Amazon Web Services
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People turns out love the amazon 点 com episode that was so awesome makes me a little nervous for this one.

massively by far away. Our biggest episode ever is this how George lucas felt when he was doing a high strikes back.

You did not just compare as the georgia as did you, I swear, were humble.

what?

do. Easy you, easy you you see me down, say welcome two season eleven, episode three .

are acquired, the podcast about great technology companies and the stories and playbooks behind them. I've been gilbert and i'm the cofounder and managing director of seattle based pioneer square labs and our venture fund, psl ventures.

And i'm David recently, and i'm an angle investor based in san Francisco cold syn Francisco here in August.

And we are your hosts. Are I David? Let's say you run, eliminate, stand. You sell me the highest quality laminate you can for the lowest Price, one dollar a cup.

And when you add up all your costs, the variable ones like the lemons and the fix ones like the table that you rented, IT costs about ninety eight and a half. Sense to give me that limited and you're happy you return to profit, i'm sure. But man, you are going to have to sell a lot of limited.

So you're telling me i'm amazon on a com in the fourth quarter of two thousand, one which is actually where we're going to start our story perhaps.

but you discover something interesting by making all this lemonade, you get really good at the stuff IT takes to run, eliminate e business, the perfect cups and ice and lemons, everything and IT. Turns out all that stuff that you just got good at you can sell to other businesses. And guess what you realize further that when you sell your services to other companies, when you charge them a dollar in costs, you seventy cents to make IT. So thirty percent margins instead of something like a percent to half, you have to sell a lot less of those services than you ever did unlimited to make the same way of money.

Well, then if he told me that I would dig into a even further, and I would realize that the existing companies that sold stands and cups and what not, they were actually making seventy percent margins on their states and cubs. And so I would be quite happy to take thirty percent margins and disrupt them and still do Better than my laminate business.

All listeners, of course, on our last episode that we talked about amazon retail business. And today we are talking about amazon web services, the cloud computing pioneer. And those margin percentages that I just used are the real ones for the retail business.

And for AWS. Aw s revenue is only about fifteen percent size of amazon's massive retail business, but their profits or the Operating income, to be specific from A W S, are in total the same, if not more than their e commerce store. I think it's the case that every year since twenty fifteen, when they started breaking out A W S S financials, the total Operating income from A W S has actually been bigger than the retail business.

There may have been some quarters where IT was off, but generally, that trend is accurate wild.

So we're going to talk about a completely different type of business today. And we talked about last time sort of there's a lot of similarities and a lot more than you would sort of guess when looking at an online retailer that started as an online bookstore and a cloud computing pioneer. Well, speaking of commerce, we have huge news.

You can finally, finally buy acquired murch on the internet that is available at acquire data F M slash store or click link in the show notes. You can grab your favorite t creek hoody tank or even a one zy. Since I know a lot of you out there are like David and have little ones at home. okay? Listeners, now is a great time to tell you about long time friend of the show .

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Yeah, so learn how you can put A I agents to work for your people by clicking the link in the show notes or going to service. Now, doc M H A I dash agents, after you finished the episode, comment, discuss IT with David and a eye. And thirteen thousand other smart members of the acquired community had acquired data m, slash, slack.

And if you're dying for more required in the meantime, go check out the lp show by searching acquired lp in any podcast player. The next episode is with David's partner in crime and category ventures, nat manning, talking about his company, kettle, and how the business of reinsurance works. That, of course, is already live if you are a paying lp, which you can become at acquired dota m slash lp.

Now that further, do David take us in? And listeners, as always, the show is not investment advice. David and I may certainly do have investments in the companies we discuss in the show is for informational and entertainment purposes only.

Well, we left off the amazon a 点 com episode in two thousand and seven with the sort of SONY playstation like kota of the kindle story and the new chapter。 One might say that IT seemed at the time to the outside world that amazon was opening as a true technology company with gentle. I believe the quote from arx mt.

In the everything store was the book guys finally got technology. Of course, as we talked to about jeff basis always got technology. This was not a shift, and in particular, this was not anything new because of everything we are going to talk about on this whole separate episode today.

So to do that, we need a rewind back, as I said above, to the end of two thousand. One can early two thousand. Two, the immediate post dot com bubble popping crash era.

And bao amazon, as hard as IT is now to remember, he was like an embattled C. E. O at this point.

IT just gotten rid of C O. O. jogi. The board has brought in coach cambell, amazon's fighting for its life against both ebay. And what is the insane .

to think that the board was sort of in the place with jeff basis, thinking, we really need some adult supervision to be a scale CEO and help this guy out fricking jeff BIOS, obviously, that did not pan out and BIOS came value tly, riding back in and around the business .

for twenty years, twenty years, until handing the rains to somebody else who are going to spend a lot of time in just a little bit here talking about, of course, current amazon C. E. O andy? Jesse, yes.

So I don't even know what the right word is to use to describe A W S. Was gonna. I wrote behemoth in my notes.

pioneer inventer.

I don't think there's anything you can say the captures how big and how important AWS is. IT is one of the biggest and most important businesses, technologies, products of the modern world.

Yep, no doubt I don't .

think it's controversial to say even much more so than amazon 点 com。

Yeah I mean, it's interesting during the pandemic, you could argue that amazon 点 come more important because everybody needs home.

everybody need to be internet and the internet runs on A W S. yeah. So today we're onna tell that story.

It's funny as we did the research. So there's no like everything store book dedicated to A W S. There are a lot of very desperate resources and stories out there. And there actually are quite a few conflicting and competing stories about what the true origin is of A W, S, you might say, has a cloudy origin. What we did there, he is true as we were doing the research.

You know, of course, David and I reboth of bread stones, excEllent books. I watched the P. B. S. Frontline documentary, which, of course, are a specific angle that they are trying to take on the company.

And you sort of read any of these amazon analysis pieces, there are like ninety five percent about the retail business and y'll talk about things like the relationship with employees and the big new york times times piece that came on twenty and fifteen, and we'll talk about the relationship with the warehouse workers. Or is this good for the world? And everyone indexes on that, which is important and deserves all the attention is got. But almost none of these spend the material amount of time on A W S, other than mostly at apocrypha ounds story, which is not even really how IT happened.

So we identify your referring to one origin story of A W S. We identify not one, not two, not three, but for separate origin stories. And we're going to tell them all here.

I think there is something important to learn about what A W S. Is and about amazon and about amazon culture in all of these. So let's start with the first, and most obviously untrue one, which is ironically also the one that the lay person believes the most.

Yes, because it's tempting. I mean, it's like an oh like it's too convenient.

yes. And that story is the excess capacity narrative. So the way this story goes is that right around this time, two thousand, one, two thousand, two, two thousand and three, amazon 点 com。

The retail business, like all retail businesses in amErica least, is highly season. They have huge Spikes of traffic and demanded and cute for for the holiday shopping season. And that's when most of, maybe not most, but the largest share of any quarter revenue happens in you for so .

much so that for the first at least five years of the business, there was a rule in november in december that you could not commit new code to production.

That's right.

IT was so all hands on deck that no new features were allowed unless IT was a red flag bug fix or when .

we didn't talk about this in the amazon a com episode. De, but for years and years and ears, the executive team and the business side of the company and the engineers, everybody would go work in the warehouses in .

q for that a customer service. Oh, how times of change can you imagine someone sitting down and day one north a dopper being told that they've to go pick impact for a while?

I think for a while they continued to do IT, even when IT wasn't necessary, just as like a culture thing. But obviously, those days are gone now. So the urban legend is that because of this dynamic, amazon had this brilliant realization around them again, when they're trying to achieve profitability, that they had access technical infrastructure capacity in their I T.

Operations during quarters one through three. So they had to build out for the peak demand of q four, all the traffic on the website, all the transactions heavens, but the rest of the year, all the capacity was just sitting there. And so they decided let's rent out that capacity to other developers. Brilliant, brilliant. We are going to turn a large expense line in the business into .

a revenue magic. And of course, this fall down in two enormous places. One is if you've ever been inside a free cloud technology company, you know that IT doesn't work that way. Yeah you can just say like oh cool, like the servers aren't in use right now and there's nothing highly customized about these servers and they're not tightly coupled to our applications in anyway.

So we'll just make IT so that anyone can very easily just run their applications on IT and there's enough security set up correctly so that anyone can just get access to our data center and the network card were sort of understands how to serve other tenants other than us. None of that existed and none of that was true. So there's just no way you can be like, oh yeah, other companies should started using our infrastructure. And IT was pretty .

rippin replace in a preclinical infrastructure world 的。 You installed your software, your code base on your servers that you owned the amazon, that com code base was literally installed on a bunch of boxes that they owned. You couldn't out the capacity .

until two thousand. They were servers from digital equipment corporation deck. They were decked alpha servers.

These were unbelievably high margin servers that you, I believe, least from the manufacturer, was the same business model that IBM had forever, an oracle has or had forever where you get this highly bundle hardware, software platform that you would use to run your applications and they would make eighty percent cross margins on these things. There is a massive markup. They were monolithic.

And to be honest, the thing that really changed all this was linux. When linux came out, and you could do the stuff that you used to need unix workstations for on an open source Operating system. Well, then everything change because you can go buy a whole bunch of different hardware, put linux on IT and then write your own applications.

And so this laid the ground work for maybe infrastructure doesn't have to be as insane, expensive. And all the profit polls from all of this infrastructure don't have to be captured by, say, a deck or an oracle or an IBM. And this would lay the ground work for a lot of things to come, including Frankly, just saving amazon as a company. I mean, in two thousand, they almost won a business because they were so tight on cash and they were spending so much on infrastructure that this sort of move to the open source o system in doing a massive rewrite of all of amazon outcome to run on linux and run on this. They did this big deal with hp, run on hp servers.

right, rather than deck .

that Frankly saved the company from a cost perspective during that really tight time.

But that is not virtualization cloud servers, not what we're talking about. What A W U S. Here's the other reason why this excess capacity myth is a math.

How is amazon supposed to serve their aw s customer if all of them are on excess capacity during q four at all? Like let's say i'm netflix and I just took a dependency in all of my streaming is happening on AWS is amaze just going to tell me, I can't do IT during q four when they need .

the servers is ridiculous no holiday movies can't watch die hard to Christmas.

Uh, so IT is a very convenient narrative when someone's trying to solve the puzzle of how did this internet retailer turn into a real technology company. Oh, they had all these extra servers dispelled.

So the best and final word on this that we have to put here, because IT literally is from part of the horses mouth itself comes from Warner vocals. The at the time A W S, C T O, now C T O of all of amazon who wrote flat out in a quora post in twenty eleven, quote, the X S capacity story is a myth. IT was never a matter of selling access capacity. Actually, within two months after launch, A W S would have already burned through the access amazon 点 com capacity。 Amazon web services was always considered a business by itself, with the expectation that I could even grow as big as the amazon a com retail Operation maybe may be.

The other interesting thing to point out is he doesn't give amazon enough credit about their intentionality. Yes, and strategy is short.

Sells them on.

Yeah, they had this extra capacity, this cost center that they were using. Well, two things. One, technology was never a cost center for amon.

They ever looked at IT like, oh, we have an IT department. They always thought about themselves as a technology company. So I was always thinking about, okay, and eighteen months more laws going to make IT.

So we have twice as much compute what crazy cool stuff can we do with that? They always looked at technology as an investment, not a cost center. And the other thing to your point that IT sells them short on is as if this wasn't an intentional strategy. This was an incredibly intentional strategy and a brand to business school case study type laser focus on an emerging market that they had reason to believe that they could create.

Okay, that's origin story number one. Origin story number two. We're going to get into this a lot more. And you can really realized before diving into this the depth of innovation of what A W S. Was and what amazon was doing and let them to IT is so beyond anything else that is happening at the time, this is a true fundamental innovation. So remember from the kindle kota vin yet how he was one of those crazy stories of that who is responsible for the inspiration for the kindle and had turned out IT was tesla found her Martin ever heart crazy?

He invented the first e reader that wasn't quite viable yet, and tried to sell to amazon and tried to get investment from amazon names on, said no. Well, till the world shifts a little bit different, technology is actually something we can right, rather than funding and potentially having competitors used to. And of course, that would be a few years later, and amazon would create the kindle internally.

So there is a similar sort of figure involved in inspiring the vision for A W S. That is tim o. rally. And for anybody of a certain, you certainly remember the alala programing books, the ali conferences, and in particular for me. And they wear the organization, and tim is the leader, the organization champion, the whole idea of web to doto.

for sure. I mean, I remember first reading, I think, the P H P book that they put out. And then when web tude, I do this sort of idea, you know, I can consume on the web, but also I can post on the web, and that sort of LED to social media.

And one of the key enabling technologies and all that is ajax. And I ever reading the o ri aex book of how I can use what is that, a synchro java script and XML to make dynamic way pages without needing to refresh. That was truly magical at the time.

And there were a few more tenants that they started, defined as what web to that to meet. Part of IT was in opposition to web one doto, which they considered static. And a web two doto was dynamic like your same.

But that wasn't all of IT. Another huge part of what they meant by web two doto was what they called participatory culture and interOperability. And they meant that both users on websites could interact with the websites, flicker, you would upload your photos, you would interact and change the website. The google maps, of course, was such a canonical web two doto project, but even more than users interOperate and interacting with web two doto sites with other developers. Remember.

mashups been like mashing up aps.

yes. So web two dots, o mashes were such all the rage. And google maps was like a core part of this. People would take the google maps A P, I, and build all sorts other websites using google map date content. Underneath the IT or flicker had an API was API IT was interOperability IT was anybody can access its democratizing what we've built totally.

It's so funny to hear all the cypher to people today talk about composition order. I feel like the old man yelling from trigger get off my lawn person. But IT is very clear that people did not experience the two thousand and six to two thousand and ten era of the exact same promise.

