Every once in a while an organization succeeds in being the first to market with a world-changing product, and then growing that product from an early vision that is barely technically feasible to a dominant player despite powerful competition and threats of disruption. In the early 2000’s, Jeff Bezos was ahead of his time in realizing that the technology industry was inevitably moving towards centralization and aggregation of server resources. No one yet knew what this would mean exactly, and the term “cloud” at the time usually referred to water droplets in the sky. Amazon, however, realized that the current status quo of tech companies purchasing expensive servers, setting them up, and running them individually was both inefficient and unsustainable in the long term. And thus, in 2002, the cloud was born.
Amazon Web Services launched as a collection of tools and services to help manage on-premissi infrastructure. A scrappy team worked relentlessly to develop a totally unproven technology—to centralize servers in large server farms and then, using software, sell their services on a per-use basis to technology customers. Initially, many in the tech world saw this as ludicrous, and it took major competitors like Microsoft over 4 years from the launch of AWS to see its vision and start developing their own solutions. With this running start, AWS captured a huge portion of the server market. By the end of 2010, its revenues exceeded $1.5B!
AWS succeeded because it met a critical consumer need. Most tech companies are small scrappy startups with limited resources and expertise. While virtually any tech ventures requires servers to host its software for users, very few actually possess the talent and expertise require to setup a fully on-premise server solution. In addition, servers represented a huge fixed cost that must be paid up-front before these tech companies could even begin to monetize their ideas. This fixed cost represented an impossible obstacle for many smaller companies with minimal capital or unproven ideas. With the advent of the cloud, suddenly startups were capable of leasing servers to run their software. This solution, while potentially more expensive over a very long time horizon, allowed lean startups to minimize CAPEX and focus their talent and energy on the creation of their software instead of on the complex task of creating an entire server system. This also had the benefit of reducing risk and moving the entire tech industry towards an asset-light model, encouraging venture capitalists to take risks on smaller and leaner startups than ever before.
After getting this revolutionary idea off the ground, AWS has faced increasingly stiff competition from major competitors like Microsoft and Google. In today’s Cloud landscape, AWS has continued to maintain its edge for several reasons. First, it has invested heavily in its ecosystem of tools and services that accompany its cloud server options for enterprise businesses. By creating an entire ecosystem of easy-to-integrate tools that seamlessly work with its servers, AWS has succeeded in creating a platform with cross-side network effects that brings both tool developers and SMB’s together in a harmonious and mutually beneficial way. In addition, by partnering with VmWare, AWS has allowed easy portability of existing consumer legacy apps onto its cloud network, reducing barriers to entry for customers with established on-premises servers. Due to its early large market share and the benefit of Amazon’s resources, AWS has also been able to scale quickly and efficiently, allowing it to remain extremely cost competitive. Finally, AWS hasn’t rested on its laurels in the fast moving world of software. For many years the future of software development and server hosting has been microarchitectures combined with containerization virtualization. AWS has invested heavily in tools and services to support containerization technology, and has been first to market with extremely forward-thinking products like Amazon EC2, giving its customers both the best reliability and a competitive edge over slower moving competitors.
This combination of scaling, developing a sticky ecosystem, maintaining competitive pricing, and innovating faster than the competition has created the secret sauce that has propelled AWS from a dubious idea in Jeff Bezos’ mind to the worldwide leader in Cloud services, revolutionizing the entire tech landscape in the process. In the future, I believe AWS will continue to succeed by leveraging machine learning, AI, advanced tools, and leading-edge tech. The challenge will be to maintain the differentiation they have established while continuing to innovate, but Amazon has demonstrated repeatedly that few can innovate faster or more nimbly. I believe they are clear winners in this exciting space and will continue to be so for the foreseeable future.