AWS was born as a way to make an order at the “jumbled mess” that had become Amazon’s underlying tech infrastructure in the early 2000s; it became a key element to enable Amazon to transition to a platform business model (enable other stores to be hosted on top of Amazon). Today, Amazon AWS is a business segment that will generate over $90 billion in revenues in 2023. AWS played such a key role in Amazon’s growth in the last decade that its CEO, Andy Jessy, became CEO of Amazon.
When you think about Amazon.com, the first things that might come to mind are the infinite number of objects you might have bought in the years on their super efficient online store.
One business unit is called AWS, which stands for Amazon Web Services; cloud infrastructure is a service that provides servers, storage, networking, remote computing, email, mobile development, and security.
Starting as a side project, it is now a very strategic business unit within Amazon, and many bet this might become the most critical unit in the next years.
We think we can scale up a startup by planning its businessmodel.
However, in most cases, scalability is a matter of tinkering. Amazon’s story on how it developed AWS is quite impressive.
In the 2000s, Amazon tried to figure out a way to allow other stores to build their e-commerce on top of Amazon.
That is why the Amazon team came up with an e-commerce service at the time called Merchant.com.
However, they soon realized that it was impossible to do that on the existing Amazon infrastructure.
They had to develop it! Thus, what was supposed to be a clear, linear path toward scalability became a total mess.
That is why they started to build out AWS (a cloud Infrastructure as a Service).
What was at the time a side business has become, as of 2021 significant contributor to Amazon’s sales.
As AWS CEO Andy Jassy explained on Tech Crunch: “In retrospect, it seems fairly obvious, but at the time, I don’t think we had ever really internalized that,”
Moreover, he continued: “So very quietly around 2000, we became a services company with really no fanfare.”
In short, there was no “aha moment,” no growth hack, no vision but only a mess and a company figuring out how to scale up its operations.
What you may not know is that the roots for the idea of AWS go back to the 2000 timeframe when Amazon was a far different company than it is today — simply an e-commerce company struggling with scale problems. Those issues forced the company to build some solid internal systems to deal with the hyper growth it was experiencing — and that laid the foundation for what would become AWS.
In fact, in 2021 AWS contributed a good chunk of Amazon’s total revenues.
AWS wasn’t developed from a plan to create a new business venture.
Quite the opposite.
In 2000 Amazon was struggling as it was facing scalability issues.
Indeed, in 2000 Amazon wanted to scale up its operations by allowing other merchants to build their e-commerce on top of Amazon.
However, that turned out to be way more complicated than it seemed.
That is how and why Amazon started to develop this new infrastructure, which would later become AWS.
That proved to be quite effective. In fact, as of Q1 of 2016, AWS cloud infrastructure services:
Amazon generated over half a trillion dollars in revenue in 2023, of which $231.87B from online stores, over $140.05B from third-party seller services, $90.76B from AWS, $46.9B from advertising, $40.21B from subscription services, $20.03B billion in physical stores, and $4.96B from other sources.
The e-commerce platform generated over $222 billion in 2021, followed by third-party stores services which generated over $103 billion, Amazon AWS, which generated over $62 billion; Amazon advertising which generated over $31 billion and Amazon Prime, which also generated over $31 billion, and physical stores which generated over $17 billion.
It’s exciting to see Amazon Web Services, a $20 billion revenue run rate business, accelerate its already healthy growth. AWS has also accelerated its pace of innovation – especially in new areas such as machine learning and artificial intelligence, Internet of Things, and serverless computing. In 2017, AWS announced more than 1,400 significant services and features, including Amazon SageMaker, which radically changes the accessibility and ease of use for everyday developers to build sophisticated machine learning models. Tens of thousands of customers are also using a broad range of AWS machine learning services, with active users increasing more than 250 percent in the last year, spurred by the broad adoption of Amazon SageMaker. And in November, we held our sixth re:Invent conference with more than 40,000 attendees and over 60,000 streaming participants.
If we look at the numbers related to Amazon AWS, there are a few interesting things to notice.
Amazon AWS is the largest contributor to Amazon’s operating margins. In fact, in 2021, of the total $33.3 billion in operating margins, over $18.5 billion came from AWS.
This means that AWS contributed to over 55.5% of overall Amazon’s operating margins.
What does it mean? Amazon’s e-commerce platformruns at very tight margins, even though it’s the largest segment.
Instead, other segments, like Amazon third-party services, subscriptions, and advertising, are running at much wider margins.
However, it’s AWS that, for now, is running at the widest operating margins.