But instead of smart contracts or composition order on block chains, people were sing. It's a restful A, P, I. IT has crowd Operations, create or read or update or delete things on a service.

So if you're a authenticate, then you don't need to necessarily use a web U. I. You can just use of the API, and you can upload a photo programmatically, or you can fetch your entire list of tweet programmatically. IT was like all the web, instead of being in the pilot applications, was magically free for data to sort of move about in a utopian way, without anybody's capitalist intentions getting in the way and cylink the data alder themselves.

So in the early days for this, he was early two dozen to tim flies up to seattle and meet with jeff basis. And the reason he wants to come see jeff, they've had a sort of checkered history in the past to array, has not always been the biggest fan of amazon. He's a book publisher, obviously, so he has some feeling. But he wants to make the pitch to jeff that amazon should embrace web to doto and transform amazon that com into a participatory website.

And this is a great idea. Being a web two point of company means that you can do business with other companies without needing like A, B, D agreement in place. You don't actually need a partnership agreement.

You basically can just publish your A, P, I. You can say pay as you go and here's how you pay and here's how you get in account. And we can shut down in your account if we need, but you can get A P I, access to do business with us programmatically through this application programing interface. And it's great maybe known and or two companies will ever even need to talk to each other, which means you can do business with thousands of companies out. There are not just a few that you're b people Cherry pick.

yes. And jeff totally get that. He gets this in so many ways. Everyone, I come. Has this obvious business use case for A P S. And allowing other developers and other websites to access data in content from amazon 点 com， which is they have a giant a phillip program that's called the amazon associate program.

And they've got a catalogue of every uniquely identifiable product in the world, certainly in the media space, but at this time, growing in the many other is too. So would would, would be nice to access that authority catalogue. E, to fetch image and display that image on my web. I, D, to tell people, go.

are for both of us.

if I can do that.

So after this meeting, jeff is two things. One, he completely embraces this idea, tim, and a ri. He invites him up regularly to seattle, has him speak at all hands within the company event alizad.

This idea of web two tito and A P, S within amazon too. He starts a new team within amazon to do just what tim is suggesting. They build A P, S.

That let any website developer plugged into the amazon dcom product catalogue do everything you just said then and the stated goal and mission of this team is to make amazon a APP available to developers and quote, let them surprise us with what they build that same year. You know, this is same as on they move fast. They hold a conference for developers in two thousand. Two, a total of eight people attend the conference. They announced to the world the launch of this new division within amazon that is called amazon web services.

So to your point here, this is not an important thing in the world yet. Amazon having a developer conference with the people there. You look at reinvent now, and I think he has one hundred thousand people who watched ed. The keynote. Very different world.

yes, very different world and very different product. This is called amazon web services, but IT is a hot cloud based IT infrastructure. Its other developers using the amazon 点 com product catalogue， and indeed, IT lives amazon web services lives within the amazon associates program.

And that is run by a guy named Colin buyer, which is very, very fun, because Colin goes on to do many things, including recently coauthor, the book working backwards, which is a great book we used for a source of both the episode and the previous epsom on is that come? But for now, in two thousand and two, Colin technically becomes the first head of A W. S.

wow. And that was just within amazon associate at this point, because the whole point in this origin story, the scope of the ambition of A W S was to make available assets of amazon dot com two R R A philotas to amazon associates who want to basically fetch images and items from the catalogue and have that information passed along when someone purchases something to share arriving. That was the scope of the ambition based on where he lived in the new orange zia.

Now all of that is absolutely true. There is no element of myths, falsehood to anything in the second origin story here. And that will start a transition from number two to number three together. But what I think is so important about number two, even though IT leads to A W S, that is the creation of A W S, but not the A W S. We know in love, but it's this idea of when two doto and A P S, that really starts to take hold, at least in jeff baas is mind.

And we have not once in this story said the free cloud computing or the cloud. We've said web services. And I think people today have heard A W S so many times that they sort of forget that it's a little bit of miserable IT still called them and is on web services. But the vast majority of what is happening when customers are paying the luter amount of revenue to amazon to access AWS is not web services. IT is not these restful A P, I N points that you use to fetch .

post information. Fun suburb. Do you know the origin of the term cloud as applied to I T. infrastructure?

Oh, I do not.

This is so cool. IT started at general magic. really. yeah.

How crazy is that? The apple .

spin out that invented the iphone twenty years before the iphone as part of what they were doing, they also wanted to have of the internet s sort of barely existed. So I don't think they thought of IT as the internet, but a distributed, always accessible back and I T infrastructure for all the services that we're gono na be on the mobile device. And so they started calling what they built for that a cloud infrastructure that the devices could access.

General magic was a pioneer in so many ways.

amazing. Such a pioneer OK. So back now to amazon, launch amazon web services web to that to you know pop up like that, cool.

But that's not what anybody is really focused on amazon. They're focused on. There are a lot of problems within the company.

And are you believe the biggest problem is that the code base of amazon a com, that shop designed five, has been an amazing, you made so many great technical decisions that we talked about on the amazon dcom episode. He designed IT for how websites were built in one thousand nine ninety five, which was small teams, not at scale. And monoliths often are code bases. Everything we talked about in the beginning of the episode of amazon, that com, at this point when it's now, you know, a multicultural billion dollar company is running on one monolithic software, copes.

Yeah, I do know after talking with some folks who are early amazon on engineers around the summer time, they would start looking at what is the server that would be available on the market going in the q 4。 That is the baddest s thing we could possibly buy, and they would just buy the most expensive zoot up server they possibly could from decker, whoever else. And they would just try to make IT through Christmas.

Yes, amazon would do code freezes going into the alias. And think about this, this is just so far until everything we think about with technology companies in how and how things run is all thanks to A W S. You had to do a code freeze head into the holidays because as you were adding new features and new elements and new teams and memory, amazon, at this point theyve got a nine.

They're working on search lab on twenty six is just kind of starting up getting going. They've gone all of these teams, huge numbers of engineers and product managers that are building features, adding features, needing to access various parts of the site. Anytime you add one of those to the monolith software code base, IT could break everything.

yeah. And so you had to do a code fees. And IT gets to a point where member m zon as a company now is trying to focus on profitability efficiency. IT gets to the point where the company is literally grind to a halt. There's a lot of good stuff in the working backwards book about this, about how hard IT became to get anything done and built amazon because of this ratings of complexities involved on the technical and infrastructure said.

And as we're articulating problems here that we're happening, one of them is, of course, you're going to tip the server over if you add an additional complexity. The other of which is amazon is doing the amazon thing and they're trying to enter new businesses and new categories.

They're trying to grow and they're trying to grow because the way that they've designed the business, as we mentioned in the last episode, the cash flow dot com idea where they are spending supplier money to grow before they're paying suppliers basic, they're investing the float in growth. So they do have to keep growing because they have bills coming due. And so they're continuing to look for new categories to expand into their look around.

They're seeing competition everywhere, so they just trying to get big fast. So you have the issue of what we don't, anna, come in your code and tip the server over, which of course, means you can't launch these new businesses. You can continue to grow and you can't bring on more customers because more customers is more traffic, which is also gna tip the server over.

Let's just take one incredibly illustrative example in the marketplace business. When amazon figured that out, that was transformative. That was high margin revenue.

That was how they competed with ebay. Well, technically, to do that, they had a rearchitects, held the bay button, worked on the website. Now imagine, with a monolithic software code base, what was involved in that you .

just get so slow in your actual software development and therefore a slow to ship and therefore slow to innovate because you're afraid of, uh, h, what did the other team commit to the code base here? What does that assume? Can I trust the contract that this function had is still true? Or did someone update this function in a way that was tightly coupled to the requirement that they had for their thing before? You know, IT, the code is making a bunch of assumptions all over the place. And if you go try to change anything, it's also brittle that you basically need to talk to people, a bunch of people, before you're ever edit in code because you might break something.

yes. And this is not just him, as on this is every internet company and the first companies to get to this kind of scale. Or like was he was this time there were no internet companies of this scale before.

And everybody is realizing you run into this brick wall just from a complexity standpoint. When you reach a certain scale, this is a huge problem. Jeff is so focused on this.

And not only jeff, his new assistant at this time, is focused on this, his new technical assistant, his shadow, who is at this point time, andy, Jessie, who is the first. A lot of listeners maybe don't know about this, but anybody familiar with arizona who worked with amazon, a knows deaf shadow. That's a legendary role to have.

which was a microsoft thing before the gates. S, T, A was sort of the blueprint .

for this right technical assistance. M, exactly. So the reason that Jessie becomes jeff s.

First shadow is Jessie. He was the harvard NBA. He had been a product line launcher he'd launched to music for amazon. He ended up in the marketing department after that.

And then two thousand and two thousand, one that com crash amazon access the marketing department because or I do IT that anymore, we're going to get profitable. And Jesse was going to get laid off with the whole department, but jeff like them. And so jeff said, i'm going to save handy.

Wow, he's not gna get laid off. I going to find some time to do while we're figuring this out. Let's take this technical assist, an idea for microsoft. He can come be my shadow and he creates the role for him .

and and his background is not technical. Up until this point, he becomes the technical assistant. He's brilliant. But he came in as one of the mbs, who was a category launcher when they were figuring out. Music and electronics and all these different verticals that they were going into.

I can't member which one to andy launch, but he was the launcher music music for one of those. And I think fairly recently, like within the last five years before this, he had considered a career in the sports industry. Oh yeah, he wanted to be a sport cater. Yeah, he's like a well known sports, not has this basement trick out as a sports part and almost took that career path. So we're not talking about a distinguished engineer at the amazon whose taking this technical adviser role because they're this technical luminary is a really smart guy who's just a very malleable fale person yeah.

IT was just an excuse to keep handy in the company and give him a job. But this is now the biggest problem in the company that jeff has focused on and the andes focused on. And this is where all these threads come together.

I'm just kind of in all thinking about this. If I were looking at this problem of my technical, you know, infrastructures going to a halt, we can't shift anything. Communication is so hard in the company.

The natural thing to do, and I think what most companies, what do and did try to do at this point time is okay. We ve got to improve our communication. We need Better coordination loops, more communication, tighter communication, more coordination between teams.

We need to build out our engineering management discipline here. We need to build out our processes. We're going to get really efficient to be able to solve this complexity chAllenge.

And at microsoft, when they encountered this problem a decade or too earlier, they invented the program management role. That was basically the responsibility is IT was too, for that was there are not enough unicorn people out there who are tennessee velocity ers and also unbelievable sort of communicators. And so we'll just hire communication mouth pieces for the ten nex developers.

We can recruit these four sigma IQ engineer type people, typically terrible communicators. And so let's just attach A P M every dev, or A P M every two to five death. And that way they'll have communication associated with what are doing.

All the P M can talk to each other and they can figure out what's happening between these two teams. And then they both go, right, specks and engineers right there, engineering documents. And then, boom, we're after the races, and the pms can just keep talking IT out to make sure that we're all in the same page.

Now I don't know this you make because you were one of these people.

That was my job. Yeah.

great. Was the microsoft P. M. Program, program management product manager. But was that the origin of the modern silicon valley product manager?

IT is specifically the origin of program management. Microsoft considers product management a marketing function, so it's owned in the marketing organ and is much more good to market oriented. Or as microsoft program manager is in the engineering work, it's on the same comp later and same promotion letter as engineering.

All be a fun, maybe special to do with somebody of like, let's trace the history of P M. In tact and let's be .

specific about what the peace stand for there, since I can be very different things.

Yeah, yeah. okay. So that's what most companies would do, even incredibly successful, brilliant mark companies and founders like microsoft, bill gates. It's that, that is not what definitely decides the 地方。

How about less communication?

How about no communication? So this is where the tim ali web to doto influence comes to play in such a bigger way for amazon and for the internet. Jeff has been exposed here in andy two as as T.

A. To this concept of web two doto, this concept of A P, S. And jeff tice makes this incredible leap and says, we should use A P.

Is internally. And if we make everything, a quote and quote, harden interface was the amazon term for this hardened A P, I interface. We can blow up all of this.

We're going to say no communication. You cannot talk to anybody. Everything you do internally must be done via A P.

S. That than anybody else can access whatever they want. They don't have talked to you.

IT makes sense. I mean, if you are thinking about your company like an entrepreneurs organization, or perhaps Better put a group of individual startups all Operating in a very simple entrepreneurs way, well, then you kind of should think about them as separate companies. And of all these startups s out there communicating with each other without A, B, D person, and they are all just paying in each other other's A P, S. And commerce is flowing and things are getting built. Maybe that's the right internal model two for the modern next generation type of company.

Academically thinking around this was in process, but I think amazon is really the first company that did this in practice. This time is to be called service oriented architecture. So instead of a monolithic code base software architecture, service warning into architecture is this, every small team, every individual feature, is its own architecture, completely separate from everything else.

It's worth teasing out. One is a sort of human cultural thing, which is basically trying to reduce the issue of mecca's law. Or every time you introduce a new person, there becomes an n square relationship to all the people that they could communicate to within the organization.

So this is like an expansion ally. Worse issue as more people join the company is so they sort of this like cultural element that you're talking about there. The services are in the dark tecture thing is sort of the engineering counterpart to that same mental model of, okay. Well, now we actually are going to build each one of these things as a completely separate application that then all interact to create the user facing thing.

Yes, the A P. S. So there is a legendary general post about, this is one of the top all time post in the history of the internet.

This the Steve gi.

this is the Steve eggy rant, then google engineer at the time. This post happened much later, but about this period in time at amazon, he had been working at aames on at this time in the move after google later shout out to jeremy diamond, yeah, in the acquired slack for reminding us about this.

The body is, thing is the way that this got public, by the way, is he was at google, and they had just launched google plus. And he meant to post IT internally, but IT turned into a external google plus public thing and obviously went viral, because if you hear this person meant to email their own international organization, and instead they leaked IT out on the internet, because the product is so poorly designed that this person who was working on the product could not determine the difference between internal posting and external posting, that is just like catnip.

