Amazon Web Services (AWS), with one million active customers around the world, according to TechCrunch, has become one of the driving forces for Amazon.
AWS offers cloud computing services for businesses to use to make their operations more digitally efficient. Cloud computing is the outsourcing of data storage and other technology assets by businesses, with the ability to scale the services up or down depending on the business’ requirements. Some of AWS customers include software pioneers Atlassian, and emerging design tech business Canva.
AWS was founded after Amazon formed the view that other companies could learn from its insights into how to run a successful business with online components.
Managing Director of the Australian and New Zealand business, Paul Migliorini explains culture has been a huge driver of AWS’ success.
“We have 14 leadership principles that are embedded in our business. They are our DNA,” he says. Customer obsession is one of those principles and the most important element in the business, says Migliorini.
“We like to think really long term about how we create value for customers. There are many instances where we have been prepared to sacrifice short-term wins to build long-term value for customers,” he says. The way it has lowered prices 52 times over 10 years is one example.
Says Miglorini: “We could see there was an opportunity to redefine the way technology could be delivered. We felt customers were not getting a good deal in the way they were procuring a whole series of different IT services. Capital was being deployed to IT hardware, maintenance and data centres that could be used to create value.”
On how their business model works, he says, “As we build capacity into our platform we create scale. That scale then gives us the ability to either take profit or return value to customers. Against the backdrop of virtually no competition, we've chosen to return that to customers in price reductions. This creates trust and customers move more of their services across to Amazon, giving us the ability to grow and reduce prices.”
Innovation encouraged
One hallmark of the AWS culture is the ability to try new things and make mistakes.
“We have a culture of experimentation. We measure everything that we're consistently striving to test and learn. The culture allows for failure, but we endeavour to lower the cost of failure as much as possible. We learn through experimentation, which reflects our leadership principle to invent and simplify,” Migliorini says.
Frugality is another principle, which means the business doesn’t spend money on expenses that don’t add customer value, for instance over the top office fit outs.
“We don't spend anything that’s not for customers. But we invest heavily in things that do. The level of our capital investment into our infrastructure and security is an example. When it comes to frugality we believe if you actively constrain resources you get innovation. If you operate in an environment of unconstrained resources people don't have any compelling need to innovate. Constraining resources produces creative innovation levels; people are compelled to find a solution,” he notes.
Working with customers is key to the business’ success. When AWS started in 2006 it was working alongside Spotify and Netflix, which were then start-ups.
“We solved problems at Amazon we felt would be applicable to any company looking to start a web business that could be grown quickly. Having scalable infrastructure, being able to turn off services when you aren’t using them, efficient infrastructure and the ability to move capital expenditure to operating expenditure were the backbone of AWS,” says Migliorini.
AWS’s early customers were able to repurpose capital they would have previously spent on owning IT infrastructure for investments to drive value. For instance, accounting software business Xero has just launched a chat service, leveraging AWS’s machine-learning capabilities. Machine learning – a type of artificial intelligence – allows computers to learn without being programmed.
“Xero would rather not build machine-learning capabilities. They want to invest their scarce capital into software development to build services for customers. As we innovate, they innovate with us and they're expanding aggressively in the US and into the UK as well. They don't need to build any infrastructure to support that global expansion. That’s a huge reason why Xero has moved across to AWS,” Migliorini says.
Key Takeaways on AWS Business Model
- Outsourcing services such as data storage helps businesses lower their cost of capital, funds that can be diverted into driving growth.
- Giving up short-term gains to help support customers allows businesses to develop deeper, more long-term relationships with them down the track.
- Strive for a culture that supports learning from experimentation and failure.