This is partly because of the underlying cloud infrastructure that makes Amazon AWS, which today powers up a good chunk of the Internet. In fact, Amazon AWS is among the largest players.
Indeed, by 2021, Amazon AWS had over $62 billion in revenue, whereas Microsoft Intelligent Cloud, for over $60 billion, and Google Cloud, for over $19 billion.
The operating margin of AWS is way higher than other lines of business within Amazon.
If you look at what’s happening in the enterprise and the public sector over the last two to three years, it’s exponential and dramatic for AWS,” he says. “You can see it in really every imaginable vertical business segment. So it’s not like these enterprises are running just a couple applications. We have an $18 billion revenue run rate. You don’t have a business that big just on startups. We’re just at the beginning of mainstream enterprise mass migration to the cloud.
Amazon has a diversified business model. In 2023, Amazon generated nearly $575 billion in revenues while it posted a net profit of over $30 billion. Online stores contributed over 40% of Amazon revenues. Third-party Seller Services and Physical Stores generated the remaining. Amazon AWS, Subscription Services, and Advertising revenues play a significant role within Amazon as fast-growing segments.
Amazon’s mission statement is to “serve consumers through online and physical stores and focus on selection, price, and convenience.” Amazon’s vision statement is “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.”
In the Amazon Shareholders’ Letter for 2018, Jeff Bezos analyzed the Amazon business model, and it also focused on a few key lessons that Amazon as a company has learned over the years. These lessons are fundamental for any entrepreneur, of small or large organization to understand the pitfalls to avoid to run a successful company!
With 64,588,418 shares, Jeff Bezos is the primary individual investor. Owning 12.7% of the company. Other top individual investors include Amazon’s CEO Andy Jessy, who has 94,729 shares. Top institutional investors include mutual funds like The Vanguard Group (6.6% ownership) and BlackRock (5.7% ownership).
Amazon generated over half a trillion dollars in revenue in 2023, of which $231.87B from online stores, over $140.05B from third-party seller services, $90.76B from AWS, $46.9B from advertising, $40.21B from subscription services, $20.03B billion in physical stores, and $4.96B from other sources.
Amazon was profitable in 2023. On nearly $575 billion in revenue for 2023, Amazon generated a net profit of over $30 billion. Since 2014, Amazon hasn’t recorded a net loss, but it did record a net loss of over $2.7 billion in 2022, while it recouped that in 2023. Indeed, in 2014, Amazon reported a net loss of $241 million, and it would be profitable until 2021. In 2022, Amazon turned unprofitable again and highly profitable again in 2023.
Amazon AWS follows a platform business model that gains traction by tapping into network effects. Born as an infrastructure built on top of Amazon’s infrastructure, AWS has become a company offering cloud services to thousands of clients from the enterprise level, to startups. And its marketplace enables companies to connect to other service providers to build integrated solutions for their organizations.
Amazon subscription revenue in 2023 was over $40 billion, compared to over $35 billion in 2022 and nearly $32 billion in 2021. Amazon Prime grew from a $4.5 billion revenue segment in 2015 to an over $40 billion segment in 2023.
The Amazon Working Backwards Method is a product development methodology that advocates building a product based on customer needs. The Amazon Working Backwards Method gained traction after notable Amazon employee Ian McAllister shared the company’s product development approach on Quora. McAllister noted that the method seeks “to work backwards from the customer, rather than starting with an idea for a product and trying to bolt customers onto it.”
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.
In the letter to shareholders in 2016, Jeff Bezos addressed a topic he had been thinking quite profoundly in the last decades as he led Amazon: Day 1. As Jeff Bezos put it “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
A regret minimization framework is a business heuristic that enables you to make a decision, by projecting yourself in the future, at an old age, and visualize whether the regrets of missing an opportunity would hunt you down, vs. having taken the opportunity and failed. In short, if taking action and failing feels much better than regretting it, in the long run, that is when you’re ready to go!
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model’s success.
Jeff Bezos was best known for founding eCommerce giant Amazon in 1994. However, the entrepreneur owns companies in several industries, including health care, retail, robotics, real estate, and media. Many of these companies have been acquired by Amazon over the years, but some have been the result of direct investment from Bezos himself (through his investment arm is called Bezos Expeditions).
Amazon is a consumer e-commerce platform with a diversified business model spanning across e-commerce, cloud, advertising, streaming, and more. Over the years Amazon acquired several companies. Among its 12 subsidiaries, Amazon has AbeBooks.com, Audible, CamiXology, Fabric.com, IMDb, PillPack, Shopbop, Souq.com, Twitch, Whole Foods Market, Woot! and Zappos.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
