Jeff Bezos launched Amazon.com from his garage in 1994, when the internet was still in its infancy. It seems unbelievable today, but at the time, selling things in “cyberspace” was considered a dicey proposition. Nearly twenty-five years later, shares of the Seattle-based juggernaut trade at nearly $2,000, contributing to a market cap of almost $1 trillion, making Bezos the world’s wealthiest individual.1
You’d be right to attribute the incredible success of Amazon to Bezos’s timing and foresight, and his ability to take big risks. But his (wildly profitable) genius wasn’t just realizing that people would start shopping online. Bezos saw something deeper, before most. He saw that the internet would shift power away from big corporations, and into the hands of the consumer. He was right, and it’s this kind of insight that remains the driving force behind Amazon’s obsession with customer loyalty.
Since the beginning, Amazon has been relentless in providing customers with exactly what they want, lest they take their business somewhere else with just a click of a button. As the company has evolved they’ve managed to do it faster than anybody else, yet the focus on the customer has never wavered. As a former Amazon VP, Brian Krueger, explains it, “Jeff highly values the customer, probably more than any CEO I know, large company or small.”2 This fixation on the customer is the foundation of Amazon’s rise to global dominance—and underlies the most successful subscription service in the world, Amazon Prime.
After graduating from Princeton, Bezos worked on Wall Street at investment firm D.E. Shaw & Co., where he was promoted to senior VP by the age of thirty. After four years at the firm he left in 1994 to move to Seattle, Washington. There he began putting together a business plan for what would eventually become a company worth more than Walmart, Target, Macy’s, Kroger, Nord-strom, Tiffany & Co., Coach, Tesco, Ikea, Williams & Sonoma, and The Gap combined.
Although the internet was intriguing to some in the mid-1990s, it was still pretty esoteric—and a topic that journalists and business analysts seldom took seriously. Projections about e-commerce in general varied; Bezos, however, was bullish about the web’s prospects and its probable impact on just about every business sector, including consumer retail.
Despite the general belief that Amazon was the first to sell books on the internet, a company in Silicon Valley called Computer Literacy actually began selling books via email in 1991. So credit for first category entrant doesn’t go to Bezos. Yet unlike the first mover, Amazon did execute, scale, and ultimately pave the way for not only selling paperbacks, but just about every SKU (stock keeping unit) in existence, via a few clicks.
Initially, Bezos wanted to name the company Cadabra, but was advised against the moniker because it sounded too much like “cadaver.” Playing with alternatives, he then purchased the URL relentless.com and incorporated under the same name, but to his dismay, some of his friends remarked that it sounded too sinister. (Relentless.com is still owned by Bezos and redirects to Amazon.com.)3
He finally settled on Amazon. Before Google’s complex algorithms arrived in 1998, search engines would arrange links alphabetically, so Bezos thought having an “A” name would be advantageous. He also liked the fact that his company was named after the world’s longest river, suggesting how big the company could become.4
He started making lists of products he believed would sell well online, then narrowed it down to 5 SKUs—CDs, computer hardware, computer software, videos, and books. He settled on books because they were cheap, easy to recognize, and lightweight—(still, by the way, a good formula for any entrepreneur thinking of starting an e-commerce business). The first iteration of Amazon.com launched in July of 1995 labeling itself as “Earth’s biggest bookstore,” with over 1 million titles in its catalogue.
The first transaction recorded through the web store was a copy of Douglas Hofstadter’s Fluid Concepts and Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought, purchased by Jon Wainwright, a computer scientist in California.5
What was interesting about Amazon, even from the beginning, was its promise to customers. Amazon’s differentiating proposition (and what ultimately pushed Computer Literacy to the sidelines) was the promise to deliver any book, in any category, anywhere to readers. This “overpromise and overdeliver” strategy showed that Amazon was not just a bookseller, but a refreshing online company going above and beyond for the consumer.
Amazon drove orders almost immediately, relying on book distributors and wholesalers to rapidly fulfill purchases as they came in. Although the numbers grew quickly, bookstore chains such as Barnes & Noble and Waldenbooks still held stable ground, and the size of the online market in general remained uncertain. Financial columnists were divided on where Amazon fit into the whole equation. Skeptics couldn’t make sense of Amazon or its business strategy; they claimed the online retailer was in too deep, and would ultimately lose out to big-box paperback sellers.