Yeah, the mental story to this post is just as good as the actual post itself. So Steve, in this piece he starts off, and I just illustrates the difference between google culture and amas uncultured. Clearly, he starts out just bashing on as I culture.

They don't care what he talks about, the hardened interface, the data's zon thought about things he talks about. I don't think we mentioned in the previous episode rick was an army ranger before going to work at walmart, and that he would just terrorized everybody, all that developers and he himself was a harden interface and name. Amazon is so terrible and basis is so terrible and they're so mean and blab a this but it's all just a warm up to the main point of the post, to which is where he says, look, amazon get everything wrong. We'd Better at everything in google. But there's one thing there's one very, very, very important thing that I was on kicks are acid and it's this and I think this .

is like twenty ten ish to anchor this time period .

yeah ten IT was one ever google plus launch. So I feels about right stewards that jeff and andy and I was part of this sent a memo to come was a big Mandate. And quote jeff's big Mandate when something along these lines, one all teams will hence forth, expose their data and functionality through service interfaces.

Two, teams must communicate with each other through these interfaces. Three, there will be no other form of the process communication allowed, no direct linking, no direct reads of another teams data store, no shared memory model, no back doors whatsoever. The only communication loud is via service interface calls over the network for IT.

Doesn't matter what technology they use, H, T, T P, cobra hubs, sub custom protocols, doesn't matter, doesn't care. Five, all service interfaces, without exception, must be designed from the ground up to be exterior able. That is to say, the team must plan and design to be able to expose the interface to developers in the outside world, no exceptions.

Six, anyone who doesn't do this will be fired. Seven, thank you. Have a nice day.

And he's like, of course, for everybody who used to work. The aim is on, you know, he didn't say thank you. Have a nice day because he so mean.

And this is crazy at the time. If you think about this sort of edict, I remember building web applications in the late two thousands. And if you told me, and of course, I was writing PHP and Carrying a mycal database, and if you told me, oh yeah, you can't curry the mysore database even though you have access to IT, and even though it's owned by your company, you instead have to use this API, i'll go pink, this web service, which has permission to directly interact with the database, I be like, what are you kidding me? But IT be so much easier for me to just, and the answer is no.

you'll be fired. It's about either we thought a lot about in this episode, how do we tell this story for non technical members of our audience without getting too much in the technical weeds? This is all pretty technical now, but I don't think can avoid IT.

This is so important. And the context here is like, let's zoom back out from the resorting and the architecture and A P. I mall. This what's really going on here, what's really going on here is this is the beginning of focus on what makes you beer taste Better.

All of this junk were talking about all this technical junk, IT s technical junk from the perspective of what actually matters as a business. What matters as a business is the customer experience and new features, customer says, faction and revenue and profits. And all of this junk was getting in the way.

And so this is where jeff has this realization of. None of that makes the beer taste Better. So let's standardize, get rid of all communication, A P, I S size, all of that. And then everybody here can spend all of their time just focusing on new features to make the beer taste Better on is on that.

yep. And the other thing that IT is, is a very amazonian concept of documentation. So of course, they start all these meetings with the six pages and the P, R, F, A cues where we're not doing powerful points sides. We're just sort of working backwards from this document of what the customer actually experience. A are a heavily documentation oriented way of computing.

When i'm hitting your A, P, I and point, there is a strictly documented set of requirements of things I can send you and ways in which you send information back, whether if I will like to communicate directly with your database, you and I can have a little conversation. You can tell me like, oh yeah, that field we kind of stop using for this purpose and started using for this other purpose to just keep that in mind. There's no keep that in mind in A P.

S. There's when you hit this thing, you will get that thing back. And so IT brings this true precision hardened belief in the way in which that thing we've respond when I hit IT, that is documented, and you must keep the documentation up to date with the way that actually performs.

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right? So we're in story number three at this point. One is the apostrophes sextra hardware relying around.

Two is this idea that timer rally brings up web two point no and A P S. And so they start working on the is on associate. A P I.

Three is really this idea of, okay, the organization is moving too slow, and a way to speed IT up internally just for our own step. One internal use case is make IT so that the teams communicate with each other via P I. But once they start doing, and obviously before Steve e.

Gay rights has rent and publishes on the internet. They start realizing, okay, there are parts of this where they may make sense to start being external facing because once we get this stuff right and we've toiled around in the darkness so much trying to get this stuff right, and I don't think it's helping our customers at all. Maybe there are other people out there who are experiencing the same kind of blunt force trauma just trying to keep their infrastructure up and modern.

There's one more small compared to the big ideas, but kind of inevitable as things we're going, but one more leap that we should talk about that happens here. Everything we just described so far in A W S origin story number three is related to software engineering and the amazon a com code base. But what A B U S is is abstracted hardware, I T infrastructure and software to, but like s three, easy to that I T infrastructure.

How do you get from transforming your software architecture to, oh, now I need cloud I T infrastructure. Well, it's kind of the same problem is an inevitable outcome when you transition your software architecture to the service oriented architecture and no longer a model of the code base. You know, I used to centrally plan, like we were talking about.

We can ship these features at these times, and we need a code freeze at that time, and we need x capacity, and we can forecast that and we can look out into the future. Now with this, you've got all these distributed teams doing, god knows what, without talking to anybody. IT can centrally plan anymore. So what name is unrealized is they need to do the same thing with I, T. That they did with software engineering, which is transformed also into an A P, I accessible pool of computing resources versus i'm giving you this server and that's what you're got and you're .

talking about just internally. If all these teams are hit each others A P S internally, then yeah, there has to be some dynamic way that if a whole bunch more loads starts coming in and you weren't told about IT, you do have to be able to spin up the hardware to end of that.

And it's brilliant of like, well, let's just make that in A P, I to we in place an A P, I call into I T. They have a pool of computing resources.

but much harder than that sounds. Yes, oh yeah, I T can just become an A P. I.

This is a multi year journey for I, T. At amazon too. Of course, IT wasn't like basis to send the email that Steve gigi described and everything happened overnight.

Yeah okay. So what you're telling me that is basis gets excited about this. Jesse starts working with them on IT. They're basically translating this idea. The first little nugget that you planted is we should make sure that all of the A P, I S that we were making available internally, we should sort like design them in mind as if they could be exerted, consumed at some point. But you haven't yet told me, how does some commercial offering eventually become available and what is the commercial offering to third party customers.

right? So we're knowing mid two thousand three, this has been this huge transformative project with an amazon over the last eighteen months. Jesse's been working a lot on IT as just ta and just like, okay, andy, it's time for you to go back out into the company.

You're done being my T A. gogo. Become a leader of something within the company.

It's almost like an echo of jeff and David shop the shop thinking together like, okay, andy, what are you gonna? What's a new thing you're going to go lead within amazon up? And he's probably happy he didn't leave amazon, I think. And they come together to this idea of, well, maybe there is an opportunity to take the A P I based I T infrastructure that we're developing here and offer IT to third parties. So the legend goes, and he puts together a six pager.

And this is the official amazon legend. You can read about stuff on about amazon 点 com。 Yep.

it's an official azure. Documents know everything in amazon happens in written narratives. In six pages. He writes the six pager.

Famously, he has to tinker with the margins and adjust them to fit everything on the six pages. He can't fit financial projections on there. So there's no financial projections in this document.

And then he White boards them out on the spot in the meeting with the S. T. Human, the board where he's proposing this big grand vision to take over amazon web services.

We launch IT with this new vision of being cloud I T infrastructure. In the document there is an S A proposal to hire fifty seven new people to go pursue this initial. Andy talks about his so nervous going into the meeting.

This is A A huge career moment. He's asking for fifty seven people. Nobody ask fifty seven people.

It's a bossy move. He's risking everything. And jeff loves that.

Board loves that. The s team loves that. He gets approved.

And I think all that actually happened or happened in some way, shape, perform, andy, literally. We mentioned collin breyer, who was running A W S. Until this point.

Andy and collin swap places. So andy goes in. Takes over A W S. Colin becomes jeff next shadow.

Oh, I didn't realize that. Andy, you right away took over the publishing of images. V, M, S, on associate A, P, I, that sort of flooding A W S.

Either that happened or this is part of the amazon corporate history, hand waving. And collin becomes to have shadow. He then goes on to run I M D B when amazon acquires I M D B.

And then later he would leave amazon team up with bill carr, who ran prime video. And then they write, working backwards. I can realize this. This is brilliant. They now have a consulting firm together as part of working backwards to help companies implement the amazon culture.

Great, perfect.

Freaking brilliant. So acting, andy, he gets approval, can hire fifty seven people. He recruits adam, clip sky to come in, join company. Adam, of course, would later leave A W S to become sea of tablet and is now back A A W S, where he is now C E O of A W S.

So I watched every single reinvent keino to there for this, which I will tell you that is a lot of I T conference keynote watching and the most recent one is adam slep sy. And it's like ten, eleven years of Jesse up there on stage and you finally get a different voice and it's a little bit daring, especially when you're main lining them all back to back when it's suddenly not andy, Jesse. But yeah, adam is the guy now.

yeah. Do you know who else was in the first way of external recruits who come in to join A W.

S. I do not.

jeff. Loss in.

Oh, no way. The C E O, tWilly o.

yes, wow. Which totally makes sense, that tWilly o would come out of A W S.

yes, of course.

So yes, I think all of this really happens. And he does write this dog. He does take over A W S.

He absolutely builds and leads A W S. From what I was, which was very different into what IT is today. But I think there's a little more to the story too.

It's a convenient narrative and it's also a little bit odd that this sort of idea could come from someone who wasn't in the muck.

Yeah it's actually really good interview that andy does with the harvard I lab in twenty thirteen that's on youtube.

They are talking about the origin ova W S I think the topic is entrepreneurship at companies which uh my god, the most disgusting word of all time but andy in the talk is like, well, I know we have to decide, you know, part of the vision document and the discussion around the how do we launch this? Do we pick just one service, one kind of I T primitive and launch with that? Or do we put together whole bunch of things and long all together? And he says what they ended up doing was they got a tiger team together of the ten best technical minds inside the company, and they deconstructed all the major web services, web applications of the day he was on to come itself.

Google, ebay, all the, he doesn't mention them by name, but I assume the other big web services of the time, big web applications, and then figured out what you would need to rearchitects those services based on this new cloud I T. Primitive infrastructure. And so they come up with a list, they decide you need storage, you need compute, you need database and you need a content distribution network. Like what economy was to be able to recruit any internet service of scale?

I love you say, was like what what I was yeah story .

for another day, perhaps. So they decided, you know what, we can fulfill our promise to developers of you can build. We have applications of scale with us unless we launched with all of those services.

So we're going to build them all. And that's why we need fifty people. Andy wood later say the great quotas is absolutely true.

He says, if you believe developers will build applications from scratch using web services as primitive building blocks, then the Operating system becomes the internet. And that some true that to what A W, U. S. Is today still going to launch with everything they need to build a whole creating system? This is where the official narrative just completely falls apart because that is totally not what happened, not even a little bit.

nope. And in fact, I can recall personally using amazon s 3 for something I was working on， and there was no E C two.

yes. So unlike myth number one about A W S origins, you couldn't just take access amazon 点 com IT externalized IT。 They had to go build all this from scratches, external services. IT takes a couple years to do that for everything.

And in fairness, you know maybe in defensive the official narrative that do you start working on all of the sweet of services all at once and IT just takes a while to get them all built. That probably is true. But yeah, s three is the first service to launch by itself in march two thousand six. And let's talk about IT.

IT wasn't an independent useful thing. So s three, simple storage service. It's a place that is available on the internet. You don't have to think about where IT is.

It's in the cloud and you can dump images there if you're an application developer and then elsewhere from your application or other applications or no applications, if you just want to access the image directly by U R L, you can access and its not just images as anything that you want to store up there. And it's this wonderful, magical, amazing thing or I don't have to buy a server, I don't have to configure server, I don't direct a server. I don't have to think about me intAiling a server and I only pay as I go. And IT is insanely cheap.

yeah. S three launches in march two thousand and six. E C two launches a few months later in August two thousand and six, I think in beta in August two thousand and six.

And what is E C two?

E C two is elastic compute cloud, which is the computer counterpart to the storage part of A W S N S three. And a simple way .

to think about E C two is, if you were aware, application developer at the time, like I was, and you are writing stuff, and you were sort of running up on local host on your computer, and you had previously been delaying IT to some server at a data center that you can tell that to and paying, and see IT had an I P address. You could basically spend up in E, C, two instance and treat IT kind like that, except you didn't have persistent storage associated with that. You could think about IT like a computer without a hard drive that happens to live in the cloud and is yours until you stop using IT.

It's your processor in the cloud cloud front, which is the content delivery network, the cdn, the aci part of the puzzle piece that launched in two thousand eight and the first major database offering, R D S, the relational database service doesn't actually want to until two thousand nine.

And importantly, R D S IT wasn't like you just start using R D S. And now you don't have to use any the stuff you've been using before. R D S would run the database that you are already using.

So I can know if you actually launched with post gress, but assume your Normally self hosting post grass on your server, or you have a separate database server that you're used to running that runs post grasp. Well, now you use R, D S and a rus postgrads and all your course work. And you can treat that like a your own day, a server.

So that sort of the most obvious crack in the official narrative of the A W S origin, which brings us to the fourth origin story of A W S, the, uh, dissenting narrative, if you will.

At this point the compass in stories number one was like one hundred eighty degrees off. And then in story number two, I got nine degrees off. We're fine tuning now. Story three is basically right, but probably doesn't just include the full set of people that could have been written into the narrative.

And I think story and before is basically right. Two, but three and four kind of the .

same success has many fathers yes.

concurrently and separately to everything we just said in story number three and the Jessie working on jeff T A. On this big problem writing the vision dog, the business plan in all that, hiring fifty seven people in two thousand and three, a network engineer had amazon named Benjamin black is working on the I T. Architecture transition that we talked about.

