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Amazon Web Services Case Solution

Solution Id Length Case Author Case Publisher
1971 1496 Words (6 Pages) Robert S. Huckman, Gary P. Pisano, Liz Kind Harvard Business School : 609048
This solution includes: A Word File A Word File

Amazon, an internet based firm offering its retailing services, worldwide since 1994. The company was primarily an idea of Jeff Bezos who is currently serving as the Chief Executive Officer and President of the company. Amazon started offering first of its many web services in 2006, but recently it launched few other web service, which have added to the profit of the firm. In the year 2012, Amazon web services added at least US$ 1.5 billion to the total company revenues (Amazon Web Services, Inc., 2014). Amazon offers services such as Amazon EC2 and Amazon S3, which is basically a cloud computing platform providing large computing capacity to its customers. The element of centrality and sharing of its databases and servers not only makes them a cheaper, but also a faster alternative for firms as compared to building their own server network. Current major customers of the Amazon Web Services include CIA, Netflix, Pinterest, Obama Campaign, NASA, Foursquare, reddit, etc. (Amazon Web Services, Inc., 2014).

Following questions are answered in this case study solution

  1. Introduction

  2. Recession

  3. Interest Rate

  4. Exchange Rate

  5. Conclusion

Case Analysis for Amazon Web Services Case Solution

2. Recession

Initially, when the Amazon web services were launched, they were majorly used by small businesses and new start-ups. In fact, North American venture capitalists had made their one of the regular questions whether the new start-ups were using Amazon web services, or not. However, as the global economic recession emerged in mid – 2008 and affected all major global industries, increasing number of large sized companies started preferring the web services of Amazon over expanding their own physical server farm. Since 2008, several large sized organizations have moved their infrastructure on Amazon web services. Now from hosting websites to using the storage, enterprises are using almost every aspect of Amazon web services. In 2012, almost four – fifth of the total revenue of Amazon Web Services was derived from large sized organizations (Matthews, 2012). 

Many industry experts are of the opinion that under normal circumstances, it would have taken at least a decade for enterprises to shift their infrastructure on Amazon Web Services, but it took only a couple of years, and the primary reason behind it is the global economic recession, which not only affected enterprises’ budgets on information technology, but also made them consider alternate sources. Now small to large sized organizations have the option of converting their capital expense into a variable expense i.e. earlier the cost of investing in IT infrastructure had to be paid up front, irrespective of the fact that the company would use all services, or not. But now the landscape has changed to a great extent as organizations have the option of paying for what they are using only. Various organizations, around the world, depending upon their size and their prior IT infrastructure cost have saved somewhere between 20% - 500%, which is immense, particularly in times of recession (Brunozzi, 2008). 

So, interestingly, despite the fact that the global economic recession of 2008 has had a negative impact on almost every business and industry of the world, it has been otherwise for Amazon. During times of economic recession, when Amazon Retail Service was facing trouble in making its ends meet, it was Amazon’s other division that supported the company and ensured that the company stays profitable throughout the rough period. Amazon was one of the few companies that benefited from the recession as it made room and promoted the concept of cloud computing, around the world. Hence, it would not be wrong to suggest that the economic recession has left a positive influence on Amazon’s new entrepreneurial venture of introducing web services to worldwide clients (Jassy, 2011).

3. Interest Rate

Interest rate is one of the few determinants that directly affect the business, irrespective of the fact that it is old or new. First direct impact of interest rate is on the cost of borrowing. Every business is looking for options to source their money, particularly if it is planning for expansion and further investment. If the interest rate goes up, then obviously, the cost of borrowing money also increases. The proportion of borrowing to owner’s equity, degree of dependency on credit for financing operational activities, etc. will affect the business, which will ultimately increase the cost of business. As the cost of doing business increases, the organization will start selling its products, or services at a higher rate than they used to earlier, but this might not be the case with every industry as the economy does not works in an absolute linear manner where increase in one determinant leads to increase in the subsequent one (Parrish, 2013).

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