The lack of company profits in the early days seemed to justify the skeptics’ position, but Bezos dismissed doubters, pointing to a lack of understanding of the massive potential of the internet. He argued that to succeed, a company like his needed to “get big fast,” and that meant scaling quickly, reinvesting every last dollar into the business, and ignoring profitability in the interest of growing the top line.
Despite pessimism from the media, along with the high infrastructure costs of pre-broadband internet, Amazon grew fast. By December 1996, it had nearly $16 million in sales and 180,000 customer accounts—astounding figures for a young company entering its second full year of operations.
Seeing an opportunity to capitalize on Amazon’s early momentum, Bezos gathered his top executives, underwriters, and lawyers to get an IPO rolling in 1997. Amazon went public that May, less than two years after opening its virtual doors. Settling on an opening price of $18 a share, Amazon raised $54 million on the NASDAQ, giving the company a market value of $438 million.6
Now a public company, Bezos was even more insistent on building Amazon with certain core principles in place:
As Amazon has grown into one of the biggest global success stories in retail history, customer obsession, at the top of the list, stands out time and again. In a recent letter to shareholders, Bezos wrote about the benefits of a business centered on customers, rather than on products, technology, or competitors:
There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it.... Experiment patiently, accept failures, plant seeds, protect saplings, and double-down when you see customer delight.8
In 1998, the year after its IPO, Amazon expanded beyond books. With the addition of music and video, sales leapt to $610 million. The next year it broadened the product line again, this time adding consumer electronics, video games, software, home-improvement items, toys and games, and more.
It was the beginning of the dot-com boom. Times were good for online companies like Amazon. So much so that Bezos landed himself a spot on the cover of Time magazine, as 1999’s Person of the Year. Many online companies, perhaps inspired by Bezos’s new celebrity, sprang into being, determined to take advantage of the influx of venture capital and the ramp-up in dot-com valuations.
To paint a relative picture, Apple stock wasn’t in favor; it was a struggling hardware company. Facebook didn’t exist. Google and Netflix were around, but weren’t publicly traded yet; Google had just landed a $25 million round of funding and Netflix was building its business on the back of DVDs by mail.
As investor exuberance swelled, dependable companies like Oracle, Intel, Cisco, and Microsoft saw stock prices soar. Though of course, so too did a boatload of worthless stocks. Times were good for just about anybody willing to register a URL and draft a slide deck with some projections.
Soon it became apparent that many of these companies, including names like eToys and Pets.com, had no real business model. The NASDAQ began to reflect as much, dropping from 5,132 in March of 2000 to 1,470 a few months later. Many investors had taken a round trip from zero to unimaginable heights and back down again. The dot-com bubble had burst.
Most of the big names of that era, such as Lycos, Netscape, Infoseek, and CDnow, turned into colossal failures. The complete list of bankruptcies is too long to feature here, but highlights include fashion retail site Boo.com, which burned through $135 million of venture capital in eighteen months; food delivery failure Webvan, created by Louis Borders (of Borders bookstore fame); and Mark Cuban’s baby, Broadcast.com, which was acquired by Yahoo! for $5.7 billion.9 Sadly for Yahoo!, the company never took off—although Mark’s career as a TV celebrity and NBA owner certainly did. Talk about selling at “the high.”
Unique among the carnage, Bezos and Amazon not only survived but flourished in the wake of the tech disaster. How? One of the reasons was that Amazon raised money at just the right time—only a month before the crash—which helped insulate the company from further financial exposure. Former Amazon CFO Warren Jenson decided the company needed a stronger cash position as a hedge against the possibility that suppliers might request more favorable payment terms. Tapping into overseas markets, Amazon sold $672 million in convertible bonds to investors, even as the global economy teetered on the brink of recession.10
The importance of Jenson’s foresight and bond issue can’t be overstated. Sure, Amazon was already changing e-commerce while converting traffic to dollars. Moreover, its revenue growth and cash conversion cycle indicated it had a working business model—a delight compared with the basket of other dot-coms whose CEOs were, according to many accounts, spending VC (venture capital) money on lavish parties, sex workers, and private jets (not kidding). But most of what made Amazon into the behemoth we know today—namely, Marketplace, Prime, and Amazon Web Services—was invented after the bubble. Suffice it to say, without Jenson’s bond issue, Amazon might not be here today.