And he's working with Chris pincus, who is his boss, who in fact overseas, all of network engineering within I T. At amazon. And Chris reports to rick doz, l 的 C I O of amazon。 So the two of them, Benjamin and Chris, they read a six pager about how they actually are going to restructure the network engineering part of the I T architecture to the new model that the company is moving to. And at the end of this document, supposedly they mention that with the architecture that they have in mind, amazon might actually be able to use that same architecture to sell virtual compute services as a service to third party developers. And indeed.

amazon could do that. Now here's where things get murky because that document definitely does exist, this idea that most civil focused on, here's how we're gone to execute our plane and also we could sell that infrastructure as a service. Here's where ben black and his blog post on the subject and then a future interview sic is with network world and others. Mary insistent that they then showed these two, jeff baoding, the proposal made its way to jeff BIOS.

I think, first to wick, and then jeff and .

he Green let their project.

yes, separately from the rest of A W S.

And what I can't tell is did this before I got in front of jeff, get merged into andy's proposal and IT was of Green. Let us one big thing or where they're actually two different concurrent efforts.

we're going to tell the story. And then I have some thoughts on all this. So Chris is actually from south africa, and right around the same time, he and his family wanted move back to south africa, leave seattle, move back to keep down in south africa. So he goes to wick his boss and says, hey, i'm actually going to leave and move back, move, fAiling back. And rick is like, oh, no, we're in the middle of this huge architecture transition.

This is a key moment in the company, super valuable person, that the company what if we do the same thing were doing in paleo with a nine and labor and twenty six, we will set up a new amazon subsidy in cape town, south africa that you can lead and then we can retain your talents and we can figure out what that new subsidiary will do. So Chris is. Get that sounds good.

Chris and ricks are thinking about this, and they decide, well, we just hand this idea of Benjamin and I and that paper we wrote about selling virtualization servers to third parties. What if we work on that at the new sub city here? So they do Benjamin doesn't come along, Chris, and a really, really great engineer named Chris Brown.

And from what I can tell, this is where ben black involvement ends, where he was part of pitching the idea, but is not actually part of building the thing that they're gna build in south africa.

yeah. So Chris, Chris, go off to south africa. They start working independently on this computer server idea.

And they do. That becomes E, C two. Is that team in south africa? E, C two, braddon writes in the everything store quote, E C, two was born in isolation with pink gum, talking to his colleagues in seattle only sporadically, at least for the first year.

Pincus later said that the solitude was beneficial as IT offered a comfortable distance from amazon's intrusive CEO good from pink come. I spent most of my time trying to hide from basis. Pincus says he was a fun guy to talk to, but you did not want to be his pet project. He would love IT to distraction.

Whole areas you can start to see, even in these very public, reasonably nice quotes, that there's enough tension between crisp income and BIOS Jessie leadership that even in the official amazon things that they put out about the development in south africa, like Chris pink com's name is sort of nowhere to be found. Even in the south africa specific blog post about the history of ec two, there's clearly chafing between kis and the leadership.

Yep, in andy, Jesse infamous one star review of the everything store named on that come in one of the several passages where he talks about how brad had had all wrong who's quote from Mandy the vision document proposing the A W S business and outlining the initial set of services for A W S, including our compute service ec 2， was finished and presented to the executive team.

In the temple two thousand three, I wrote the document and was lucky to have the help of several people in putting IT together. This was about a year before Christmas. Cum moved to south africa to build the initial version of E C two.

Chris played an integral role in the definition, team building and product building of E, C. To, despite leaving before E C, two was launched. So clearly, there's some bad blood here.

But my thoughts, I want your thoughts too. I just find this whole thing ridiculous because a, of course, IT doesn't matter right here. But the most ridiculous thing is that what I think actually happened here, which is there were multiple teams working on multiple related things within the company.

That's how amazon prides at cell phone running decentralized innovation. That was, the whole point of this whole freaking exercise was decentralized. Let teams invite what jeff s.

Invented, wander, you know, is the kind of montreal of him in the company. I think that's what actually happened. The official version now of the A W S history of IT was all centrally planned. IT was all in that two thousand, three documents. That seems sort of silly me.

An encounter productive. Yeah, I agree. The other thing that becomes clear is it's really not about the idea, it's about the execution. And I know this is a trobe. So to make IT a little bit more specific, IT can be about the idea if you define the idea as the hundreds of micro ideas that comprise the me idea. But if you're saying the idea is something articulated in a sentence, well, that's pretty much worthless.

And maybe even in a vision dock, it's about the thousands of micro decisions you make while executing IT and actually doing the work to executed that sort of ends up mattering. But you know history is written in by the Victors or are seeing some of that play out here. The other thing that's very clear is andy.

Jesse is just a brilliant strategist and fantastic leader. And so of course, someone like him in the organization would end up actually running yet. So I don't even know why there's dispute over. Well, that was my idea is like who cares who's going to end up turning this thing into a world changing business?

You know you had that free playbook team and take away from the amazon da episode that I think you posted as a clip on twitter and linked in went so viral. And people who were originally as as on employees loved IT, which was your idea that amazon was a path finding algorithm.

yeah, that was bruford ing its way through, amazed to eventually find the correct way by just gathering data, launched off gathering data, ter IT down.

start again. Yep, go through the maze, hit a dead and backrest a stepper to go take another path. And I think that actually is also how A W. U.

S. Launched really on. But I want to get to that in my players because I think IT actually .

contrast that in some ways. Oh.

OK. So that launches lasting to highlight here is the importance of the primitives. I don't know how IT was in the moment, but IT became something that later on would become hugely important to them, which is that they truly were unopinionated about this as a platform.

They they said we are going to launch with primitives. It's the most basic story, is the most basic compute. It's the most basic way to host your database. It's CD. And we can't wait to see what developers build in an innovative way with our absolute bare bones architecture that would go on to be called infrastructure as a service, as sort of a category. And they again, I do not know if IT was an intentional finger out when they were first launching IT, but they did not say, let's try and build a new O S, A new programing paradigm. Where is going to give you super basic building blocks and you .

run with IT. So all that on now technical side, we've been spending a lot of time there. We've valued to this. But let's talk about what erdal innovation this was on the business and market side. They have got a great quote here.

So when s three launch, probably the same time that you are playing around with IT, a truly world class fantastic engineer that microsoft at the time by the name of James hamilton, who's now an s team member, and S V P, distinguish engineer at amazon because of what he saw with of us. He wrote on his personal blog about trying out s three when I launched with a personal project. So here's a quote from him, what was even more disruptive was a credit card was all that was needed to provision storage.

There was no required proposal for financial approval. There was no p no vender selection process, no vender negotiation, and no data center space needed to be found. I could just sign up and start working from deciding to write the APP to a being up and running on the internet was measured in days.

And after debugging and testing extensively, the end of the month rolled around. And I got my visibility. Of course, I knew abstractly that s three was disruptively Priced, but when I saw that my bill for the entire development and test of this application was three dollars and eight cents, IT just seemed wrong. Once development was complete, I was still storing all the test data in s three. So the following month, I got a bill for zero dollars and seven cents.

So no joke, David. Every month I get a bill from A W S for like seventy one sense. And I have no idea what old project that was for.

But it's one of these things is like it's Priced so named ally. If IT was a big successful project holding a lot of data, then you know that would be expensive. They actually have pretty good vergine on s three and on bandits and some of these things.

But because this was an abandoned project for which I do not know what the email addressed to log in to A U. S. Is from whatever team I was working on, I kind of just don't care.

Could you imagine back in two thousand and six, let alone even provably today, oracle, or microsoft, or I B M, or H P, or you name IT, they all have six, seven and eight figure contracts.

There is no way that they're gonna st. And hey, let's let people pay with a credit card and service this tiny little market and will .

charge you three dollars and eight cents. This was unbelievably world changing, truly world changing. This is how dropbox, instagram, L B N, B U per single, all of these companies yet started. I remember .

being at all these startup weekends and all these hackers ones where the audience, the family members who came, the like, venture capitalist who came to be the judges, IT, was blowing the audience. Is mind how fast people could stand something up in forty eight hours because suddenly you didn't have to spend five million dollars in three months figuring out what data center you are gna put something in. You actually could just have an idea and get IT out there within two days. This birth, that movement.

we all live there over that come. You know, we are, in all in various ways, part of a Jason to next to a gray friend of mental gottman. He was a VC.

He wasn't technical. You know, I got built in the weekend. Yeah, our body built. IT, of course, embrace this.

In fall of two thousand seven, they start the A W S start up chAllenge and they hosted first in september two thousand seven. They didn't win. But you know who was part a contestant in that very first A W S started up talents .

is IT like teach street, like it's onna be some .

amazon inside baseball. Oh, even Better. Just in that T V, no way. Which of course would pivot into twitch.

which amazon would then.

by course, amazon would then buy wow for .

like the Better part of a billion dollars.

right? Yes, I don't. Good thing of how witters I assume members. I got A O almost no matter what we have find the right way to revisit that for sure.

But that is a great use case, like just in T, V early. I mean, they we're using a lot of band with to stream video. They were using a lot of us.

Three, a store like IT was a great use case. And man, did amazon embrace this sort of thing? This is probably one of the biggest keys to success, or sort of playbook themes for Y.

A. W. S. Became successful. They realized how perfect this was for startups. They realized how hard IT would be for large gender prizes to just wholesale move over. They realized that was not going to be the first speech head market.

But for startups who are building something from scratch, who could go on to become fifty plus billion dollar companies, my god, to get them on a of the U. S. and.

The blitz was so impressive, I mean, I member, the first time I had dave shapely, who was doing developer of Angels m for A W S. Early with jeff bar and so many other folks there. IT was just a breath of fresh air where every happy hour you went to, there were A W, U, S.

People who were giving you tons of free credits, who were helping introduce you to other people for your startup. They all thought about themselves as active participants in the start up community. So IT just became the obvious default that you would build on A W U.

S. Because I felt so ingrained with how you make startups is you start in A W S. Account for the thing that you're gonna build. There is a famous andy, Jessie refrain that you hear IT basically every reinvent where he talks about. First, there were the enterprise cloud doubters who said, well, maybe this is good for startups, but it's no good for line of business applications, is no good for mission critical applications. And oh, maybe it'll be good for my test environment and my dev environment, but I would be able to run enterprise grade stuff there.

I think his line is, at first I was that nobody thought you could run a real application. IT was only like what James was building, like a personal test. And then IT was like, oh, well, you know, startups can run in A U.

S, but like real enterprises when you do that. And then IT was like, well, as a real enterprise, we can run non different, tired, you know, non mission critical stuff in the A W. S. But we're not going to put our mission critical stuff in AWS that's going to be on prime. And then IT was like, oh my god, take my body.

right? So I think there's this interesting, obvious first b chat of customers that are startups. When you think about the enterprise adoption and how eventually now you know your bank's application is on W S.

And everything was moving to the cloud or one hundred and twenty billion dollars a year of revenue has already moved to the cloud of at least microsoft, amazon or google. So there is the sort of prepositions of the cloud. There's people building on the cloud, which to me, that's lifting shift.

And that's really like a phrase that the cloud industry uses for, hey, you are running, you know, some local database. You had some local storage. You basically had your data center and you just want to lift that up and shifted over and drop at an amazon, the center, and you're not going to take advantage any cool stuff.

You're just gonna now run your stuff in. So the benefit that you get of that is you only pay for what you're use. You don't have to pay the big up front costs and you don't have to intend IT yourself, but otherwise exactly the same thing.

Jessie actually at the first reinvent in twenty twelve as part of his presentation, he has a great slide on this where he talks about the six reasons A W S wins versus traditional infrastructure for enterprises. And it's exactly what he said is, one, you trading capex for up x, which is great. You know, you can take all that expense in every income statement every year is opposed to capitalizing IT. Two, you're getting lower apex then you could on your own, thanks to A W S, S. Economies of scale.

they're getting Better deals on their servers, so they're passing .

those along to you. yep. Three, you don't have to guess on infrastructure capacity ahead of time.

A W S is elastic as you need more and scales up as you need less IT skills down. And that actually for IT can scale down when projects don't work. You're not stuck with legacy left over infrastructure from things that don't work.

Five, engineers can focus on writing code, not installing infrastructure, focus on what makes a beer taste Better. And then six was your instantly global on A W S. verses. When you run your own on prem data centres, you're like wherever your data centres are.

which sounds nice, is not quite true. It's not one global availability zone. Actually interesting point. That was the premise they thought they were going to abstract that away. And you're going to imagine sort of a global s three data center.

And when you deployed IT, IT just went to all of the data centers and then they quickly realized were going to have so much traffic from so many customers that we're sume wan, we're going to consume the internet band with replicating unnecessarily. And so there is you do not run globally by default in every single anyway. yes.

And so then there's this step two, which is building in the cloud and that's taking advantage of using things like the relational database service, that rds, the very early thing that they launched, which is, hey, this isn't just your exact same code and your exact same infrastructure, but in our data center and no differently, you're actually taking advantage of a cloud native service. And then there's building for the cloud and that's the future that things like lambda and dynamo D B. And if you think about lambda, for folks who have not done this or heard of the survey, less movement, it's this idea that you don't even need to like reserve and E, C, two instance or deploy code to IT.

You just write your code. And then when you wanna call IT, a thing just spins up for a few millions seconds, run your code and spins down. And you were never aware of its IP address or aware in the world of what you just know that your code executed.

And so that's really like building for the cloud. You're completely architecture your application differently to take advantage of this very different world of computing the cloud offers. If we rewind .

the origin story's number two and three of the big moala software problem and like that, all the engineers and product teams and amazon and every other internet company were spending all their time focused on not making the beer taste Better undifferentiated heavy IT lifting in the beginning.

