Amazon will go out of business ... if we stop innovating: AWS CTO
By Lum Ka Kay with additional reporting from Goh Thean Eu May 3, 2016
- AWS set to reach US$10bil in annual revenue this year
- But disruption can come from anywhere, says its CTO
[NOTE: The headline and second paragraph of this story have been corrected to more accurately report what was said. We apologise for the error]
ALTHOUGH there are no signs of Amazon Web Services (AWS) slowing down, its chief technology officer Dr Werner Vogels (pic above) remains constantly on his toes.
“Amazon.com will go out of business in 10 years if we stop innovating … in the digital world, competition is always around the corner,” he tells Digital News Asia (DNA) in an exclusive interview in Petaling Jaya recently.
AWS, the cloud computing services business unit of US online retail giant Amazon.com, has been one of the main drivers of its parent’s strong financial performance.
For the first quarter ended March 31, 2016, AWS posted revenue of US$2.57 billion (a 64% year-on-year increase), while operating income jumped by 210% to US$604 million.
For the full year ended Dec 31, 2015, AWS recorded US$7.88 billion in revenue, a 70% increase from the US$4.64 billion in 2014.
With such a strong Q1 performance, AWS is on track to hitting the US$10-billion revenue target set by Amazon.com chief executive officer Jeff Bezos.
At the group level, Amazon.com’s net sales rose 28% to US$29.13 billion, while operating income jumped 320% to US$1.07 billion. Its market capitalisation today is more than US$300 billion.
The secret sauce
Despite this set of impressive numbers, Vogels believe Amazon.com and AWS could lose their leadership positions if they were to become complacent and stopped innovating.
And disruption would most likely come from the smaller-sized players, not other tech giants.
“There are those which specialise in selling shoes, and those which specialise in selling clothes, and customers know exactly where to get the best deal, the best information, and the best customer support,” says Vogels.
“Hence for us, if we stopped innovating, it would be death by a thousand cuts,” he adds.
Today, AWS is by far the largest cloud service provider in the world. A Synergy Research report found that it is bigger than its four biggest rivals combined.
So what is the secret of its success? Besides innovation, the company spends a lot of time understanding what its customers want, Vogels declares.
In fact these days, even though the company has a sizeable lead in the market, he says he is still disturbed whenever he learns that a customer is choosing another provider.
“The only thing I do think about sometimes is why that customer picked that other service provider instead of us,” he says.
“Is it because its friends are there? You need to know that, because if the problem lies with us, it means we have things to fix.
“Competitor-following might be a business strategy for others, but not for us,” he says.
Last year, AWS launched 722 new features. Vogels says that these launches were only made possible through close collaboration with its customers.
“We really listen to our customers – what they have to say and what their pain points are.
“I think if we stop doing that, we would lose the advantage that we have really quickly. We will still have our big business, but customers will start looking for others who will listen to them.
“Listening to our customers sits in the DNA (deoxyribonucleic acid) of AWS,” he declares.
Amazon.com’s motto is to be the most customer-centric company in the world. The same applies to AWS as well, Vogel says.
Next Page: Cut from the same cloth, according to Bezos
From Amazon to AWS
Amazon chief executive Bezos (pic) once said that AWS and Amazon are “very similar.”
Although they are different businesses, “under the surface, the two are not so different after all,” he said, according to CNBC.
Vogels elaborates, saying that the same business model is applied to both Amazon.com’s retail business and AWS.
“Amazon the retailer is the principal company. Experiment, measure and learn is the way we bring things to market,” he says.
“When you think about innovation, you think about new things – but sometimes, the most effective innovation is about things that never change for your customers.
“So what are the things in retail that don’t change? The size of the catalogue. The larger the catalogue, the more likely that customers can find that thing they’re looking for.
“Every effort that you put into making your catalogue bigger, is actually helping your customers,” he adds.
Another factor that customers are always looking for is lower pricing.
“No-one ever is going to say, ‘Oh let’s shop at Amazon because its price is higher!’
“Anything you can do to drive your cost structure down, is going to help your customers,” says Vogel.
And finally there is convenience – how easy it is to buy things and have them delivered to you.
Vogels says that these factors were used to bring AWS to market, and argues that this was how the cloud giant turned around the traditional IT business model from being vendor-centric to becoming customer-centric.
“In the past, when you had to buy IT-related products, I always felt that the vendor was in charge,” he says.
“If I wanted to get the product at a lower price, I’d have to make a long-term commitment and have to write this big cheque upfront.
“We wanted to turn this around, so we made sure you don’t need a contract to use our services, there are no upfront fees, and [we promise] accessibility from anywhere in the world,” he declares, adding that AWS has dropped its prices 51 times since 2006.
The focus on customers also includes allowing them to drive your roadmap. “Every ounce of effort you put into innovation will benefit them forever,” says Vogels.
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