Today, Amazon Prime is one of the best-known subscription models in the world. The service launched back in 2005, offering members free and unlimited two-day shipping on over 100 million items. In most countries, membership now also includes unlimited Kindle ebooks, and access to streaming music and video (among other benefits).
The introduction of free two-day shipping transformed fast, affordable delivery from an occasional indulgence to an everyday experience, helping Prime to quickly attract tens of thousands of members. As Amazon expanded into international markets like Japan, the United Kingdom, France, Canada, and others over the next decade, Prime membership numbers grew to tens of millions. As of April 2018, more than 100 million people worldwide can call themselves Prime subscribers, including as many as 60 percent of U.S. households, according to some estimates11—that’s more than the 44 percent that have a gun.
A few years ago Bezos famously said that his goal with Prime was “to make sure that if you are not a Prime member, you are being irresponsible.”12 It appears he’s well on his way to making that statement an undisputed fact. The business of Prime is staggering:
While member loyalty continues to drive a good portion of the growth, the average ticket of a Prime subscriber (approaching $1400 per year) is key to Amazon’s ability to offer more, for less.
When subscription-based businesses fail, it’s often due to high customer acquisition cost, poor retention, low customer lifetime values, and a lack of loyalty. (These factors kill off many traditional retailers too.) The brilliance of Prime is that it creates a flywheel effect, boosting all these metrics simultaneously.
Once on board, Prime subscribers not only order more often, but they also start buying things they probably wouldn’t have otherwise, to justify their membership cost (in the U.S., currently $119 a year). This phenomenon, by design, of course, boosts Prime retention and loyalty. And with Amazon.com being the principal driver of Prime memberships, Amazon capitalizes on another advantage—low customer acquisition costs.
There are more advantages to the Amazon flywheel. Prime members not only spend more on Amazon than its regular customers do, but they use more of Amazon’s services, such as Prime Video and Amazon Fresh. This Amazon cycle, let’s call it, also works in reverse: customers come in the media door, for instance, via Prime Video, and ultimately spend more across the general marketplace.
In essence, Amazon Prime is one of the most effective physical/digital hybrid membership programs globally—where users enter through whatever door is open—be it Prime Video, Marketplace, or otherwise—only to find themselves right at home in every room. Sheer genius.
Not content with reshaping the retail world, Amazon is also turning itself into a media giant. The move into digital media isn’t just a cool thing to offer millennials; it is a highly calculated strategy. More Prime Video subscribers means more revenue for Amazon, in the form of more purchases made on the Amazon platform. Even in isolation, Prime Video is a huge catalyst for current and future growth: forecasters predict that by 2022, Prime Video subscribers will number 56 million in the U.S. and 122 million worldwide.14
Prime Video was created in 2006, the perfect time to capitalize on two evolving and interconnected trends: the increasing popularity of television (shows, that is), and the changing ways viewers consume content.
For decades, A-list movie actors shunned TV. Movies were the pinnacle of success, and actors caught slumming on TV shows were seen as “has-beens.” That phenomenon began to change over a decade ago. As TV on demand evolved, Hollywood heavyweights were changing their tune and gravitating toward serialized television: Kevin Spacey and Robin Wright in House of Cards; Matthew McConaughey and Woody Harrelson in True Detective; Jessica Lange, Kathy Bates, and Angela Bassett in American Horror Story, etc. Bezos took notice—TV shows were beginning to steal the spotlight.
As individuals across North America tossed popcorn and movie tickets aside for binge-watching sessions of Breaking Bad, streaming television gave consumers the flexibility and wealth of content they desired. Amazon saw an opportunity to capitalize on the changing behavior, and in turn, doubled down on Prime Video, knowing that the media business would grow over time.