Really what happened is probably development teams in those days were spending like seventy percent of their time on infrastructure and set up in thirty percent of their time on software development. And then A W S. Shifted IT to OK. Spend seventy percent of your time on after a development and thirty percent year time on worrying about our P I. In your influence ture, this for the cloud, you know lamped, everything is like that's taking IT down to zero.

right? That's the goal. At least I think all this stuff sounds Better in principle than that actually ends up in practice. But yeah, that's the idea. Now A W S, in its earliest days, let's called the first couple years, was really start up focused new applications from a whole cloth that want to use our infrastructure as a service, primitive building blocks. And they're very quickly realized, well, if we're doing infrastructure as a service, IT also does enable this lift and shift thing.

So as long as we work like hell to satisfy the compliance requirements and availability requirements at uptime and all the stuff replication requirements of enterprises, there you go, perfect. So very quickly, A W S could serve these two markets of startups and the lift and shift enterprise. Now another way you could have designed this is, instead of doing this infrastructure as a service and these primitives, you could say, let's think about the far future, the ladies of the world.

And we're maginness out in two thousand and six. What are we just build that sort of stuff to start? Let's change the development paradigm to build the platform of the future.

That platform will live in the cloud. That platform is not windows of the past or the APP store of the current day. What was just sort of coming that platform of the cloud. Won't we start writing the brand new paradigm m today? And there a couple other big tech companies that took that approach at first that we're completely wrong. And the unfortunate thing for microsoft and for google, who really started at this platform as a service layer, was you basically didn't get the startups because you didn't have a mature platform yet that people were excited to build on and understood how to before, but you also didn't get the enterprises because there was no ability to lift and shift. And so if you were creating a platform as a service in the late two thousands, you're really a decade early and you're building for a market that doesn't yet exist.

okay. So let's talk about what happens because this is just man. Amazon ran the table on maybe the most important market of all time.

The first five years with nobody competing with them .

is incredible. So two thousand six is when the first services launch, two thousand and seven, two thousand and eight. That's when these startups are getting started, A B, uber, you know, instagram and like.

And they becoming big. But they're not yet at the scale that they are today. Two thousand nine, netflix becomes a customer.

And how crazy is this? They had already built their own in the last like three years, basically cloud internally in order to stream video, which was originally, I think, stream through silver light. They had this big partnership with microsoft.

That's right. Oh my god, that was so terrible.

Yes, yes, I think you had used I E to view IT is bad, but they had just invested a bunch and ended in about face and said, but we were wrong actually, we're going to use A U S.

Instead when we went all of A A W S. And I believe netflix is still to this day, I think one hundred percent on A W S.

I don't know about one hundred percent. But yes, there are still an enormous customer. Read hastings was actually the very first guest interviewed on stage at the first reinvent in twenty twelve.

I think in that interview, if IT wasn't that one, it's another one around that time he talks about people say, read, you compete with amazon that com. Aren't you worried about being on A W S needs? Like, no, i'm not worried at all about being on A W U S. IT is legitimately the smart infrastructure decision for us to make.

which that was such a feather. And amazon's cap, they've had two big fathers in their cap. There's that one and the C I, A, one like a secure enough for the CIA use.

So just to be secure enough for you. And that was a few years later. But the net lix one, I made a lot of people afraid to use A W S. Early on because they felt like they didn't want to do business with them. As on if they were retailer, they didn't want to do this as on if they were in video or in any of these things that is on was competing on and read, getting up on stage and saying this matter of factly and so forcefully was him saying, you can trust that A W S is different than amazon.

okay. So why is read and reflex making this decision? Why then do much other customers do this? And microsoft, let's put google to the side for minute, but I, B, A, oracle, all these legacy technology companies, where are they asleep at the wheel? Here is a disruptive pricing model.

And let's not bloom together because I actually think it's worth analyzing. Each company failed to claim this opportunity for unique reasons.

嗯， okay.

So the first couple is worth analyzing. I think what you're pointing out is these old server company. So the IBM, an oracle on the database side that made these ridiculous gross margins and they sold you this complete proprietary solution and .

eighty percent gross margins totally.

and they would sell that to you, and they would install IT in your data center, and eventually they would hand wave and call something cloud vate oud vate oud.

They might do IT .

in their data center. They might do IT in yours because effectively the same thing and it's sold on the license spaces that comes with auditing. Amazon has this ability to literally meter your usage and then charge you exactly what you need to be charged, whether this old model of bike bunch oracle licenses and deploying them on the servers in your data center.

You just get these audits every once in a while that like OK cool. Well, we saw you the license and you bought many licenses will show up and make sure that you are just using this thing is so they weren't going to change that business model. I mean.

there was a license to print money targeted because my Operating margins for A W S. In the twenty to forty percent range.

which felt like a ten x and A X for them, but was unattractive to the traditional right.

This is the perspective. Amada com is Operating a two Operating margin basis for amazon alic. Oh, should we get tend to twenty x our margin races with this new business? awesome. But that still less than half of the margin that old school guys are getting.

And the old school guys are certainly fat, happy on their Operations, whether amazon knows how to run everything they've ever run as this unbelievable lean machine because there's so cogs sensitive on everything.

So here's another thing though you mentioned called the oracles at the IBM. Whoever did come install this software on computers for you or in their data centers call a private cloud whatever they've install oracle database version in nineteen. And then two years later, you're paying your maintenance costs. You're going to pay up great cost to go to oral database version twenty and then you're gonna a couple years later to version twenty one. And you can pay back to money .

every time you migrate, right? Why would you give up the annuity that you have?

Well, cloud infrastructure is always up today. There is no version. Whatever you're using, you're using the latest stuff because it's always and then even more than that, amazon gets to constantly iterate versus doing these windows XP. Every four years, we're going to ship a big update. No is constantly changing you.

okay. So that's super old guard the IBM and oracles, which is very funny when you watch all these keynotes. I wonder if anyone has ever watched them all mainland like I did, because I have this unique perspective, seeing them also close to each other.

They used to, on stage, referring to IBM an article in a tongue cheek way they would refer to like a new york company, and that would be like IBM logo. But I would say like new york company and like oracle, you know, they would go as far as to say, like several go company. And then they might make a reference to like a super yacht, or like sAiling or something, till like really drive the point home around twenty, sixteen and seventeen. And they totally didn't n about phase and they just start directly attacking them and they start directly attacking microsoft to because I think microsoft to went from in the early days, someone where amazon looked at them more as a partner were happy to run microsoft stuff on your A W S instances. And now that that has actually been a extremely viable competitor, made a big, big come back to the best .

competitor or tws by far.

Amazon now loves attacking secret server licenses and stuff like that, that microsoft, of course, comes in an audit just like the old guard for. So let's look at microsoft. Alt, let's think back to the mid two thousands, because this really should have been their business to take.

They should have figured this out. But there are essentially two problems going on at microsoft. One is that the windows group just had too much power.

And between them and the windows server people and the equal server people, the goal of those groups was to get customers to do more with this idea that people thought was gonna big for a wealth PC, taking over the data center, then P, C, Operating systems, becoming the data center Operating system. And really, the goal will sell more windows server, the licenses. And that was a great business. So anything that looked too much like that within microsoft got gobbled up in an internal power struggle because IT could look like IT would canalized thing.

This is probably happening when you were there.

right? Yes 啊， i was sort of over by the time I was there, twenty twelve, as when I arrived. But they did eventually realize that they had to make a big bet on azure and totally separate from window server.

And so this we should give bomber credit because he did see this. So they replaced the leader of that organization at the time of windows server and tools business with sota, who would eventually, of course, become C E. O, and then really double down on the cloud strategy.

But they realized, okay, actually needs to be a thing that's kept separate and has C E O sponsorship and consort of escape the windows, everything. But there are second problem is what we are talking about. Earlier, they launched this thing called azure cloud services, which they've now basically deprecated, which was a platform as a service approach.

Microsoft had the golden goose. They had all the IT relationships. What they should have done is gone to everyone that is using windows server and say, great news, we have primitives in a data center that you can lift and shift to, much like how asia works today.

You can trust us. You ready, pay us, will make this a part of your enterprise agreement. But microsoft got clever, and they thought, you know what?

The in thirty two run time, the dot net platform were a great platform company. Developers want to build for the things that we make. So let's make the next generation set of A P. S. And platforms for building great cloud applications.

And they just totally did not recognize the magical thing they had in front of them, which was all the customers and all the distribution who over the next five years, would slowly driver out and start their new stuff on AWS. While microsoft was still figuring out its strategy, they got caught in the middle of people building brand new apps, didn't know how to build for their platforms and they didn't want the lock in. That's still a big thing in cloud.

Oh, don't get locked in. You want to be multiple oud. And they didn't make IT easy for their existing customers to lift and shift. So microsoft, while they're in a great place now and have figured out of interesting strategy we talk about of the bear and ball later, they just had five years of watching pitches go by.

Yeah, he was such a wave OK. We talk about oracle. And I want to come back to oracle in a minute. We talk about microsoft. What about google?

So google is the third place. Amazon's got thirty five, maybe forty percent. Microsoft got twenty to twenty two percent. Google somewhere around ten percent.

which is that microsoft having twenty two percent. Very impressive.

That's an enormous win, totally. Here's my is what to take on google. They accidentally became a business they launched as a project, and then they figured out this business that became unbelievably cash generated immediately.

The nature of their business being searched and feeding all the data directly and to make the results Better is that they instantly became a consumer sponsor monopoly, totally legally done competitions just to click away, but they're the best experience. So they just have these unbeliever reinforcing effects of becoming a monopoly. So there are a super high gross margin monopoly in the biggest market in the world, which is people wanting to use the internet, and they are the front door of the internet.

So their entire existence it's not that it's been easy because it's been a computer science chAllenge. It's been very academic and it's they've never had to go into a hard business. I don't know if google advertising margins are, but that business probably runs said, I guess that depends if you put sales above the line or below the line.

But eighty percent cross a thirty percent cross margin business is not particularly attractive to them nor are they good at sales. Another getting Better. But the narrative at the time was, they made this g sweet thing, which of the time was called google apps, but no one would buy IT.

So they ended up giving basically all of IT away for free to consumers forever. Google dogs and gmail and everything IT was the best thing to use, and they couldn't figure out any way to sell at enterprises. So they didn't have the competency of enterprise sales the way that microsoft did.

They didn't have the ability like amazon to Operate and these really hard businesses eating out every last dollar. And so IT just kind of look unattractive. Meanwhile, they actually had the best technology for IT.

They actually Operated these big data centers and this really novel way of networking all the computers together in order to pull off search. And they were sort of inventing machine learning before machine learning. So a huge value prop of the cloud now is all your data in the cloud.

And that way you can use a bunch of stuff that google invented, TensorFlow cover, netty, to run your stuff in the cloud. This also was kind of theirs to win, but they didn't have the sales marketing muscle and they didn't, I don't think, have the iron gut that amazon had to go do something kind of graded out. And heart.

I think they also made the mistake that you are originally talking about. I thought you're talking about google and then you said I was microsoft too of like building too far in the future. I think google made that mistake too.

Yep, that's totally true. I mean, the first four I was google up engine, which was in no way infrastructures a service. IT was not primitive.

IT was, I think you can write in python or java. And IT was a specific A P I, surface G, A E. And you can make APP engine apps.

And IT was all abstracted away from you was kind of the same microsoft thing. If we're going to a get really clever and build a platform of the future. But google, per the Steve eggy arian, is not at all a platform company.

And so they didn't really know how to build IT. They didn't know how to sell IT, they didn't know how to identify market for IT. They didn't know how to support developers and IT at the time.

And so that sort of fell on its face. And what is gcp? Google cloud platform is now a very viable player in this race, but that's not where they started.

yeah. So I want to rewind back to oracle and talk about something. But one thing that really came up in the research from talking to people and friends of the W S. nawas. On amazon and A W S, deserves so much credit for overcoming one of the hurdles that you just said google had, which was google didn't know how to do sales amazon and know how to do enterprise sales .

either had a great point.

And when A W S started, like we talked about, the obvious core product market fit in first set of customers with startups. Well, they don't want enterprise sales. They just want to pay with a credit card online. And so I as I didn't have to figure this out, but they then did also figure that out. And enterprises and governments and government agencies and institutions and did the lift and shift thing and then brought big enterprises on.

And I think it's started with academia. Their first big contracts were with universities doing research and running effectively like their supercomputer loads on A W S.

You NASA was famously customer starting in two thousand nine. Yes.

that's right. They did the data streaming and then the video distribution of the mars landing, right?

Yeah, that's right. That's right.

That was the first big thing. But working with NASA and the academic community, unlike how do we fit in with institutions, I think taught them some of that enterprise muscle those .

folks don't want. I'll pay with a credit.

right?

So you got to do contracts, you ve got to do building, you got to do disco, need the sales force. You need all this stuff. You need to do a big conference like reinvent.

They had to approached a bunch of oracle sales people because the amazon sales machine is a lot like the oracle cells machine evolved.

Yeah okay, let's talk about oracle. One of the things that I think to most people was to me before doing the research here is vastly under appreciated about A W S is, you know people think about e 2 and s 3。 And it's like infrastructure as a service and compute, storage and you know networking, all that true.

Amazon doesn't report this. But if you google estimates of what the most popular A W S services are the most used ones, A C two, s three, the junger nuts. But numbers three, four and five are all database.

A W S is a huge database business. They have taken so much share from oracle. And while it's all related, its infrastructure is also a different kind of business from infrastructure.

Famously, A U. S. Red shift, like wise, I called red shift.

Oh yes. So for people you don't know this, there's an official amazon talk track and then there is a real talk track. So the official amazon talk track, do you know this one, David?

Oh, that it's like a doppler effect or something like that.

Yeah, it's physical related. I think amazon actually use dollar as a code name for alexa. Of course, one of their buildings in seattle that you know, when the sound waves like get bunched up or spread out, like what a siron goes by, it's the door effect and red shift is the light equivalent. It's like a star moving away from you.

