The Empire That Started with Books. What began as a modest online bookstore in 1995 has transformed into one of the world’s most valuable companies, with a market capitalisation of approximately $2 Tn as of mid-2025. Amazon’s journey from selling books to dominating multiple industries is a masterclass in building sustainable competitive advantages through what Jeff Bezos termed the "Flywheel effect." Today, Amazon commands 38% of the US e-commerce market, operates the world’s largest cloud computing platform, and runs a digital advertising business that rivals Google and Meta. The secret to Amazon’s dominance isn’t just diversification; it’s the interconnected flywheels that create unstoppable momentum.
The Anatomy of Amazon's Original Flywheel
Phase 1: The Customer Obsession Foundation
Amazon’s initial flywheel was simple yet powerful, rooted in a relentless focus on customers. This wasn’t just a slogan; it was a strategic engine driving growth. The original flywheel operated as follows:
- Lower prices attracted more customers.
- More customers increased sales volume.
- Higher volume enabled better supplier negotiations and economies of scale.
- Lower costs allowed for even lower prices and a wider selection.
- An improved customer experience attracted even more customers.
This self-reinforcing cycle created a moat that competitors struggled to breach. As Bezos once noted, “We can afford to lose money on individual transactions because we make it up in volume and customer lifetime value.”
Phase 2: The Reinvestment Strategy
Unlike traditional companies that prioritise short-term profits, Amazon reinvests nearly all earnings back into the business. This strategy yielded:
- Infrastructure: Massive logistics and tech investments created barriers to entry.
- Efficiency: Operational improvements translated into lower prices for customers.
- Innovation: Resources fuelled experimentation in new categories and markets.
- Expansion: Global reach and new product lines broadened Amazon’s footprint.
Amazon has never paid a dividend, maintains a trailing P/E ratio above 80, and has redefined investor expectations for e-commerce and retail businesses.
The Multi-Flywheel Empire
Amazon’s brilliance lies in its ability to create multiple interconnected flywheels that reinforce each other, amplifying its dominance.
AWS: The Crown Jewel Flywheel
What began as an internal solution to Amazon’s scaling challenges in the early 2000s has become the backbone of the global cloud computing industry. Facing rapid e-commerce growth, Amazon’s IT team adopted a Service-Oriented Architecture (SOA) using RESTful APIs, building robust storage and infrastructure capabilities. This foundation evolved into a pioneering venture into cloud computing, with Infrastructure as a Service (IaaS) and Software as a Service (SaaS); novel concepts at the time. By addressing internal IT bottlenecks, Amazon’s engineers freed up resources to focus on consumer-facing features, enhancing customer experience and driving retail traffic.
Recognising the potential to monetise this infrastructure, Amazon’s management transformed these internal capabilities into an external offering: Amazon Web Services (AWS).
Launched in 2006, AWS has grown into a market leader, powering global giants like Netflix, Airbnb, Uber, and, in Australia, Commonwealth Bank, one of the first banks to adopt it. This strategic move not only generated massive profits but also provided Amazon with unparalleled insights into enterprise technology trends, ensuring agility and future-proofing against inefficiency.
Today, AWS is Amazon’s crown jewel, with remarkable financial and strategic impact:
Financial Performance:
- Revenue: ~$110 Bn annually (up from $80 Bn in earlier estimates).
- Operating Margin: ~28%, making it one of the most profitable tech businesses.
- Contributes: ~60% of Amazon’s operating profits, offsetting retail losses (e.g., Amazon would have reported a net loss in FY22 and Q1 FY23 without AWS)
- Growth Driver: Achieved a 25% CAGR over the past five years, driven by AI and digital transformation.
Market Leadership:
- Holds ~31% of the global cloud infrastructure market, ahead of Microsoft (22%) and Google (12%).
- Serves as the computing backbone for major online companies, powering critical workloads globally.
Strategic Importance:
- Provides Amazon with deep insights into enterprise tech trends, enabling rapid pivots and innovation.
- Operates as a separate platform, ensuring operational agility and resilience against technological stagnation.
Pricing Strategy:
- AWS’s sales team highlights 129 price reductions since its inception, passing operational efficiency savings to customers.
- This customer-centric approach reinforces AWS’s competitive edge and drives adoption.
Future Outlook:
- With sustained market share (excluding China), AWS revenue could reach $200 Bn by 2030.
- Improved margins from optimised data centre capacity could yield $80 Bn in profits by decade’s end.
- Amazon’s share price (~$180 as of mid-2025) and P/E ratio (>80) reflect investor confidence in AWS’s growth.
AWS exemplifies platform thinking; internal solutions became a market-leading product, generating profits and insights into enterprise tech trends.
The Fulfilment and Advertising Flywheels
Amazon’s platform spawned two additional flywheels:
Fulfilment by Amazon (FBA)
- Revenue: ~$140 Bn in 2024, with a 30% CAGR since 2015.
- Market Penetration: ~70% of Amazon sellers use FBA.
- Strategic Value: Enhances customer experience while creating switching costs for sellers.
Digital Advertising
- Revenue: ~$50 Bn annually in 2025.
- Competitive Edge: Amazon’s ads leverage purchase intent, often outperforming Google and Meta in ROI.
- Growth Driver: High-margin revenue tied to marketplace activity.
Amazon Prime: The Loyalty Flywheel
Amazon Prime is a masterclass in customer retention, offering:
- Free, fast shipping.
- Prime Video, Music, and other services.
- Exclusive deals and early product access.
Prime generates ~$40 Bn in subscription revenue annually and drives higher spending from members, reinforcing engagement across Amazon’s ecosystem.