As media relationships go, Amazon and Netflix have an interesting one. Although Prime Video and Netflix bid against one another on the supply side for content, they don’t necessarily compete for consumers. Bezos suggests the two platforms can easily live side by side. And so far, the data says he’s right.
Since Prime Video debuted, both platforms have continued to grow their subscriber base. More telling is research that says there is “high overlap” among subscribers to Netflix and other streaming video services, especially Prime Video. In the U.S. and U.K., half of subscribers to Netflix also subscribe to Prime Video.15 Fees to both are modest and most popular content is exclusive to a single platform, so if customers want to watch House of Cards (on Netflix) and Patriot (on Prime Video), for example, it’s easy for people to justify signing up for both.
While both Netflix and Amazon are profiting from the shift to on-demand viewing, only Amazon can leverage its additional assets to boost overall customer-lifetime-value dollars. Netflix has a ton of members and a slick recommendation engine, but it can’t sell you a purse after you’ve watched Stranger Things. Capitalizing on this flywheel effect provides Amazon with a distinct and impenetrable advantage over the long term.
As Amazon attempts to migrate more and more users over to Prime, the company’s subscription tentacles extend to the general online marketplace as well. In fact, the company has been tinkering with the automation and delivery of household goods for over a decade.
Amazon’s “Subscribe and Save” program is basically a milkman for the twenty-first century. Introduced in 2007, the subscription play lets consumers sign up to have everyday consumables delivered regularly, with a price discount of 5 to 15 percent. Customers choose from a list of eligible items, set a desired frequency from one to six months, and Amazon automatically creates and sends orders. It’s convenient for those who prefer to have paper towels or diapers sent regularly, rather than having to think about monitoring and replenishing if they run out. You might not have known you could do this, or even that you wanted automatic shipments of things like milk and baby wipes, but the idea is likely to cross your mind the next time you have to run out at 10 PM to get ’em. It’s no surprise that the offering has quietly ballooned over the last decade into one of the largest subscription programs globally for consumer staples.
More recently, Amazon added another subscription service to its impressive mix, called Prime Pantry. Available only to Prime members, customers pay an extra $5 a month for the ability to shop for non-perishable household items in “everyday package sizes” (one box of cereal, a box of Oreos, etc.) and ship orders of over $10 for free.
Programs such as Subscribe and Save offer a broader indication that shopping behavior, in general, is changing even with boring items like detergents, body soap, peanut butter, and gardening seeds (all things you can “subscribe to” on Amazon). It’s all part of a shift toward subscriber-based consumerism.
Retailers seem to cringe every time Amazon introduces a new business line like Prime or Subscribe and Save, and rightly so—Amazon is the bully in the retail schoolyard. As Bezos prioritizes Amazon Prime and uses other business lines like Subscribe and Save to drive more of its growth, the rest of retail can only hope to stay afloat.
The most worrying research from the competition’s point of view suggests that once Amazon’s Prime members are hooked, they tend to stop shopping anywhere else. They assume Amazon’s prices are competitive, and don’t bother to search for comparisons. In fact, if they spot something at another retailer, they are more likely to see if Amazon sells the item first, rather than buy it elsewhere.
It doesn’t stop there. The list of perks that comes with a Prime membership is growing, and current members (an engaged bunch) still register low on the consumer awareness scale. Things like Prime Wardrobe, Prime Reading, and lengthy free trials to the Washington Post (which Bezos now owns) are all value-adds that Prime consumers typically don’t know about—yet. So as Amazon turns up the marketing volume to highlight these additional benefits, Prime’s value proposition increases.
Notwithstanding the above, Amazon has yet to fully exploit several other ways Prime can evolve and add value. Awareness is still low for Amazon Music, its Spotify-like streaming service, which grants Prime members free access to well over 1 million songs. The same is true for Amazon channels, where users can watch shows and movies from HBO, SHOWTIME, and STARZ. And the potential of Amazon Echo, the smart speakers, in combination with Alexa, the virtual assistant, is vast—both technologies are sure to become more sophisticated in enabling (and motivating) customer orders. Even with a third of the U.S. on Prime, the upside for further growth is still significant.