But there's another part of the story here.

shift away from big red yeah.

which is oracle. So yeah, the database market is freaking huge. There's two properties of the database market that people just don't think about, but incredible. One, the global market size for database software is one hundred billion dollars, and IT is growing at ten percent per year because everything you do with computing, you need to store IT in a database, need database and you can get away from them. It's big and it's growing fast to database software, maybe the sticky est software of all time.

especially at the scale that people are producing data. Now it's actually worth contextualized this little bit. So there is all these stats all the time which are something like last year, more data was producing store than in the entire decade before, in the entire century before that.

And that's not the exact step. But there is no different different vary of IT, which we all sort of intuitively know because we're storing da on our phones. But when you have two things, expansion, ally, growing, it's hard to into IT the difference between those two things.

And so we sort of know this about data. We also know this about the internet, like when you talk about dial up back in the day and then when people got their first abt one line. And meanwhile, i'm here podcasting and David, I am seeing you and gigg a bit down directly into my computer and it's unbelievable.

All so you think, well, these two things have the same phenomenon except that they're actually moving at very different rates. The internet has not gotten faster at the rate that data storage has increased. So this is most illustrated in some of the A W S.

Reinvent talks. They're like, hey, a lot of you want a shift to the cloud, but you have a pet bite of data or some of you haven't egg bite of data in your data center. So what do we do about that? And they first released this thing that was a hundred terabyte, super secure thing they would ship to your office called the snowball.

And you plugged IT in. You would automatically get all your data, had a kindle on IT, so you would actually display a custom shipping thing, and you could track IT all the way back. And I would arrive in the images on data center, and they would IT was like, tamper proof.

Ballet proof is amazing thing. And they've released a few other generations of them. Now there's even some with compute on them for field applications. And then the curves kept going. The internet kept getting a little bit faster, but our data storage kept getting a lot more significant. And there are some staff that andy gives on stage and key out and twenty, sixteen, seventeen where in their where they announced air on snowmobile and he's like, hey, because all of us are sitting here on computers that have a terrible or two terribly or four terrible hard drive like a hundred terribles is not that meaningful and so then they're like, we will send a snowball to your data center, which is a sei truck full of snowballs, effectively, so that you can get the data to us. And even with this solution, this never underestimate the band with of a semi truck moving down the highway.

This type of solution IT can still take six months to migrate all of your data into the cloud, whether that would have taken you years and years and years and years and know the Better part of a century to actually uploaded IT over the wide area network over the internet. And so that I think illustrates pretty heavily your point about once you decide to put all of your enterprise data into a database hosted in some specific vendors cloud, there is pretty meaningful lock in there. There are very practical concerns with moving.

Oh, I can do you one Better. On an example. Amazon a com used oracle databases. Yeah, when I was started, amazon 点 com did not finish their migration off of oracle database and onto A W S products until twenty nineteen。 Oh my god, thirteen years after .

A W S launched.

IT took that long for amazon itself to migrate oracle.

Meanwhile, by that point, amazon had eight different database solutions for other companies to use and had invented three of them. There's open source ones they host for you, but they also created dynamo O D B. And they invented new database technologies there, compatible with other relational database, but way faster, way more performance, and it's still hard to migrate within the company.

amazing. You know you just play that forward and you like, well, okay, a there's still so much revenue that's gna shift to A W S N B. It's gonna be so sticky, so sticky.

One of the most amazing states, one of friends pointed out to us that I waited about this and I posted this on, like denis is crazy. A W, S, today is on an eighty billion dollar revenue run rate, eight, zero. That is not the most crazy, impressive, defensible thing about A W S. If you go look in the financials in the ten q till IT is ten q for amazon, they have to report the A W S revenue backlog, basically revenue .

that's contracted but not recognized that these are contracted .

you know mostly with big enterprises of revenue they've signed deals for, but that is not yet recognized. It's going to be recognized in future quarters. The backlog of committed contractual sign revenue is over one hundred billion dollars.

How do you know what to say about that? There is a lot more storage and compute not on the cloud than currently in the cloud.

So amazon could shut down all sales efforts, stop growing, literally turn off the late in terms of new business today. And they still have one hundred billion dollars more business that is contractually coming their way.

Insane, crazy, crazy.

So David, you mentioned the ana.

what is IT seventy, eighty billion dollar run rate right now?

Eighty eight zero.

Well, in twenty fourteen, jeff brazos rode memo, the annual memo that comes out a little to shareholders and said the quote, I believe that AWS is market size unconstrained. That was the point at which IT was a year before they broke out A W S. financials. And I think IT was a six billion dollar run rate business .

when the corn code A W S I P O, which I think ben tomson coin that term yeah happened in twenty fifty and that was when they reported q 125 in earnings。 And that point in time A W S was a six billion dollar revenue.

So was probably like a four billion dollar business when basis is like, well, this thing I think it's unconstrained. It's not I mean, the real story here is amazon discovered a new unregulated public utility that they could generate enormous margins on.

Well, enormous for amazon margins.

okay, but an enormous raw dollar margins, absolute dollar margins. This is a business that they can generate billions and billions of dollars in profits by Operating and is effectively a public utility. The market sizes, I think I said one hundred and twenty billion earlier, but I think that's being conservative and growing at thirty percent per year with no end in sight of this thing.

Continuing the compound at that way to talk about the make a trend of our lifetimes is the internet. I'll leave in the internet. That's the bedrock of modern life.

And AWS is what powers is the internet? That's true. What i've realized here, it's more than the internet.

IT is anything that a computer could touch. A W S takes attacks on that essentially now to bring a full circle. Anything a computer could touch is the internet IT gets the one in the same these days. Jeff is is a crazy statement, but I think he's right. It's market size unconstrained.

IT certainly wasn't twenty fourteen.

And I wonder if you could even make IT now. Yeah so okay. The A W S I P O happens in twenty fifteen. I P O, could a group six billion dollar revenue run rate for A W S seventy percent in your .

growth rate? That's right. He was still grown like crazy then. I think now it's growing like thirty to thirty five percent. But then I was nuts.

Thirty, thirty five percent growth on eighty billion dollars is nuts. yeah. Nineteen point two percent Operating margin. When that happens, amazon stock jumps fifteen percent when that earnings released comes out, IT should have jumped like five hundred percent and does over .

the next year and idiot was for not buying the day that he jumped that percent. This isn't not the funniest thing about all this is do you look at and your like now the stocks expensive. Now the stocks was so very cheap.

very cheap, very cheap. Two thousand and sixteen. This is interesting, andy. Jessie was not technically the CEO of amazon web .

services pres. s.

Yep, until twenty sixteen, twenty sixteen, the restructure corporate jeff bazas becomes CEO of the whole company. Jesse become C O, A, W S. And jeff wilky become c everything else, amazon retail that year, A W S has twelve billion dollars in revenue.

Over fifty percent of the companies is Operating profits, which as we said, they do every year, seventeen billion in revenue the next year than twenty five forty five in twenty twenty sixty two last year. But eighty billion dollar run, right? And there's today sitting on a hundred billion dollar back log that's coming. Rain, shine, just freaking unbelievable. Yep, july fifth twenty twenty one, jeff bezos retires.

crazy. That was only a year ago. He feels like longer, I know.

Yeah, crazy. They announced step before them. But that's one that actually yeah happened. Andy, Jessie become C E O of all of amazon. Adam slimpsy becomes C E O of amazon web services. I think is this part of the most recent earnings release this most recent quarter, they did a snow mobile Operation on the international space station.

Oh, I didn't know that really.

Yeah, I know if they work in space, somebody maybe blue origin and they sent some snowballs up to the space station, and they left out of the space station, please set up before. But A W S has about a thirty nine percent market share of the cloud as your twenty one percent, alibaba ten percent.

There are the dominant player in china, which is an interesting story in and of itself that similar to amazon, like IT, was alibaba that became the dominant club player in china. Be fun to dig into how that happened in google, about seven percent. Yep, it's pretty .

interesting to look at all the ways they're pressing their advantages. Twenty fifteen, that year, they broke out finances. They also bought an appeal labs, this israeli company, and they started custom designing chips, which we've seen in both their training chips. They've done custom I think I called training um and then they have inferences chips which are also some crazy name like in fear or in a camera. Exactly but they have have customer machine learning ships.

Do you know who makes these chips?

T S M C, of course.

big. D S M C customer.

uh yeah the other thing is that in many ways it's the embrace extend strategy that microsoft and where first they have rds know you can run anything in rds and then they start doing things like launching amazon on aura, which is a direct attack at oracle and a proprietory data aba y software that they in control they're like. But it's so fast and it's so performance. It's compatible, owned, by the way, we generate much Better margins on IT.

It's all these things that they used to attack oracle for and they're I will look now that we have all the customers, why do we do some proprietary ata es too, and we can generate more margins on those. And there are ways that they generate huge margins like band with A W S, makes ninety plus percent gross margins on their band with charges. There are many ways where, yes, cloud is still objectively Better than the old way that the licenses were structured, the old way of storing on pram, the old way of hiring all your own people.

But also, amazon is starting to feel themselves on the lead that they've generated and run some of the same playbook, the other thing. So then the question becomes like OK, well, why machine learning? Because it's so clear that compute is this massive pillar of the business.

Database has sort of been stood up as not quite as important, but definitely more important from a sticky perspective. Every year, they annoy some new databased thing when they're on stage, machine learning, they've announced stage maker. They've broken out the keynotes and others a customer ml keynote.

They have a whole bunch of cloud hosted ml offerings. They run TensorFlow, which is funny because that's a thing that google created. They have their own container service. They also have their own elastic cub net service. So they sort of have to serve customers because customers want cubana ties, but they're trying to get you to use their own custom ecs amazon container service.

And what's becoming clear to me is the machine learning capabilities that amazon has need to be good, but they actually don't need to be as good as google. Because here, sort of the strategy with machine learning, you're gonna use whatever M, L is available with where your data is, because running machine learning near your data is the most important thing. So once you've picked amazon to be your storage vendor and you've sent semi trucks full of your data into their data centres, you're not shopping around for, oh, where should I run my M L? You're going to a run your M L on A W S. And so they can fall crazy behind here. But I think this is one way that even though google should be best position to have Better ml offerings than anyone else, a kind of doesn't matter if they're not the place where customers .

are storing their data. okay. Well, one last element of the story. Before we transition to analysis, I don't think we can call this a kota because they failed. It's not a koto because they didn't do IT.

It's a work in progress.

Work in progress, I think justifiably so. This has been an A W S. Love fest.

We've heard so much praise on them. It's like they've done everything right. It's amazing. There's one thing they missed. Then you want to tell .

us about IT data warehouses. How is snowflake its own fifty billion dollar company?

unbelievable.

IT stores data in A W, S, in other public clouds. And IT is its own fifty billion dollar company. And what amazon d will tell you is we have red shift and it's one of the fastest growing amazon services ever and it's doing really well. But you know the database team and amazon, that whole org has to be very, very unhappy that snowflake manage to I mean run the gotland on the data warehouse market.

It's crazy that A W S did not do. This is probably .

A W S is biggest failure. And the question is why? And I think there's a few areas. One is just big company stuff. I think before launching something, when you're at amazon scale and now that they are the trusted partner of all these IT departments, you've got these security things, Operational things, S L A guarantees that they're fully committed to.

And I think IT hamstrings your ability to really streamline a product, be opinionated and get something the market that both fast and intuitive and built for the user. I think red shift requires a lot of customization, where a snowflake is awesome for developers out of the box. And it's funny that the playbook that snowflake ran is pretty similar to the playbook that A W S ran when they were just as three and ec two serving individual developers.

So there is a little bit of like their victim of their own success on this front. The other one is bent times and pointed this out in a piece that willingness in the show notes. It's right there in the name.

They're fighting oracle. They're fighting the last battle with red shift. It's hey, take your oracle style data warehouse and basically do that in the cloud rather than lots and lot of snowfall.

Customers never would have become oracle customers. IT was a different customer segment with a different set of needs. I mean, is a fantastic product, and that's not really who amazon was serving. And there's new leadership there are now and they're getting the house in order. And I think they recognize this, but this was a wife.

Probably not a whiff on the order .

of microsoft and google waiting on cloud. Yeah an order magnus de or two smaller yes.

So A W S, we're going to do analysis now degrading. There is no way this season going to be a very high grade. But like if there's a black mark.

this is IT. The other thing where there are sort of the victim of their own success is the amazon two pizz team thing, LED them to launch all these different services rather than having a cohesive product strategy.

A W S has kind of been altima soup, and I haven't logged into the evs expert in a while, but I used to just be so overwhelming, so many amorous logos that all kind of feel like the same thing were a part to this, immigrate between two things. And I think amazon realizes this because their key notes now seem to be much more about pitching these vertical solutions like here's this thing for this industry. Here's a vertical solution.

Here's case studies of other people in your industry rather than first presenting you with. We have four hundred and seventy six services. And I think that in the keynotes, they've also really dialed back on what used to be the drum at of the keino, which is we launch what we consider to be seventy four significant features this year, and we're excited to tell you all about them.

I think that one for a long time. And now it's created so much confusion for customers that, that's actually like the bulk ase for a google who is sort of a newer entrant who's coming in with a more cohesive product strategy and can help customers really understand what they should be doing rather than being like, hey, there's no garden real good luck. And eight of the U.

S. Keeps launching even more united services now to provide those garls and say, well, if you use whatever, whatever a manager, then you can keep yourself in a too much travel and it's like a cool thirteen standards body. They definitely have a little bit of a clean up effort going on now.