The Numbers Tell the Story
Amazon’s financials reflect its flywheel-driven dominance. In Q2 2025:
- Revenue: $165 Bn up 11% year-over-year.
- Net Income: $15 Bn, reflecting improved profitability.
- Market Cap: ~$2 Tn.
- Workforce: Over 1.5 Mn employees, surpassing the population of Adelaide, Australia.
- AWS Contribution: ~60% of Amazon’s operating profits.
While growth in some segments has slowed, third-party seller services grew 8% in Q2 2025 (down from 15% in 2023), and advertising grew 16% (down from 22%). New initiatives continue to drive expansion.
Future Flywheels: What’s Next?
Amazon is spinning up new flywheels to sustain growth
Generative AI and Cloud Computing
AWS is capitalising on the AI boom with services like Amazon Bedrock. Despite trailing Microsoft in some AI areas, AWS’s infrastructure and investments position it for a projected 22% CAGR in cloud revenue through 2030.
Amazon Kuiper: The Space Flywheel
Project Kuiper, Amazon’s satellite internet initiative, aims to provide global broadband. While pre-revenue, it could integrate with AWS and logistics, creating a new flywheel by 2030.
Healthcare and Financial Services
Amazon’s investments in healthcare (e.g., Amazon Pharmacy) and financial services leverage its logistics and customer trust, potentially unlocking billion-dollar markets.
The Risks That Could Slow the Flywheel
Amazon faces challenges that could disrupt its momentum:
- Competition: Walmart, Target, and Shopify are scaling e-commerce capabilities.
- Regulation: Global scrutiny over antitrust, labour, and privacy practices intensifies.
- Tech Risks: Outages or cyberattacks could disrupt operations.
- Economic Sensitivity: Retail spending is vulnerable to downturns, though AWS provides a buffer.
- Reputation: Criticism over labour practices and environmental impact could erode trust.
The Flywheel Effect in Action
Amazon’s flywheels are interconnected:
- AWS profits fund retail and logistics expansion.
- Retail scale enhances FBA efficiency.
- FBA growth drives advertising revenue.
- Prime membership boosts engagement across all services.
This creates network effects, where each component’s growth amplifies the platform’s value.
Lessons for Business Leaders
Amazon’s strategy offers timeless lessons:
- Customer Obsession: A practical framework for sustainable growth.
- Long-Term Thinking: Sacrificing short-term profits for reinvestment drives massive value.
- Platform Thinking: Internal capabilities can become market-leading products.
- Interconnected Systems: Businesses that reinforce each other build stronger moats.
- Experimentation: Flywheels provide resources to take bold risks.
The Road to $1 Trillion in Revenue
Amazon is on track to surpass $1 Tn in annual revenue by 2030, driven by:
- AWS growth to ~$200 Bn.
- Global e-commerce expansion.
- New categories like healthcare and financial services.
- AI-driven efficiencies across segments.
Conclusion: The Flywheel That Changed Everything
Amazon’s evolution from bookstore to global titan showcases the power of systems thinking. By building interconnected flywheels, Amazon created a momentum that competitors struggle to match. As Amazon spins up new flywheels in AI, space, and beyond, its approach remains a blueprint for building unstoppable businesses. The flywheel effect isn’t just Amazon’s secret; it’s a model for creating lasting competitive advantages in a connected world.
Note on Cloud Evolution:
- Cloud 1.0 (2008-2013): Focused on cost reduction and OPEX reduction. It was primarily about moving to the public cloud for IaaS/SaaS to achieve fulfilment-centric goals, essentially running IT with a focus on cost savings.
- Cloud 2.0 (2014-2019): Shifted to a focus on economics and demand-centric goals. The technology expanded to include Private and Hybrid Cloud models (I/P/D/SaaS). The objective was to achieve scale and agility, moving from a pure IT function to a business enabler.
- Cloud 3.0 (2020 to date): The current phase is driven by revenue and a focus on digital transformation and generation. The key themes are Hybrid Cloud, Multicloud, Cloud Native, Edge Computing, and Distributed Cloud. The primary goals are achieving resiliency and improved customer experience (CX), with cloud becoming the platform of choice for business enablement. This phase is characterised by a "Grow - Digital Transformation" mindset, where cloud is a strategic driver for business growth.
The Three Waves of Application Modernisation: From Cost to Customer Experience
- Cloud 1.0 (2008-2013): The focus was on basic application migration for cost reduction and OPEX reduction. The primary strategies were "Rehost (lift & shift)" and "Retain," moving existing applications to the public cloud with minimal changes. The goal was fulfilment-centric, using the cloud to run IT more cheaply.
- Cloud 2.0 (2014-2019): Cloud adoption shifted to enable scale and agility. Application strategies became more sophisticated, with a focus on "Revise (refactor)," "Rearch (cloud-optimised)," and "Rebuild (new build)." This phase used both public and private clouds to support business and operational functions, with a demand-centric approach aimed at improving economics.
- Cloud 3.0 (2020 - To date): The current phase is driven by digital transformation and a focus on resiliency and customer experience (CX). The dominant strategies are centred around "Cloud Native" development. This includes building applications using a "Headless, Composable, API Driven" architecture. Cloud 3.0 uses distributed and hybrid models to make the cloud the "platform of choice" for all business functions, with the goal of revenue protection and generation. The key focus is on "Replace (SaaS)" and building modern, agile applications.
Sources: Seekingalpha, AWS Blog, Gartner, Forrester, Chatgpt, Claude, Gemini, AFR, Bloomberg, Forbes, Economist, Times, Wired, Palantir, CIO, Excerpts from my book on GenAI The New Reality, my Blog
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