The retail industry has grown by about 4 percent over the past few years. Yet Amazon Prime’s compound annual growth rate is roughly 21 percent in the U.S. and a whopping 58 percent internationally. Amazon reigns supreme in retail e-commerce, owning 38 percent of online sales over the holiday season; the next nine companies on the list account for 20 percent combined.16 If retail is a zero sum game, and Amazon is growing at this kind of a clip, who is losing? Just about anyone trying to compete.
A year after launching its Prime program, perhaps the most successful subscription program for consumers to date, Amazon launched Amazon Web Services (AWS), the platform-as-a-service arm of Amazon.com, with little fanfare. Even Bezos himself, who had the early vision of turning a book idea into the “Earth’s biggest store,” couldn’t have foreseen the trajectory his cloud services business would take. It’s clear now, though, that AWS was a monumental shift for a company focused initially on retail e-commerce.
AWS allows individuals, companies, and even governments to buy storage space to hold a database, bandwidth to host a website, or processing power to run complex software remotely. It lets companies like Netflix and Airbnb, as well as individuals like you and me, host complex software or large amounts of data without having to buy, house, and maintain costly hardware. The AWS technology lives at server farms across the globe. Subscribers can reserve virtual computers or dedicated real-life machines, individually or in clusters, and Amazon manages, upgrades, and provides industry-standard security to each subscriber’s system. Fees are based on factors like usage, chosen features, required availability, redundancy, security, and service options.
Although the cloud infrastructure play flies under the consumer radar, it is a killer whale: as of 2018, AWS was the fifth-largest business software provider in the world, and “far and away the leading provider of cloud infrastructure technology.”17 In mid-2018, AWS was responsible for 34 percent of “the entire cloud-computing services market,” according to Synergy Research Group, well ahead of Microsoft at 11 percent, Google at 8 percent, and IBM at 6 percent.18 AWS revenue for 2018 was astonishing, about $26 billion (up 30 percent from the previous year).19 Even more notable is the balance of Amazon’s total revenue—AWS accounts for about 10 percent of the top line, and nearly 70 percent of its bottom-line profit.20 As one analyst put it, AWS provides Amazon with “a level of profitability that it can’t find anywhere else.”21
One of the tropes in the business zeitgeist is “take what’s already built and see if you can sell it to others.” Such was the case for Amazon, which first began allowing outsiders to access its internal services in 2000 with the launch of Amazon Marketplace, a platform for third-party retailers to sell goods via Amazon.com.22 Amazon was a far different company back then, struggling with the operational challenges that stem from scaling up. As a small part of its coping strategy, the company began building more internal systems to deal with the hypergrowth.
With the precedent of Marketplace, and the infrastructure in place, the seeds of AWS were planted a few years later, in 2003, during an executive brainstorming session at Bezos’s home. The team did an exercise to identify the company’s core competencies. Beyond the obvious e-commerce strengths (massive product selection, quick and cheap fulfillment, customer-centric service), they identified a set of capabilities the company hadn’t properly considered: the sophisticated technological infrastructure it had built to power Amazon.23
The team didn’t fully articulate a business plan at that meeting, but they did realize that the company was proficient at running the tech infrastructure for its internal business. As Andy Jassy, the current CEO of AWS, recalls, “In retrospect it seems fairly obvious, but at the time I don’t think we had ever really internalized that.” Later that year they fleshed out the idea to carve out a separate business line that would provide this same service to others—essentially an operating system for the world of the internet. According to Jassy, “We realized we could contribute all of those key components of that internet operating system, and with that, we went to pursue this much broader mission, which is AWS today, a platform that allows any organization or company or any developer to run their technology applications on top of our technology infrastructure platform.”24
In 2006, Amazon’s S3 (Simple Storage Service) and EC2 (Elastic Compute Cloud) were the first of its cloud infrastructure services to hit the market. Amazon now offered scalable, hassle-free storage and computing, the foundation for pretty much anything a company or individual could do on the web, from hosting web pages to training artificial intelligence.25
Before sophisticated cloud infrastructure, companies had to find a server provider, choose a machine, and pay for the data and the bandwidth that accessed it. It was inefficient and expensive, and sites would notoriously crash amid surges in traffic—as Twitter experienced during the 2010 World Cup, when the site crashed several times due to a lack of server power.26 Dropbox, an AWS customer until 2017 when it moved onto its own bespoke server infrastructure, experienced similar woes before moving some of its needs over to Amazon.