But hey, they got market leadership and they make far more revenue and far more Operating income than anyone else. So it's hard to argue with. We wanna think our long time friend of the show, venter, the leading trust management platform, venta, of course, automates your security reviews and compliance efforts. So frameworks like soc two, I saw twenty seven o one GDP r and hyper compliance in modeling ing venit takes care of these otherwise incredibly time and resource training efforts for your organization and makes them fast and simple.

Yeah, vana is the perfect example of the quote that we talk about all the time here and acquired jeff basis, this idea that the company should only focus on what actually makes beer taste Better. I E spend your time and resources only on what's actually gona move the needle figure product and your customers and outsource everything else that doesn't. Every company needs compliance and trust with their vendors and customers. IT plays a major role enabling revenue because customers and partners demand IT, but yet IT add zero flavor to your actual product that IT .

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Well, should we transition to analysis?

Yeah, let's start with power. Because I think A W S is actually one of the best case studies in power of all time. So a long time listeners, the show no power is what enables a business to achieve persistent differential return, or put another way, to become more profitable than their closest competitor and do so sustainably so they can sort of build enterprise value.

And we sustainably more profitable than their nearest competitor. David, when A W S. Broke out their financials, they were at, you say, nineteen percent, eighteen, nineteen percent Operating margins, nineteen percent. Now they're thirty percent. They've gotten more profitable when the landscape got more competitive.

Yeah, how did that happen?

So there's something going on there. So there's a couple things. Morals law is in their favor of all their cogs getting materially cheaper over time. And if I had to guess, I think they're not discounting for customers as fast as they're realizing both economies of scale and legitimately just costs coming down from morals law.

But I think actually what's going on here is IT comes all the way for circle that amazon is offering platform as a service offering is at this point and telling customers, hey, you could just keep using our primitive building blocks, but actually what you should be doing to take advantage of the full power of the cloud, to run these lame of functions or to take advantage of these proprietary database that are way faster is to personal bit more margin and take advantage of cloud native things. And it's like, uh, the old tricks are the new tricks. Now you're the income that and you're finding way to do margin expansion and the mindset a decade ago or almost two decades ago at this point of all we need to create the platform of the future was right.

But you needed to do infrastructure as a service, as a stepping stone to get there. And IT turns out that amazon did that and generated their eighteen percent Operating margins. And now here they are in a more of a platform as a service world with customer lock in generating thirty percent margins.

It's funny. I'm looking at the list of seven powers here, which are for focus for new counter positioning, scale economies, switching costs, network economy, is progress, power, branding and cornered resource. And i'm like jack, jack, jack, jack.

so early on in the takeoff face counter positioning all over the place, all over the place. I was just straight up a business that the incumbent would never have done because they would have gazed themselves. Scale economies. This is probably the single greate scale economy's business of all time.

I was trying to explore this idea of why now why did cloud happen in the late two thousands? And one answer is mobile, because as the computing devices get smaller, requires more of the computing to be done in the cloud. So that sort of definitely accelerated this trend.

But the other one is, amazon was kind of the first company to ever try and build data centers at this scale because they needed them to run the largest web application, amazon dot com. And cloud is not profitable unless you run IT at absolute massive scale. And so I think other people may be evaluated this business model in theory, but amazon was the one that was practically in a position to do IT and actually realized the scale economies where, I should say, economies of scale that would lead to the scale economy's power.

Yep, what? And IT continues to feed itself now of because amazon's the biggest, they have the most surface area over which to spread out their capex s and infrastructure cost. And so thus, they can charge the lowest Prices at similar or higher profit margins and their competitors.

It's amazing. Then you layer on the switching costs. Once people are semi trucking their data into your data centers, there is very real switching costs.

I mean, amazon become took thirteen years to offload off of oracle onto A W S. Yep, if that's not switching costs in this industry, I don't know what is branding .

is very clear. I mean, by being the leader at this point, they're just winning. I mean, even if people want to do the multi cloud thing, they are basically like cool do amazon and one of the others, their market leadership position and when they say things like this is the fastest growing in is on service ever.

They're reinforcing this idea of everyone else is yeah and everything we launched customers love. And I do think people are totally willing to pay up at this point because they just view IT as this will cost us less in the long term than if we make the wrong technology choice. And they need to move .

again when there is also the competitors. You know at this point, probably with microsoft and google, you can feel more safe. But for the longest time, their strategies were all over the place. So as a customer, I don't have any trust that I can build on your cloud strategy, and it's not going .

to completely change .

in the next version years. And amazon content.

yeah, I will say I think a tail in for microsoft husband, multi cloud, this idea that hey, you don't want vendor lock in so you really should have some redundancy or spread out your infrastructure across multiple cloud providers. And I think enterprises have the last five years really bought that narrative hockin and sinker. It's a reasonable narrative.

And so what has sort of happened is and I remember there's a parallel to mobile al development here. When I was an iphone developer, people were telling me use phone gap and I like why that I won't get to use any other like cool stuff that I O S loads you do like the latest p and you know the lowest level hardware features. Not like, yeah, but then you don't need to write an android APP too.

So you're development cost lower and might be like, well, but i'll make an APP no one wants to use. So sure my costly be lower, but I won't get to make an actually interesting application. And I think there's some argument here in multi cloud where it's like, okay, cool, you're going to use everyone's infrastructure as a service, but were far enough in the development of cloud now where these vendors are doing actually interesting platform as a service things.

So you do want to to take advantage of that. And this is the amazon argument, which theyve argued in the last two key notes that they started showing up magically in twenty twenty one in keynotes where they're realizing o crap muli cloud is making IT so that a bunch of the revenue that could be coming to us is going mostly to microsoft, but a little bit to google as people diversify the space. And really, what we want to do is convinced, actually, you'll save money because you'll have less complexity to manage with multi cloud and and you'll get the functionality of all the cool things that were launching, which require all the tight integration. So again, the thing that they were fighting against when they first launch, now that they're the .

big in combat, of course, IT works cycle of life. I A slight side bar question. We talked about all the other big technology companies that wift on cloud. We didn't talk about apple at all. Did they wait on this two or this something that's just like this is not apple.

It's a good question. I mean, it's not apple the way I think of apple. And in fact, I even think eylan ds back and is asia, or at least for a long time.

was asure. IT was A W S. There was like a 12 sixteen， maybe near times article they came out where they reported that IT was A W S.

And apple got very upset about IT. I bet I mean, apple basically serve enterprises, and I know they sell laptops and phones to companies in bulk, and they have a enterprise relationship manager for companies. But this is not apple's White house.

That said, tim cooks, apple is very different than the apple that I sort of hold in my head. And tim cook's apple is wherever there is, durable, high margin revenue. And so this actually is tim cook's warehouse. I think if he had the sales force to go after this, I think he would do IT.

So I totally apples a consumer technology company. Yeah, maybe they should be running their own high cloud data centers. No, probably not.

But developers are so important. Apple, they are so and should be so close and in touch with developers. And apple has had its own drawbacks.

S of a high margin business model recently in the monopoly with their developing relationships. You know, mobile, like you said, was the first be had for the cloud, should been offering something for developers there too. I don't know who didn't happens. That does not matter.

They have spent up something where you can sort of build your applications in the cloud now, but I assume it's all just White label of the U. S. Or microsoft.

Yeah, I mean, you never know with that all, but I think the ship has say.

well, yeah, I do know facebook uses A W S interest. So facebook has their own first party data centers that they are break because at such a massive scale where that makes sense. But then they also use A W S for some stuff.

I am trying to think about this. A W S have network economy power. I don't think.

oh, I don't either. I don't .

think I care if you use A W S.

No, it's indirect that shows up in scale. Economists, because my stuff gets cheaper because you use IT.

I think that's the only of the certificate. The big five of the seven powers are not including process power. Recorded resource switch can esthetic special cases. I think network economy is the only one that A W S doesn't have. But IT indexes off the charts on the other four counter positioning scale economies, switching costs and branding.

yes. okay. Well.

we talk a little bit about what would have happened otherwise with apple. We talked about IT as we went along with the other big technology companies. So we move on to playbook.

Yeah, let's do IT. My first thing to highlight in playbook is a perfect transition from the seven powers because I do think this is actually the best scale economy business of all time because the fix costs are so enormous, you advertise them across a huge customer base. You're rewarded for that massive scale and for making these ungodly dly large investments.

For the first time, they just invested so much in building out new data centers for A W S. They actually took amazon cash flow negative. Their free cash flow is massively negative over the last twelve because of these continued unbelievably large investments. I think this is a business that would have taken enormous scale to get to profitability at all.

But now that they have IT, it's one of these sort of self fufu ling prophets were now that they're massively the market leader, they just kind of a have to keep going and there could be a self inflicted wound or like soccer people called an own goal. But once you have this scale, economy is power going. I just think it's pretty hard to drop the ball at this point.

I mean, look, we've eluted to this for years on acquired. We've talked about IT a lot on this episode. A, W, U, S is a utility company.

Think about what the utility company is, is exactly what you describe. It's the ultimate scale economy business. IT is something that requires so much capex that society as a whole decides that there should be a centralized provider of this. In most other utility cases, they are regulated by the about how much profit margin they can take because otherwise they could take massively exurban ent profits and extort customers. Then AWS happens to be an unregulated utility for the internet, which is may be the biggest market of all time.

Well put. So here's the interesting point I want to make on that. There is that common refrain like, wow, I can't believe amazon, the e commerce company, became the cloud company from this perspective. This is exactly the same thing that the amazon dcom retail business was an ungodly dly amount of investment in the fulfillment network globally in order to sell stuff to a big group of customers in a massively tied way is just a data center instead of a fulfillment center. So it's like they had the right mindset .

for this business to actually a very similar .

business at scale. Yes, another one that I had is Price cuts. This is not something we talked about in history, in fact, but I do think it's worth calling out by twenty twelve.

And keep in mind, they had very little competition up to this point. They had already done twenty three Price reductions across the board for all of their services. By two thousand thirteen, they had done forty by twenty and fifteen, they had done fifty one.

So they were proactively, without competitive pressure, reducing Prices. And so the question of is why? IT reminded me of T. S. M. C. Speaking of hamilton and seven powers in our conversation with him and jane, he pointed out that IT made sense for T S, M, C to proactively lower Prices for customers in order to win business. And what you're essentially doing there is you're giving up current day profit dollars to gain something in the future.

So that kind of the obvious part, the less obvious part in the T S M C case is that since the cost to build out a new chip fab are so large and so lumpy, like ten billion dollars all at once, it's super advantageous to have that predictability of the orders. And on top of that, there's a finite number of the machines available to manufactured those higher on ships. The ones that S M L makes sort, sort of pays doubly to be able to know for sure you can be one of the few to get those.

Well, A W, S, for that has the same thing going on. Where is the A S M L machines are much more scarce than the servers the A W U S is buying. But it's unbelievably helpful for A W S to win market share so they can do their thing and invest more in building up more data centers to can to keep that thing going.

So that proactive Price drops works not quite as well as he does for T S. M. C. But they get rewarded for IT.

for sher. 也。 This was such a good point from hamilton. The strategic is not just to win business, is to be able to feel confident about building out ahead of the curve on infrastructure.

yes.

to enable scale economists, yes, or further drives scale economies.

So then here's a sort of thing that is unfortunate about A W S. Relative to the amazon that com business. Speaking of building out infrastructure, we talked about float in the amazon 点 com business。

Customer makes in order. Customer pays immediately. Amazon gets net sixty years. So to pay a supplier, it's the opposite in cloud, right?

This is why they have a hundred billion dollar revenue backlog from this dimension. That's a terrible thing.

Amazon doesn't get this money at front. Their whole thing to customers is you don't have to pay up front to install servers. There are reserved instances.

But there are sort of ways that they try to get a little bit more um up front cash. But they have to go build these whole data centers, buying OS real estate, buying OS servers or leasing. However, they are structure.

And so they've had to get creative with capital leases on the data centers instead of buying them at front so that they can make the data centers effectively pay as you go, just like their revenue is pay as you go. So they don't get the incredible business model, the negative cash conversion cycle thing that they have in the retail business in A W S. And I think that's important to understand that, well, this business is much higher margin. Their effective cost of capital is higher.

Well, I guess he was on stock Price. I don't dropped that much. But people freak out this past quarter when amazon reported the hugely negative cash for oh.

right.

And this is why, right? And that is also why you shouldn't be like that, worried about IT. But compared to their retail business but has a negative cash, I call this is a less attract development of the A W S business model.

yep. And another one I had is I was reading from friends of the show tigers. They had this great transcript that I was reading from a former A W U S.

Business development person on kind of the obsession around multiple oud. And I got me thinking a lot around multi cloud. And the evolution of what cloud means has completely changed when cloud first started. IT meant use these primitive building blocks in our data center. Our are being amazon and pay as you go. And what IT has evolved to mean is use our cloud services, which exists now at a higher level of abstraction, in some of which are proprietary and IT doesn't actually have to be in our data center. And so the interesting thing about our multiple oud and hybrid cloud is going multiple oud being amazon, microsoft and hybrid cloud being this sort of in your data center and in r data center in the most recent A W S keynote, they announced a bunch of services, which are A W S cloud services that run in your data center, where amazon employees come and install servers and maintain servers in your data center.

It's the world. And there are like this is .

great because you get access to land a right on prem I mean, in the cloud and you're like what sorry, what how is that in the cloud if it's like, yeah ah because it's you know A W S lambda so it's cloud because slammed up but hot in your data center. It's in the cloud. I like, what are these words even mean anymore? He was funny reading this transport. T really made me start to contemplate what is cloud even now because IT also exists in multiple clouds and your data center. And so IT really actually ends up being about the set of proprietary services that you're building your application on rather than where is running.

I guess these days, you know that means going back to the beginning of the episode, IT means your I T infrastructure you are calling via N A P. I, right? I think that's what club means. Yeah.

someone's going to finished this episode like, well, I thought I knew what the cloud was and then bend and David talk for three hours and now I don't know what IT is anymore yeah.

you know when you see IT.

yeah alright, another one, make something people want. This is the Y. C. slogan. But this is exactly what I was on.

