Happy 30th. Birthday - Amazon

How quickly time flies! On this day of July 5, 1994 a new start-up by a 30-year old Jeff Bezos (Graduate of Princeton Univ. plus a few years as a Financial analyst) decided to sell books over the Internet. The phrase e-commerce was brand new. The name of the company was Cadabra which sounded like Cadaver. So it was changed to Amazon. When the dot-com-bust happened, many such companies closed their business, but not Amazon. Bezos jokingly said that he spells profit as "prophet". This little company changed the world of online shopping.

Today in 2024, $554B worth of goods are sold by Amazon just in America, which is 42% of American e-commerce, far beyond the 6% captured by its nearest rival Walmart. On June 26th. Amazon hit another milestone - its market value reached $2 Trillion dollars, 5th. in value after Microsoft, Apple, NVidia, and Google.

What is the secret of Amazon's astounding success? Tireless focus on customers and its enthusiasm for experimentation. It spends more on research and development than any other company. I remember back in 2003, a meeting was arranged between me and the then CTO of Amazon at a Santa Clara hotel. He asked me a lot of questions about Service Oriented Architecture (SOA), invocable service, etc. When I asked why such curiosity from a book-selling e-commerce company, his answer was this - Bezos has asked us to see how we can monetize the enormous computing cycles that sit idle at their data centers. This was the beginning of the cloud computing business called AWS (Amazon Web Service). Today, AWS brings $100B worth of business with much higher margin than the retail arm.

As Amazon enters into its fourth decade of life, it faces some challenges. Its e-commerce business is slowing (after a hefty growth during the pandemic). Its cloud business AWS faces strong competition from Microsoft Azure and Google Cloud Platform. In 2022, AWS business was 13% higher than Microsoft Azure, today the gap is only 6%. It lags Microsoft in deployment of generative AI. Also the antitrust police is keeping a close eye on its bundled businesses.

However Amazon is a pioneer in innovation. Look at the list - Kindle an e-reader, Alexa smart speaker, Prime Video streaming, etc. It is also actively pushing new technologies in Self-driving cars (Zoox), Satellite communication in low earth orbits (Kuiper). It has invested $3B in Anthropic,an OpenAI rival. It has also kept a close partnership with NVidia while planning its own AI chip.

I think the new Amazon is all about integration. We have seen the e-commerce & video streaming via Amazon Prime. Now it is tying its Advertising arm to this bundle. Like Youtube, you can pay an extra $3 to have ad-free streaming. Prime has 300m members and they tend to buy more than the non-members. The Advertising arm generates 40% margin, higher than that of AWS. Amazon will extract more value by tying the retail business more closely to Ad units and video streaming services.

The Economist this week said, "..Amazon’s focus on its customers and innovation should stand it in good stead throughout. People often counted Amazon out over the years; in the build-up to the dotcom bust commentators nicknamed it “Amazon.bomb”, and many jeered when the firm launched its cloud-computing service. To dismiss Amazon again today would be a mistake".