Jeff Bezos’ AWS Example Reminds Us Why “Risky Bet” Doesn’t Mean You Shouldn’t Take the Risk.
AWS is by far Amazon's most profitable business. It generated $62.2 billion in revenue for the firm in 2021.
In the year 2021, Amazon Web Services (AWS) brought in $62.2 billion in revenue for Amazon. Just as the iPhone is Apple's golden goose, AWS is Amazon's. If today, AWS is the global cloud market leader and everything seems easy, Jeff Bezos recently reminded us via a tweet how much his strategy was decried in the mid-2000s:
Business Week had made the cover of its magazine in November 2006 talking about “Amazon's Risky Bet”. The magazine recalled that Wall Street had a rather conservative vision of what Amazon should be. The investors of the market wanted Amazon to focus on its core business.
It must be said that in 2006, the value of Amazon was light years away from what it will be in 2022. Amazon weighed around 10 billion dollars, and investors and analysts were beginning to lose confidence in the promises of Jeff Bezos.
The Business Week article criticized Jeff Bezos for going on an ill-timed spending binge, noting that his investments in new technologies such as cloud computing had increased by 52% since January 2006, while Amazon's share price had fallen by 20% over the same period.
Business Week didn't hesitate to call Amazon Web Services the biggest bet Jeff Bezos has made since he and his wife left the East Coast to come West in 1994 and found Amazon.
Long term vision versus short term vision
This risky bet as it was called by investors and analysts is a reminder that it is often difficult to reconcile short-term and long-term vision. On the one hand, you had investors obsessed with the short-term vision, and on the other hand, you had Jeff Bezos who had a long-term vision.
Jeff Bezos was already convinced that AWS was going to be the core business of Amazon. So a risky bet doesn't mean you shouldn't take the bet. This is the mentality of Jeff Bezos and all billionaire entrepreneurs in Silicon Valley.
What happened next proved Jeff Bezos totally right. Amazon's cloud computing platform revolutionized the industry while contributing greatly to making Amazon a company valued at over $1T on the stock market.
In 2021, Amazon Web Services generated 62.2 billion in revenue for the company founded by Jeff Bezos. It is this business that allowed Amazon to remain profitable in the first quarter of 2022 as well. AWS made $6.52 billion in operating income during Q1 of 2022, far outpacing Amazon's total operating income of roughly $3.7 billion.
The Business Week article was not totally wrong, as Jeff Bezos has always followed the same strategy over the years of making big bets on new technologies and using the profits from his successes to subsidize his failures. The example of the $170 million failure of the Fire Phone which then gave birth to the incredible success of the Echo connected speakers is still very much in investors' minds.
Nobody doubts Jeff Bezos anymore.
Everyone has understood that it is by taking risky bets that Jeff Bezos was able to achieve the greatest success. Like Elon Musk, Jeff Bezos knows that the price of huge achievements is to have increasingly expensive failures. But the game is worth the candle, and this is the only way to innovate.
Jeff Bezos had perfectly reminded us of this in 2019:
“We need big failures if we're going to move the needle - billion-dollar scale failures. And if we're not, we're not swinging hard enough.”
Final Thoughts
As an entrepreneur or even as an individual, this philosophy must become yours. Never give up on your plans and ambitions just because the gamble seems risky. If you are convinced of something, commit to it. Something positive will always come of it if you learn to see failures for what they are: a stepping stone to future success.
No one gets it right the first time in life. That's a myth that doesn't hold. Instead, it is by learning from your failures and adapting that you will achieve the great success you aspire to. The example of Jeff Bezos is there to convince you.