Did I think microsoft and google both wanted to build something that they thought would be an amazing business model and something that was clever to them as technologists? And what amazon decided to do is figure out what startups wanted to build on, figure out what IT managers wanted to lift and shift to and just build that. And it's boring.

But IT comes through in all these kino. I mean, every single thing has a customer use case attached to IT, a customer use case that drove them to develop IT. And it's funny how they refuse to do things like for the longest time, people like aren't you doing something in block chain? And andy, Jesse, comment on stages like we don't really understand the customer use case yet.

And this isn't like twenty fifteen or sixteen. This is six years before the recent buzz around web three use cases. And I just think they're so focused on that as the very first question you have to ask before investing a single dollar of engineering resources. IT is very impressive.

Where is in the same time frame, didn't microsoft have those ads with common in the cloud? Microsoft bm was like a lot yeah eventually .

did roll something out that was like this isn't a block chain, but we think that accomplishes the same thing that. You people who are asking for block chain based enterprise infrastructure are asking .

for interesting.

Okay, my next one is about asy metric upside. And this is another basis letter than a quote from twenty fifteen where he says given a ten percent chance of a hundred times pay off, you should make that that every time, but you're still going to be wrong nine times at a ten. We all know that if you swing for the fences, you're gona strike out a lot, but you're also going to hit some home runs.

The difference between baseball and business, however, is that a baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can ever get is for in business. Every once in a while, when you step up to the plate, you can score a thousand runs. This long tail distribution of returns is why it's important to be bold. Big winners pay for so many experiments.

Market size unconstrained.

The market size unconstrained.

I think that's got to be like a catch phrase on acquired .

that we should incorporate. Oh, for sure, let's print IT on some merge. Yeah but yeah, this is the year after he makes the market sized on constraint comment about A W S. I just think it's such a perfect illustration.

A lot of people make fun of certain venture capital investments, and i'm kind of only interested in the ones people are making fun of because that's the whole point of venture capital is seeking these crazy asian tric long tail returns. And I think jeff bazo got that Better than most vcs do. He's a phenomenal high beat capital allocators.

And so in running a company, I mean, he was also a very good Operational C E O, and also like an actual genius. So like all of these things, but there's lots to say about jeff basso. He's absolutely a genius.

He's absolutely brilliant Operator. But maybe even more than these things, he just gets capital allocation. And that's why I think amazon is effectively the highest performing venture returns in history. A W S is a venture bet in their portfolio that they own one hundred percent .

of also that quote, what did you say uh, in baseball of .

trade returns true.

That's the most jeff of those thing, right? I'm sure that iron judge is thinking that only close to the place like a if only I didn't have a truncated outcome distribution um so great IT also reminds me side bar because we're deep in the episode here watching the reinvent keino with three tastings yes, it's been so long since we did our to netflix series yeah we .

need a part three.

One was five years ago, but I think they're still really good. Be fun to go back and really listen to them read. Hastings is a huge nerd, oh yeah, a huge nerd.

I mean, he started his career doing like a data storage company.

Yes, I think of him now is like, oh, retesting CEO and founder of netflix. He's a business guy like no kind of league basis. He's like our true geek.

He's an engineer and his engineering project as his company.

yes. yeah. And I mean that in the highest possible compliment, those people are the .

people you could listen to talk forever, because they speak with such precision about their strategy. Because I actually thought through to a layer deeper then the platte de al stuff you Normally here. Yes.

all right.

So here's my last one, and you brought IT up earlier on the episode. I wanted to save IT to the end of playback. I think IT contrasts might take away from the last episode.

So I use this analogy that amazon would quickly spin something up, learn from IT, if IT wasn't the right thing, kill IT and take the learnings to do the next thing. And I think i'd called that bruford me finding, or path finding. Well, A W U.

S is different. They don't really have a fire phone or A Z shops. And the biggest reason for this is when you launched a service for enterprise customers, IT is really hard to kill IT. You burn customer trust. And actually, if you think about what's the bigger risk, burning the trust and losing that customer and all their future revenue or having to maintain kind of a crappy service that didn't work, you just maintain the service.

Such a good point. There are stuff that didn't .

live up to the full potential, like all the productivity applications theyve ever tried to workout there. I O T offering Green grass. I think I O T just didn't pan out way that everyone sort wanted that to.

They launch something in twenty thirteen called upstream to run mobile apps in the cloud. But the commitment of maintaining these things is just completely different A W S than in the consumer business. And the biggest illustration is simple D B.

So dynamo D B comes out. It's way more performance. IT has sort of a similar jo B2Be don e. And simple D B had all kinds of cost issues for amazon, but there were customers using IT. So they kept up I think one of those customers was even netflix, and they just didn't want to deprecate something that .

customers were using yeah and this is why you you log on the the A W S product page and there's two hundred services there. Such a good point. You can't like it's not worth IT to them to kill anything.

Yep, all right. great.

Do we even really need to discuss this?

I mean, we could be like, okay, a plus were done. Here's probably the most interesting way to think about. And actually, amen as stretched this out from just A W S.

And talk about all of amazon. 嗯， okay, great to sort of a value that going forward, what is a market cap? Well, market cap.

market cap unconstrained.

What is value? What is money? So what is market cap? Market cap is the sum of all future cash flows discounted to the present day at some discount rate. And you know the long term, the market is a waiving machine, even if the short term is a voting machine. Thank you to warn buffet.

So amazon has a one point five trillion dollar market cap and they had like a five year run where they generated some cash and then the pandemic hit and they made a buntine investments. And now they're certainly not generating cash. And up until twenty fifteen, they broke even.

They know how to do one thing really, really, really well, which is reinvest every single dollar into growing. And i'm very curious what this business looks like when they stop doing that at some point. Will they see when they're actually saturating other total addresses markets and ease back on growth so that they can generate the maybe hundreds of billions of dollars in profits per year? They need to justify this market cap.

If you're worth one point five trillion dollars IT does suppose that you're spitting off like a hundred billion dollars here somewhere on that order of cash, which we've never seen them do or come close to doing so. Either they need to continue Operating the way that they have and continue finding more AWS or at some point, they need to realize, oh, there is the edge of the time. Let's start generating a ton of cash even though we've never known how to do that before.

I think on the last episode, I said if but of course, when we had to interview jeff basis, the question I really want to ask him is, is that still day one? Is that day too? Why did you retire all that stuff? But you raising interesting point. Amazon as a company as a whole is to sort of architecture. And jeff ford say, I told you guys all along is architecture to always be a day one company in that he needs to always keep growing.

yes. So at some point that bumps up against the GDP of the world, right? You can't actually and do that indefinitely unless the GDP the world keeps growing at a faster rate than amazon's growth, which is definitely not true, amazon's a much higher growth company than the world's GDP.

So maybe this is like a well, at some point, you know, billion years from now are all dead and the earth gets sorted by the sun anyway. So don't project out this far. But I am curious if you held amazon indefinitely until the company no longer existed, which I will at some point, will you actually realize one and a half trillion .

dollars of value? Yeah good point. Maybe this is part of jeff stuffing back and and Jessie becoming C O. And the whole .

company is to actually figure out how to do that.

Yeah I mean, I can imagine that that's a chAllenge that i'm totally projecting here into jeff pizzas. His mind always a dangerous thing to do in part is, is so much more expensive than anybody who would try project into IT. But I bet that's not something he's personally very interested .

in figuring out, right? I think got a great point. And I should say, I mean, I think in the twelve months leading up to june of twenty twenty, they generated twenty seven billion a free cash flow.

They know how to generate cash. I sort of thought they were on the path starting, I think like twenty fifteen and sixteen when they really started actually becoming free catch for a positive and growing that year over year. And that just stopped when the pendel c hit. So maybe we're in some temporary anomaly that they'll go back to the twenty nineteen mode here shortly or maybe the anomaly was the last five years before coffee.

andy, I think, has said on recent earning calls, hey, we're going to be moving back towards profitability. We know how to do this.

Don't free go. Yeah and that's the exact opposite message of what jeff fazer said in the twenty twenty letter right? One ah he .

said if you're a .

sherwood and amazon you may take a seat uh.

great. Yeah he said a cowboy like we talk about, you know, he wears the cowboy boots truly.

Anyway, that sort of a thought experiment exercise. But to actually greet IT, I mean, IT was an activity of new market creation that just completely worked and invented one of the biggest markets of all time and then became the leader in that and managed have no competition for the first five years and then stave off everyone coming after them, basically permanently. They own just little enough of this market that is not a regulatory concern. Like if they owe eighty percent of cloud IT, probably would be worse for them long term.

Here's a question. What is amazon strategic in letting microsoft back in the game?

No, I don't think so. I think that's too difficult of a future to see to canabal ze current ae.

i'm sure they worried about and I trust and regulation.

yeah I mean to say when the oogly looks at being, i'm sure which just like wool.

think about that exist what's the great at an a plus?

But grading of silly extras, I most want to cut IT from these types of episodes. But I do think the interesting question is that I do want to continue to ponder for a while as if you held the amazon ad info iam and you own one hundred percent of the company, would you ever be profitable on your business to buy IT for acra and half dollars is .

the warm buffett then? Gram, a stock is a piece of a business. yes. If you were able to buy the whole company of amazon 点 com for one point five trillion dollars， is that a good use of capital?

Yeah, great question. I think .

you probably is that's .

I thought you're .

going up a little bias here. Well, come on. Yes, a plus for me to get out of the division of this company has a hundred billion dollars of contracted revenue plus were done dave.

things stocks .

cheap yeah a carvel what you get?

Yes, carve outs. Mine is a very enjoyable show that I watched on disney. Plus is a marvel show called moonites.

And I would say it's not the best show that i've seen on disney plus. But IT is the best acting that I have seen in any marvel cinematic universe shows. Yes, I still think loki is probably the best written. And what was the one with the skate witch?

Oh.

wonder vision, one division also very good. Fantastic writing. I would say this is like almost to those calibre, but definitely a notch below. But Oscar Isaac playing the lead role is some of the best acting i've seen in any T, V. Or movie ever. And the writing is entertaining enough where you can just sit there and enjoy his performance in a way that feels broadway level theatrical. I did not appreciate him as an actor until this wait poo demon.

Yeah like he's done another disney star wars stuff.

He's also done some other crazy roles. I think he's in x markina.

Have you watched any of the new star wars stuff?

I just finished all in one canobia was deeply unenclosed uh, I enjoyed IT like as a star wars fan, just more star wars is awesome and like getting to see o be one of different ages awesome but I think they took away from the gravity OS of his character, I guess. Okay, spoiler alert, please stop this. If you've not seen to be one canoe, it's gonna be spoiled where i'm not going to tell you the end of the series, but i'm going to tell you what the series is about. It's about the period of time between when he arrives on tattoo in at the end of episode three, but before a new hope and in a new hope, there's all this great gravitates given this idea that, like, wow, he came here and it's been like living in a cave marine and away from all the stuff forever since we last saw him.

is the old man. And right.

right, he brings looks to task wine, and that's his responsibility. And this is like a whole gale active adventure that takes place. He's like consolo, where he leaves tattoo in and comes back. And I won't spoil things too much with very, very major characters where ob one has interactions with them in big material fights that totally would change the character dynamics in the level of import put on his character on tattoo in in a way where IT feels like get cheap and the can into date by this existing.

I have not watched any of the new stuff, but I feel like lucas film just needs a new start. Doesn't feel like it's going in a good direction.

The I P also doesn't really lend itself well to serials. I don't know, maybe that's not true. I did really like the manual arian, yeah. And then I like when bob fat tried to become the mentorian by being like bob fat is not that good. Let's just kind of make IT the manual arian again.

Well, that could be a deficit .

for another day. Moon night. Oscar. Asic, go watch IT.

awesome. My carve out is one that if you are listening to this now, i'm pretty sure you're gonna love this. I have a high degree of confidence in the affinity overlap between people listening right now and the car out that I am about to say, which is lex freeman five and a half hour interview with john carbet.

It's so good. It's so good. It's awesome. Car max.

just a legend. I'm an hour and and it's great.

It's so, so good. Especially having not knowing that, that was coming, having just recently listened to the audio, but of masters of dom.

I was made for you. It's perfect.

Uh, I am just in heaven, in heaven, reading messages of doom and now listening to this episode, this interview with carmax makes me actually want to go either talk to or find out more from romero, john merrow, and hear how he thinks about things like his history of of IT because carmack actually says in the beginning of the interview with lex, johor marrow is Better talking about the history of IT and being kind of the keeper of that.

Then I am then have a nice moment kind of way through the interview with legs where he talks about the relationship with became super strained and then blew w up and when he blew up, but I think kind of reconciled and it's nice anyway, the whole thing Carry mak is he's just one of those people that Operates on a different level than most of humanity, at least in the technical realm. And it's very interesting that he did V, R, and he was an accusation part of facebook in mean, the thing that is working on now is A I, and in particular, artificial intelligence. It's great interview.

so I can we to finish IT our at listeners. Well, thank you so much to fundraising. Ilog and N Z S capital links for all three of those are available in the showing tes, as well as a link to register for our N Z S talk back which the first one was super fun and can't way to do a second one with them on this White paper as well after finishes episode come discuss IT with all of us thirteen thousand strong now quired slack community slash slack pick yourselves up a sweat shirt or tank or putty a cune ck or one z at acquired dot F M slash store, you can totally become an acquired L P. And get early access to our lp episodes at acquired data m slash lp or just get to in their public search, the podcast player of your choice for acquired lp show and our latest episode will be live there soon with nature ning of kindergarten ventures fame and of kel as well. Honestly, reinsurance is fascinating, and I never would have thought I would .

have said that as is enterprise I T infrastructure.

A, N, R, listeners, have a good one. See next time.

I'll see you next time. Easy you, easy you, busy you who got the.