E-commerce and cloud computing
Amazon: How a Retailer Built a Cloud Giant
Amazon turned its internal computing capabilities into Amazon Web Services, a segment that earns far higher operating margins than its retail operations.
Company background
Documented factAmazon.com, Inc. began as an online bookseller in the 1990s and expanded into a broad online retailer, a marketplace for third-party sellers, subscription services, advertising and cloud computing through Amazon Web Services (AWS).
In 2023, Amazon reported net sales of $574.8 billion, up 12% from $514.0 billion in 2022.
Financial snapshot (2023)
Documented fact| Measure | 2023 | 2022 |
|---|---|---|
| Total net sales | $574.8 billion | $514.0 billion |
| Total operating income | $36.9 billion | $12.2 billion |
| AWS segment net sales | $90.8 billion | $80.1 billion |
| AWS segment operating income | $24.6 billion | $22.8 billion |
Calculated from the figures above: $90.8B ÷ $574.8B and $24.6B ÷ $36.9B.
The business problem
AnalysisOnline retail has high costs (warehouses, shipping and inventory) and intense competition, which keeps margins thin. Amazon needed a way to earn higher profits from capabilities it already had.
Strategic analysis
AnalysisCore competencies become a new product
Running one of the world's largest websites required Amazon to build massive, reliable computing infrastructure. That core competency became a product: renting computing power and storage to other businesses.
Margins tell the story
- AWS produced about 16% of 2023 net sales but about two-thirds of operating income.
- AWS's operating margin was about $24.6B ÷ $90.8B ≈ 27%, while Amazon overall earned about $36.9B ÷ $574.8B ≈ 6.4%.
- Comparing KPIs like operating margin by segment shows managers where profit is actually created.
Decision simulation
Turn a capability into a business
You run a fictional online retailer that built excellent warehouse-automation software for itself. Decide what to do with it.
Outcomes come from a simplified teaching model built by astrastudy. They are not predictions, and they are not what the company actually did or would experience.
Revenue index
100
0 vs. start
Operating margin
4%
0 vs. start
Strategic risk
40
0 vs. start
Decision 1 of 3
Other retailers ask to license your software. What do you do?
Key business lessons
- Core competencies can be turned into new products that serve entirely different customers.
- Segment KPIs such as operating margin reveal which parts of a business generate profit.
- A strategy aligns resources with goals: retail scale built capabilities that AWS later monetized.
Test yourself on this case
AP-style multiple-choice questions with detailed explanations after each answer.
Sources
- Amazon.com, Inc. Form 10-K (fiscal year 2023) · U.S. SEC EDGAR · accessed 2026-10-30
- Amazon.com Announces Fourth Quarter Results (Feb. 1, 2024) · Amazon Investor Relations · accessed 2026-10-30
Company names are used to identify the businesses discussed. Figures are reported as published in the cited filings. Hypothetical sections and simulation outcomes are invented for teaching.