20 years of AWS: Time flies when you're winning

To call Jeff Bezos devoted to a core set of principles is an understatement. What's drove AWS's launch in 1997 also drives its success today

20 years of AWS: Time flies when you're winning
Brent Powell/US Army

The world has been agog over Amazon CEO Jeff Bezos’ most recent shareholder letter, in which he touted AWS’s ability to “lower the costs and barriers to machine learning and AI so organizations of all sizes can take advantage of these advanced techniques,” as well as reiterated the company’s focus on “true customer obsession.” It’s a remarkable document that underlines exactly how central AWS has become to the Amazon mission.

For those paying attention to Bezos’ letters over the last two decades, however, the shareholder letter for fiscal year 2016 simply signals a steady continuation of Amazon’s strategy laid out 20 years ago. Indeed, for customers and competitors, Bezos has made it blindingly clear exactly what Amazon was up to, long before AWS became the $12 billion cloud leader it is today.

Party like it’s 1997

Though Amazon.com was founded in mid-1994, it wasn’t until 1997 that Bezos publicly outlined the agenda that would guide the company’s business for the next 20 years. Indeed, so seminal was the 1997 letter that each year since then Bezos attaches the 1997 shareholder letter to remind current shareholders of Amazon’s priorities—past, present, and future:

  • Long-term growth over short-term growth (every single time)
  • Prioritizing growth over profitability because it delivers scale, which “is central to achieving the potential of [Amazon’s] business model”
  • Obsessing over customer value
  • Making bold rather than timid decisions

Launched in 2006, AWS fits these investment criteria. In the two years prior to its launch, when AWS was being prepped for market, Bezos reminded investors of Amazon’s focus on free cash flow per share, not earnings (2004 shareholder letter). Bezos was arguably helping investors get ready for what would appear to be a dramatic shift in the company’s strategy, one that would require huge capital investments, cutting into earnings. By the 2005 letter, Bezos was talking about the need to interject human judgment into otherwise data-driven decision-making within the online retailer.

This human judgment, it turns out, would provide the foundation for an amazing decision the company revealed in 2006: Amazon Web Services.

Launching AWS

AWS would take Amazon out of its comfort zone with retail consumer and instead focus on a finicky, somewhat marketing-resistant bunch: developers. Perhaps Bezos was prefiguring this shift in the 2005 letter when he wrote, “Sometimes we have little or no historical data to guide us and proactive experimentation is impossible, impractical, or tantamount to a decision to proceed. Though data, analysis, and math play a role, the prime ingredient in these decisions is judgment.”

The leap from internal expertise to external product was a big one, but one Amazon felt compelled to take, Bezos wrote in 2006:

Amazon Web Services is another example. With AWS, we’re building a new business focused on a new customer set ... software developers. We currently offer ten different web services and have built a community of over 240,000 registered developers. We’re targeting broad needs universally faced by developers, such as storage and compute capacity—areas in which developers have asked for help, and in which we have deep expertise from scaling Amazon.com over the last twelve years. We’re well positioned to do it, it’s highly differentiated, and it can be a significant, financially attractive business over time.

In some large companies, it might be difficult to grow new businesses from tiny seeds because of the patience and nurturing required. In my view, Amazon’s culture is unusually supportive of small businesses with big potential, and I believe that’s a source of competitive advantage.

As interesting as AWS was (and as profitable as it would prove to be), Bezos’ call-out of Amazon’s API-driven mentality that made AWS possible was even more so. Speaking of the company’s Fulfilled by Amazon business, Amazon demonstrated a clear sense of the service-driven model that would fuel AWS for a decade to come:

Fulfillment by Amazon is a set of web services APIs that turns our 12 million square foot fulfillment center network into a gigantic and sophisticated computer peripheral .... You make web services calls to alert us to expect inventory to arrive, to tell us to pick and pack one or more items, and to tell us where to ship those items. You never have to talk to us.

In that same letter, Bezos also tried to temper expectations: “If a new business enjoys runaway success, it can only begin to be meaningful to the overall company economics in something like three to seven years.” True to form, AWS was a runaway success, but one that took many years to shake up Amazon’s balance sheet, not to mention those of its would-be competitors.

The AWS decade

In 2007, a year after AWS launched, the burgeoning service didn’t get a mention from Bezos, who was then firmly fixated on the Kindle, which had recently launched. However, Bezos alluded to a principle that clearly describes AWS’s impact: “We humans co-evolve with our tools. We change our tools, and then our tools change us.” AWS, built on the fundamental principle of open APIs (as detailed by Kin Lane), has relentlessly forced Amazon to change.

Since that letter, in subsequent shareholder letters Bezos has addressed the following:

  • How customer needs force the company to develop new capabilities (both the 2007 and 2008 shareholder letters)
  • The introduction of new datacenters (2009 shareholder letter)
  • How Amazon’s business has outstripped the limits of commercially available software, forcing the company to innovate its own solutions, then make them commercially available as services (2010 shareholder letter)
  • The importance of scale and elasticity (2011 shareholder letter)
  • Why the company allows internal pressures to drive constant cost-cutting (2012 shareholder letter)
  • How the company has accelerated innovation (2013 shareholder letter)
  • AWS’s appeal to large enterprises with IT departments that want to “get more done,” and not simply save money (2014 shareholder letter)
  • What it means to be customer-obsessed, stating, “Most big technology companies are competitor focused .... In contrast, 90 to 95 percent of what we build in AWS is driven by what customers tell us they want” (2015 shareholder letter)
  • The rise of machine learning and its impact on further accelerating AWS growth (2016 shareholder letter)

Again, with each letter Bezos hasn’t so much as announced new directions as underlined its adherence to long-standing company policy. The push to lower prices even as it raises innovation; the focus on customer value over short-term profitability; the commitment to be bold and not timid—these are the hallmarks of Amazon in 1997, as much as 2017.

As impressive as Bezos’ vision in his fiscal 2016 shareholder letter, it’s far more impressive that it rings so true to the vision Bezos laid down in 1997. It’s this Amazonian consistency that makes AWS such a formidable force, one that has proved so hard to beat, even as it remains pretty darn transparent in its strategic focus.