service failure comes months after two high-profile outages that hit Netflix and other popular websites such as photo-sharing service Instagram and Pinterest. Industry executives, however, say its downtimes tend to attract more attention because of its outsized market footprint.

Netflix - which CEO Reed Hastings said relies on AWS for 95 percent of its datacenter needs - would not comment on whether they were pondering alternatives. Analysts say the video streaming giant is unlikely to try a large-scale switch, partly because all cloud providers experience outages.

"Despite a steady stream of these service outages, the demand for cloud services offered by AWS, Google, etc. continues to escalate because these services are still reliable enough to satisfy customer expectations," said Jeff Kaplan, managing director of consultancy ThinkStrategies Inc.

"They offer cost-savings and elasticities that are too attractive for companies to ignore."

But "Netflix and other organizations which rely on AWS will have to reexamine how they configure their services and allocate their service requirements across multiple providers to mitigate over-dependency and risks."

AWS spokeswoman Rena Lunak said the outage was traced to a problem affecting customers at its oldest data center, run out of northern Virginia, which was linked also to the June failure.

The latest glitch involved a service known as Elastic Load Balancing, which automatically allocates incoming Web traffic across multiple servers in order to boost the performance of a website. She declined to provide further details about the outage, saying the company would be publishing a full post-mortem within days.

AWS has traditionally been used by start-up tech companies and smaller businesses that anticipate rapid growth in online traffic but are unwilling or unable to shell out on IT equipment and management upfront.

The company has more recently started winning more and more business from larger corporations. It has also set up a unit that caters to government agencies.

Regardless, Amazon's clientele would do well not to put all their eggs in one basket, analysts say.

"Service outages do occur, but they are not common enough to cause users of these services to abandon today's Cloud service providers at significant rates. In fact, every major Cloud service provider has experienced outages," Kaplan said.

"Therefore, organizations that rely on these services are putting backup and recovery systems and protocols in place to mitigate the risks of future outages."

(Additional reporting; editing by Edwin Chan and Richard Chang)

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n" readability="113">(Reuters) - Emerging markets are, in essence, a leveraged way to play the bet that the Federal Reserve will continue its quantitative easing policy - always, everywhere and forever.

Whether that makes them a good investment is an entirely different question.

If you believe that the European Central Bank has taken euro break-up off of the table and that the Fed's pledge to continue buying bonds indefinitely until labor conditions improve will work, then expect fantastic returns from risk assets, and the riskier, as in emerging markets, the better.

There is, however, a more nuanced debate to have. Even if we don't believe that QE3 will "work" by the Fed's own definition, we may well expect that it will have a real and positive impact on asset markets for at least some portion of time. By buying relatively safe mortgage debt - and very possibly more Treasuries later - the Fed will put cash into the pockets of investors, cash which will need to find a home.

Some of it, clearly, has been flowing into emerging markets stocks, bond and currencies.

"Powerful policy puts by the ECB and the Fed have, at least in the near term, broken the stress-intervention cycle which has dominated markets for some time," wrote Piero Ghezzi, head of economics and emerging markets research at Barclays Capital, in a note to clients.

"While the timing of a global growth rebound remains uncertain, the tail risks for investors, in particular those related to the euro area, have been reduced. This improves the outlook for risky assets and should support flows into EM assets," he added.

Emerging markets shares have outperformed the S&P 500 in the past month, rising by more than 4 percent against 2 percent, during which time the ECB has taken action and the Federal Reserve instituted its new policy of open-ended quantitative easing. Over the past year, however, emerging markets have returned less than half the 23 percent gain of the S&P, and over two years the figures are deeply ugly, with emerging markets down by 5 percent against a 25 percent gain in the S&P.

THREE BIG RISKS

There are at least three large risks to a strategy of plunging into emerging markets to play the QE3 momentum trade. First, we don't know how long the positive effects will last. As in recent bouts of QE, the clear pattern has been for an initial quite positive reaction in markets, but an ebbing over months, especially if economic data does not improve. Returns from past easings have been diminishing over time.

It may well be that you get a nice ride upwards, but an equally magnified or greater fall if markets don't keep faith with central banks.

Also, you have risks that are particular to emerging markets if QE does work. It may well drive up commodity prices, as it has in the past. This is especially inflationary in emerging markets where poorer consumers spend a higher percentage of their money on food and energy. That's not just bad news from a human perspective; it may force central banks in emerging markets to keep conditions tight to fight inflation, hurting growth there in comparison to developed markets.

One of the points of QE, though not one officials emphasize, is to help growth in the countries where it is being done by driving down their exchange rates. Between the ECB, Fed, Bank of Japan and other central banks, we have a clear game of competitive currency devaluation going on, and it will only become more intense if economic conditions get worse.

This could be quite bad for emerging markets, which are more dependent on exports and have less well developed domestic consumer economies.

Finally, the big one: the Fed and the ECB may not succeed, and even if they do, politicians here may mess things up by sending the U.S. over the fiscal cliff. The International Monetary Fund warned on Thursday that emerging markets are increasingly vulnerable to another recession in the U.S. or Europe.

"There is no guarantee that the relative calm emerging economies have enjoyed over the past two years will continue," IMF economist Abdul Abiad said at a news conference. "There is a significant risk that advanced economies could experience another downturn, and in such an event, emerging economies and developing economies will end up 'recoupling' with advanced economies."

What the IMF calls 'recoupling' would look very much like a bloodbath in financial markets, with emerging markets seriously underperforming.

None of this eliminates the value of emerging markets as a source of potential diversification, and as a means to investing in economies which should, over time, grow more quickly than developed ones. But rather than a bet on decoupling, playing emerging markets today needs to be recognized as just a QE trade with booster rockets.

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. You can email him at jamessaft@jamessaft.com and find more columns atblogs.reuters.com/james-saft)

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