A Catalyst for Innovation: Amazon Web Services

Amazon Web Services, or AWS, a subsidiary of, offers a suite of largescale cloud computing services to organizations throughout the world. AWS allows organizations to more quickly and less expensively deploy massive amounts of computing capabilities as opposed to building and equipping a traditional data center with servers, networks, and related infrastructural components. AWS’s best-known services are EC2, which stands for Amazon Elastic Computing Cloud, and S3, which stands for Amazon Simple Storage Service. Countless companies are using AWS to run major parts of their business, including Netflix, Spotify, Pinterest, Airbnb, Lyft, Yelp, and Gilt to name a few. In 2015, Gartner estimated that AWS customers were deploying ten times more infrastructure on AWS than the combined adoption of the next 14 providers. Estimates are that AWS has more than a million active customers in more than 190 countries, including nearly 2,000 government agencies, 5,000 education institutions, and more than 17,500 nonprofits. AWS is the 800-pound gorilla of cloud computing infrastructure companies. In early 2016, AWS had grown into a US$10 billion business with a 23 percent operating margin.
Many companies are leveraging the AWS global infrastructure to build their business. For example, Netflix delivers billions of hours of content globally by running on AWS. AWS enables Netflix to deploy thousands of servers and terabytes of storage throughout the world. Users can stream Netflix shows and movies anywhere in the world, supporting a range of devices from smart televisions to tablets and smartphones. Likewise, Airbnb is also leveraging AWS to rapidly expand its global marketplace that allows property owners and travelers to connect with each other for the purpose of renting unique vacation spaces. Owners and travelers can access Airbnb’s system via their web browser or by using a smartphone app. Airbnb supports property rentals in nearly 25,000 cities in more than 190 countries. AWS has been a key part of Airbnb’s global strategy. Another example is Lyft, a ridesharing company founded in 2012. Lyft’s challenge was how to deploy mobile application support where riders could quickly and reliably find a driver to give them a ride. These and countless other companies, many of which you are likely familiar with, utilize AWS’s cloud infrastructure to execute their value proposition for their customers.
As successful as AWS has been, Amazon is not content with simply dominating the cloud infrastructure business. While it is currently a US$10 billion business, some believe that AWS could ultimately be Amazon’s biggest play. Recently, technology investor Chamath Palihapitiya, CEO of Social Capital LP, called AWS the “blue chip of technical infrastructure,” predicting it will ultimately become a US$1.5 trillion business. He went on, “in order to understand the value of AWS, we think that Jeff [Bezos; Amazon’s CEO] is going to completely disrupt this market. There are going to be unbelievable numbers of losers as AWS gets to scale … What [Bezos] did to retail, he will do to IT.” Ten billion dollars is a long way from 1.5 trillion dollars, but AWS is growing fast. As AWS gets bigger, its economies of scale allow for undercutting the prices competitors charge their customers. Clearly, AWS has the potential to become the Walmart of IT services and further strengthen its position in numerous markets.
Amazon is becoming a central part of the global economy and society. While Amazon is one of many online retailers, it is growing rapidly and looks destined to eclipse Walmart as the world’s largest retailer. In addition, with its AWS and S3 services, Amazon provides the IT backbone for countless successful companies and startups and is the world’s dominant player in cloud service infrastructure. Amazon is also our bookstore and becoming our grocery store, Alexa answers our questions or plays our music, and Amazon is planning same-day product delivery with a fleet of drones. And all of this innovation runs on AWS.

1. Is Amazon too successful? If so, what should be done? If not, why not? Give specific examples to justify your position.

2. Why has Amazon been so successful in so many different areas? List specific examples of how it has generated and maintained competitive advantages. Is it unstoppable? In what areas has it been less successful?

3. If you had a startup tech company, would you use AWS? List advantages and disadvantage and explain your rationale.

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