Amazon: from loss-making company to $1 trillion capitalization
We talked to a product manager at Amazon and found out how one of the world’s most expensive companies, with 500,000(!) employees, works inside.
Amazon has doubled in size in the last year. In July 2017, the company’s capitalization exceeded $500 billion. In September 2018, Amazon was worth more than $1 trillion. They haven’t shown a profit for a long time because they’ve been doing internal projects.
Largest online retailer.
Amazon emerged in 1994 as an e-commerce project selling books. From the beginning, Jeff Bezos had his sights set on becoming the biggest company in the world and had a plan in his head for how to achieve it.
In those years, the Internet was very raw. No one wanted to buy any products there. Bezos reasonably decided that books were the easiest thing to sell over the Internet: they don’t spoil, it’s easy to tell from the review what’s waiting inside. So they started with books and gradually began to enter other spheres, becoming an omnivorous company that tries its hand at absolutely different projects.
Their main principle is customer obsession. The company believes that it has to bring as much value as possible to its clients to make them love it, loyally accept new projects and bring more money. They want to become the biggest company in the world, and they succeed.
It is now a huge company with 500,000 employees. In Downtown Seattle, for example, most of the skyscrapers are built by Amazon. About 40,000 people work there. Most of them are highly paid engineers and product managers. The company has several offices in San Francisco. A lot of programmers sit in Denver.
They have a huge website that runs in the States, Europe, and some Asian countries. When someone in the States wants to buy something, the first thing they do is look for it on Amazon, because they know they’ll get it fast and right to their house. People here rarely use Google to search for products. By the way, Google is very worried about this and feels the competition. In general, in the U.S., commerce is poorly developed in the sense that most stores are located in large malls, which are a long way to get to.
Until recently Amazon was a loss-making company, because sorting, packing, and delivering goods to customers’ doors is an expensive process. In addition, the company has huge warehouses where many of the processes are robotic and automated.
It is much cheaper when people pick up their own orders from the warehouse. In this direction, the company’s profitability is still in question.
But there is another part of Amazon: the Amazon Web Services platform.
It was born in 2006. The company spent enormous resources on logistics services, including gigantic computing power. Following the examples of Google and Facebook, Amazon decided to build its own data centers. And then the thought came, “If we can do it for ourselves, why not sell it on the side?”
At first, they offered data storage like Dropbox or Yandex.Disk. It was a raw b2b product that wasn’t available to regular users. Amazon Web Services was good for programmers who could back up some data in it, store huge files. Then they gave it computing power. Now we are getting to serverless computing: you don’t have to administer anything, the developer pours the code into the cloud and everything works.
One of the first customers of this platform was Netflix, when they had the idea of storing their huge film library on Amazon servers.
Amazon began to actively develop this area, and now it is one of the largest cloud services in the world, which continues to grow. 80-90% of American companies prefer to use cloud services to store data, websites, perform computing operations, because it is more profitable than maintaining their own data centers, hiring individuals to their staff and increasing costs. Amazon’s service is used by Netflix, SalesForce and many other corporations.
Another plus: flexible scalability. In such a system, a team of 5 people can build a product that will be used by billions.
Right now it’s one of Amazon’s biggest businesses. Revenue per year is about $40 billion with margins of 40-50%. Annual growth is 50-100%. Investors think e-commerce and logistics are interesting, but invest specifically in Amazon Web Services as the company’s strongest product.
Self-reliance as an engine of new ideas
Amazon tries to do everything on its own. As someone who prefers not to pay outside consultants. They’ll think 10 times before turning to outside experts and are more likely to do it themselves because they believe they can do it better. This principle often works very well. Sometimes it leads to failures. But if you compare Amazon with other corporations, it has the highest number of successful products. What does Facebook have? Ad sales. What does Google have? Selling ads. What does Amazon have? The biggest online store in the world, Kindle e-books, Alex’s smart speaker, Amazon Web Services, etc.
Yes, there are failures. But they treat them without negativity, as lessons learned. The classic example is the Fire Phone. In 2014, the corporation released a smartphone that failed miserably.
Amazon, like many Silicon Valley companies, is not afraid to try. If someone is in charge of a project, they are confident that they will not be judged, they do not risk losing their seat if the project fails. This is very important for new projects and ideas.
We were advised to read the book The Everything Store: Jeff Bezos and the Age of Amazon about the history of Amazon.