Amazon Web Services

**David Rosenthal** (0:00)
People turns out love the amazon.com episode. That was so awesome. Makes me a little nervous for this one.

**Ben Gilbert** (0:08)
Oh, massively, by far and away, our biggest episode ever. Is this how George Lucas felt when he was doing Empire Strikes Back?

**David Rosenthal** (0:17)
You did not just compare us to George Lucas, did you? I swear we're humble.

**Ben Gilbert** (0:23)
All right, let's do this. Welcome to season 11, episode 3 of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund PSL Ventures.

**David Rosenthal** (0:56)
And I'm David Rosenthal and I am an angel investor based in San Francisco, cold San Francisco here in August.

**Ben Gilbert** (1:04)
And we are your hosts. All right, David, let's say you run a lemonade stand. You sell me the highest quality lemonade you can for the lowest price, $1 a cup. And when you add up all your costs, the variable ones like the lemons and the fixed ones like the table that you rented, it costs about 98 and a half cents to give me that lemonade. And you're happy your turn to profit, I'm sure. But man, you are going to have to sell a lot of lemonade.

**David Rosenthal** (1:32)
So you're telling me I'm amazon.com in the fourth quarter of 2001, which is actually where we're going to start our story.

**Ben Gilbert** (1:39)
Perhaps. But you discover something interesting. By making all this lemonade, you get really good at the stuff it takes to run a lemonade business. The perfect cups and ice and lemons, everything. And it turns out all that stuff that you just got good at, you can sell to other businesses. And guess what? You realize further that when you sell your services to other companies, when you charge them a dollar, it only costs you 70 cents to make it.
So 30% margins, instead of something like a percent and a half, you have to sell a lot less of those services than you ever did on lemonade to make the same amount of money.

**David Rosenthal** (2:17)
Well, then, if you told me that, I would dig into it even further and I would realize that the existing companies that sold stands and cups and whatnot, they were actually making 70% margins on their stands and cups. And so, I would be quite happy to take 30% margins and disrupt them and still do better than my lemonade business.

**Ben Gilbert** (2:41)
Well, listeners, of course, on our last episode, we talked about Amazon's retail business. And today, we are talking about Amazon Web Services, the cloud computing pioneer. And those margin percentages that I just used are the real ones for the retail business and for AWS. AWS's revenue is only about 15% the size of Amazon's massive retail business, but their profits, or the operating income, to be specific, from AWS are in total the same, if not more, than their e-commerce store. I think it's the case that every year since 2015, when they started breaking out AWS's financials, the total operating income from AWS has actually been bigger than the retail business.

**David Rosenthal** (3:25)
There may have been some quarters where it was off, but generally that trend is accurate.

**Ben Gilbert** (3:32)
We're going to talk about a completely different type of business today than we talked about last time. Sort of. There's a lot of similarities and a lot more than you would guess when looking at an online retailer that started as an online bookstore and a cloud computing pioneer. Well, speaking of e-commerce, we have huge news. You can finally buy Acquired Merch on the Internet. That is available at acquired.fm slash store or click the link in the show notes. You can grab your favorite tea, crew neck, hoodie, tank, or even a onesie, since I know a lot of you out there are like David and have little ones at home. This is a great time to tell you about one of our very favorite companies, Crusoe.

**David Rosenthal** (4:13)
So Crusoe, as listeners know by now, is a clean compute cloud provider specifically built for AI workloads. NVIDIA is one of their major partners and literally Crusoe's data centers are nothing but racks and racks of A100s and H100s. And because Crusoe's cloud is purpose built for AI and run on wasted, stranded, or clean energy, they can provide significantly better performance per dollar than traditional cloud providers.

**Ben Gilbert** (4:38)
Yes, we talked about that on our ACQ2 episode with Crusoe CEO, Chase Lockmiller.