Day Two Cloud 086: AWS Succession – Ham Sandwich Edition

This week’s episode of Day Two Cloud is an open discussion between me, Drew Conry-Murray, and Ethan Banks regarding the successor to Andy Jassy as AWS CEO. Drew had made an off-hand comment suggesting that Amazon could put a ham sandwich in charge of AWS and it would still perform just as well. I challenged Drew to argue his point, and Ethan took up the counterpoint. It’s a lively discussion and I highly recommend giving it a listen.

After recording and listening back to the discussion, I had a couple thoughts I wanted to share. The first is the concept of wartime and peacetime CEOs proposed by Ben Horowitz. The second is the concept of creating a product that drives a market. I’ll address the first in this post, and the second in a follow up later.

You might be familiar with Ben Horowitz from his book The Hard Thing About Hard Things or his activity as founder of the VC firm a16z with Marc Andreessen. In his post on wartime versus peacetime CEOs, he outlined the key differences in the approach of each CEO to their company and mission. He also briefly discusses what determines whether a company is in peacetime or wartime, with the primary example being Google.

I’d like to apply a similar framework to AWS. Are they in peacetime or wartime? The key to peacetime is that you are in a stable and dominant position in the market. Your primary mission is to pursue a strategy that continues with steady growth. The overall market for peacetime is one of general growth, so the pie is getting bigger for all involved. The peacetime CEO can focus on developing and expanding the culture of the company, practicing big picture thinking, and delegating details to subordinates.

A company in wartime is facing a significant existential threat that could either destroy or seriously hamper the company’s future prospects. You would expect to find a company in this position when a market has been disrupted by a new technology or there is a rising player who threatens the dominant player’s security. There can also be macro-economic factors or supply-chain issues or even a hostile political climate that poses the threat. The point is that the wartime company is under significant threat and is fighting for its existence or at the very least, market relevance.

Which position does AWS find itself in today? I’d argue that they have arrived in peacetime, and will remain so for the next 5 years. In the early days, AWS was helping to establish a completely new market category. They had to convince companies to put their most important services in a location they did not control, using services they did not manage, with a company that until fairly recently was thought of as an online bookseller. Andy Jassy and Jeff Bezos both had to run AWS like a wartime company to ensure that AWS would grow and expand. They faced resistance from prospective customers, competition from entrenched tech vendors, and the difficulty of creating a new market category out of whole cloth. Both Jeff and Andy had to be intimately involved in the details, engage with the “enemy”, and strive to establish their position as the dominant player in cloud computing.

By any measure, AWS has been completely successful in their play. They have risen to become the dominant player in the cloud computing market by a significant margin. If we rewind to 2016, when Jassy actually became CEO, AWS held 31% of the market with the next closest player in the field, Azure, clocking in at 9%. Fast forward to today, and AWS still holds steady at 32%, with Azure now taking up 20%. Microsoft has seen tremendous growth, while AWS has been able to maintain their dominant position. It is that stability of market dominance that I think places AWS firmly in the peacetime category.

Now why would I say that they are in a peacetime situation for the next 5 years? The cloud computing market is continuing to grow at the moment, and the market has consolidated around a few major players – AWS, Azure, and GCP – with everyone else trailing far behind. All indications point to the market continuing to grow for at least the next five years, and during that time AWS shouldn’t have any trouble maintaining its current position. But eventually one of a few things is going to happen:

1. Microsoft Azure starts to threaten AWS’ dominant position (this is already looking likely)
2. Market growth will slow and AWS growth will slow with it (unlikely in 5 years)
3. An upstart disrupts the cloud computing space and becomes a threat (unlikely, but possible)

When one of those three scenarios eventually plays out, AWS will shift from peacetime to wartime. And I predict that will prompt a change in senior leadership at the company. In the short term, Andy Jassy and Jeff Bezos are going to select a peacetime CEO to head up AWS and maintain the status quo. A sentient ham sandwich could certainly do the job. Five years hence? I think we’ll have a reckoning and that ham sandwich will be swapped out for a more aggressive and decisive leader who can protect AWS’ position against its adversaries. Possibly a pastrami on rye?