Amazons journey from an online book retailer to cloud computing giant

On August 3rd, Amazon will share its earnings report, with a significant portion attributed to its cloud division. If you’re curious about Amazon’s journey from an online book retailer to a cloud computing powerhouse, here is a short overview based on my book, “Cloud Computing Basics”

The story of Amazon is the story of its CEO and founder Jeff Bezos. After finishing his master’s degree in electrical engineering and computer science at Princeton University, Jeff Bezos joined the Wall Street company, D.E. Shaw. It was not the typical Wall Street hedge fund but pioneered using data and computers to guide decisions and make money in financial markets. D.E. Shaw was exceptional in another sense since it did not shy away from building and running companies itself.

In this environment, Bezos would thrive and develop as a leader. Around 1994 the opportunity of the internet presented itself to the company. Bezos did not have first-hand experience but was tasked with researching how this Internet could be used for business opportunities. After brainstorming multiple ideas, he had the idea that would make the most significant difference. The idea was to build an internet-based online store called “The everything store.” Shaw wanted him to build this company within D.E.Shaw, but Bezos opted to build “The everything store” by himself.

He made a list of possible product categories to get started on, including computer software, office supplies, apparel, and music. Eventually, Bezos decided on books since they were a pure commodity. A book in one store was exactly the same as sold in another. Another factor was that the distribution was simple, since only two major distributors in the US existed. The company ended up being called Amazon because goods would flow like the water through Earth’s greatest river.

After initially prioritizing the development of its operations and distribution processes, Amazon was faced with the dot com crash in 2001, which compelled the company to take a step back and reevaluate its approach. As a result of this evaluation, necessary adjustments were made to ensure continued success. Amazon has always prioritized business development over profit, making it vulnerable in capital-restricted situations like the dotcom crash.

To bring in capital, the company’s first move was to strike a deal with Toys “R” Us, allowing them to sell their toys on Amazon. This not only brought in more business and cash flow, but also set the company on a path to becoming a platform company. In other words, they started providing a service or marketplace as a mediator between buyers and sellers. Amazon’s technology platform allowed customers to find an ever-growing range of goods sold by various sellers. 

It’s important to note that Amazon originated from the retail industry, which differs from the technology industry in terms of profit margins and sales volume. Unlike tech companies, Amazon is accustomed to low-profit margins and high sales volume due to its retail background. For instance, selling books may yield little profit, which is why it’s crucial to sell a large quantity of units.

In the early 2000s, eBay and Google’s tech triumphs cast Amazon in a negative light. Wall Street viewed Amazon as a run-of-the-mill retailer and its value decreased as a result. To combat this, Bezos made it his mission to transform the company from a mundane, marginally profitable e-commerce site into an innovative tech enterprise.

Ten years after its inception, Amazon’s code was riddled with inconsistencies and lacked coherence. Its infrastructure was being held together using makeshift techniques, much like duct tape and WD40. The daily struggle involved extinguishing fires and ensuring that services were operational. Amazon’s takeover of the management of Target and Borders websites added to the already existing infrastructure challenges. The solution to these problems was to focus on simplification. During this period, Amazon decided to revamp its technology infrastructure by moving away from bulky solutions and adopting a system based on modular and self-contained parts that could be seamlessly integrated.

Once internal processes and world-class operations were in place, attention shifted towards technology. Jeff Bezos was inspired by Steve Grand’s book “Creation” which detailed the author’s experience creating the game “Creatures”. This game allowed players to build and evolve life on their computers using basic building blocks. “Creation” also explained how to design simple computational building blocks called primitives to construct intelligent artificial life.

Amazon’s goal was to enable its internal teams to swiftly develop services that customers could use. To achieve this, Amazon needed to provide the necessary building blocks or “primitives” to its internal teams for creating these services. Jeff Bezos led brainstorming sessions with engineers to determine the list of primitives required. Each team was assigned a primitive to work on and develop. Amazon was on a path to be a true technology company not just a boring retailer.

The company’s IT infrastructure Manager, Chris Pinkham, chose one of the available primitives. They settled on a service that enables developers to run any application on Amazon’s servers. This service would later be known as Elastic Compute Cloud or EC2. With EC2, users can access unlimited compute power similar to what a personal computer or server would offer.