According to aws.amazon.com, AWS now offers over 125 fully featured services—for computing, storage, databases, networking, analytics, machine learning and artificial intelligence (AI), Internet of Things (IoT), mobile, security, hybrid, virtual and augmented reality (VR and AR), media, and application development, deployment, and management, all from fifty-five “availability zones” within eighteen geographic regions around the world, including the U.S., Australia, Brazil, Canada, China, France, Germany, India, Ireland, Japan, Korea, Singapore, and the U.K., with locations slated to open in Bahrain, Cape Town, Hong Kong, and Milan.
Earlier, we touched on the supposed potential rivalry between Prime Video and Netflix, especially from the viewpoint of consumer behavior and original content. However, Bezos’s suggestion that Netflix and Prime Video are complementary has another intriguing component: Netflix is an Amazon customer.
Unknown to most, Netflix is the most prominent user of AWS. It began using the platform for much of its back-end infrastructure in 2009, and in 2015 moved the remainder onto AWS servers, going “all-in.”27 Netflix stores and streams its content from the same servers as Amazon Prime Video. That means that the 35 percent of network traffic in North America that is coming from Netflix is ultimately coming from Amazon servers.
Beyond Netflix, the AWS customer list consists of enterprises like Intuit, Hertz, and Time Inc., which all trust Amazon with their entire IT operations, including transactions and customer databases. In July 2018, 21st Century Fox announced that it would migrate the vast majority of its key platforms to the Amazon cloud, and leverage AWS’s machine learning and data analytics services across its brands. Other trusted clients include Adobe, Airbnb, Yelp, the U.K. Ministry of Justice, NASA’s Jet Propulsion Laboratory, and even Salesforce, another dominant force in the world of cloud services.
The media got wind of a partnership between the two cloud kings in 2016, when both companies announced that AWS would become the official “preferred public cloud infrastructure provider” to Salesforce.28 The deal would see Salesforce spend about $400 million on AWS services over the next four years. The exact shape of the deal has since become clearer, with Salesforce announcing in 2018 that its products would be connected to various AWS products, including the integration of Service Cloud Einstein with Amazon Connect to allow Salesforce customers to “set up and manage a customer contact center in minutes.”29
On the flip side, Amazon, which has less to lose in all of this, has extended an olive branch to Salesforce’s chief Marc Benioff by choosing Salesforce as its company-wide customer platform.
Salesforce has stated that it is moving away from developing and providing cloud infrastructure that would compete with AWS, due to the overwhelming success of Amazon’s foray into the space and the limits of its own capabilities in the face of Amazon growth. In a bit of a “if you can’t beat ’em join ’em” play, Benioff smartly got into bed with Bezos before there was any real threat to his own long-standing cloud business. A year after the partnership was announced, Benioff said, “At Salesforce, we really strongly believe that the enemy of my enemy is my friend, and I think that makes Amazon Web Services our best friend.”30
Making predictions is notoriously difficult given how the tech world loves to move fast and break things. But there are a few broad trends we can expect to see develop with AWS and cloud computing: growth from government clients, the expansion of digital assistants, a renewable-energy push, and the increasing prominence of Chinese competitors.
As more American departments follow the lead of the U.K. Ministry of Justice and move their data into the cloud, AWS is poised to capture a major chunk of the expanding market. The U.S. government currently spends about $80 billion each year on technology. AWS has positioned itself to take advantage, in both a tech and physical sense. The largest number of AWS employees outside of Seattle is in the town of Herndon, Virginia,31 less than a ten-minute drive from Washington, D.C.’s Dulles Airport—and that’s even before Amazon announced that its second “headquarters” would be partially in Arlington, Virginia, even closer to D.C.
There’s a lot of excitement around AI-powered digital assistants such as Salesforce’s Einstein, Google Assistant, and, of course, Alexa, which is seeing heavy investment from Amazon. Although Alexa “isn’t the brightest assistant in the room,” as one pundit says, it is already superior to Apple’s Siri, and in the same league as Google Assistant.32 But in the long run, expect Alexa to come out ahead. After all, it’s Amazon.
We can expect Alexa to continue to evolve by drawing on the artificial intelligence and machine-learning platforms of AWS. With such a powerful resource, Alexa is likely to leave the confines of the home and start chipping away at Skype, Cortana, Einstein, Watson, and others as it infiltrates offices everywhere. Richard Windsor, an analyst at Edison Investment Research, predicts that “Alexa for Business will allow businesses to build their own skills for the digital assistant that can be used in a work context.... This has the scope to both generate more skills and applications for the Alexa digital assistant but also to generate increasing loyalty to AWS.”33
As it works to expand Alexa’s capabilities, AWS will also continue its push into new areas like energy. The company already operates numerous solar and wind farms, and will move to build on its vision to achieve “100% renewable energy usage for our global infrastructure footprint.”34 AWS already has partnerships in place with renewable energy providers including Community Energy Solar in Virginia and Tesla.
Can AWS hold on to its dominant market share as the cloud sector grows? There are other big names gunning for market share in the Western Hemisphere, like Microsoft, Google, Oracle, and IBM, to name a few. With $26 billion in annual revenue, growing at 40 percent plus per year, it’s hard to see Amazon slowing down on domestic soil.35 But, while Jassy and team aren’t likely to get disturbed at home, there’s a new kid on the cloud block that could chip away at global market share.
Alibaba Cloud is growing at a faster clip than not only Amazon, but Microsoft, IBM, and Google. The cloud-computing arm of the Chinese e-commerce giant now has regional headquarters in Dubai, Frankfurt, Hong Kong, London, New York, Paris, Sydney, and Tokyo, in addition to its base in Singapore. It grew over 100 percent in 2017, with an annual run rate around $4.4 billion.36
That figure may pale in comparison to AWS, but Alibaba didn’t dedicate substantial resources to its cloud business until 2015. Since then, however, the company has kicked things into high gear in the face of favorable market conditions, which should compel competitors to take Alibaba Cloud president Simon Hu and his team seriously.
The sheer potential of Alibaba’s total addressable market is vast. Most of its business is in China and the surrounding region, a huge and underexploited market certain to foster continued growth for the company, as well as the two other Chinese cloud leaders, China Telecom and games giant Tencent. Unlike in the West, where AWS built its cloud business with start-up clients, the Chinese cloud began almost in reverse, with larger companies like Taobao and Alibaba’s e-commerce marketplace. As the small- to medium-sized business market continues to grow in China in sectors like financial services and emerging tech, a move to the cloud is inevitable. While Chinese companies have so far been slow to the cloud, the nation is now third in the world for venture capital investment in advanced tech like artificial intelligence.37 Alibaba is likely to capitalize on this funding momentum.
And then there’s the public sector. The cloud will be a key part of China’s Belt and Road Initiative, President Xi Jinping’s ambitious infrastructure plan to connect his country with other parts of Asia, Europe, and Africa.38 Moreover, the Chinese Ministry of Industry and Information Technology said in 2018 that it planned to increase the cloud industry more than two-and-a-half times over 2015 levels by 2019.39
While Alibaba is enjoying the spoils of exponential growth in its home market, foreign rivals like Amazon will be kept to the sidelines. As it stands, Chinese law forbids foreign cloud companies from building data centers in the country unless they link up with Chinese-owned partners.40 While not insurmountable, it is an obstacle that’s sure to slow Amazon’s efforts in China.
As the global market for cloud services spreads, Chinese and Western providers are bound to run into each other eventually. Simon Hu says he’s confident Alibaba will be able to surpass AWS in due time, but even in the face of that kind of hubris it’s hard to take a short position on Amazon. Jassy has come a long way since 2003’s brainstorm at Casa de Bezos. He’s not likely to give up pole position.