The Retailer's Servers

Learning objectives

1. Recognise when an internal capability is another company's missing product.
2. Understand how architecture and organisation shape what a company can sell.
3. Evaluate the risks of selling infrastructure to potential competitors.

Session plan

1. 0–5 min Read the situation, what is known and unknown, and the voices in the room. No discussion yet.
2. 5–13 min Each participant chooses an option on the case page, states a confidence and writes a one-line pre-mortem: if this choice fails, the most likely reason is…
3. 13–28 min Debate by option. Ask the group favouring an internal-only approach to name what the company gains by keeping the capability private.
4. 28–33 min Reveal the outcome.
5. 33–50 min Discuss why simple building blocks priced by use mattered more than a full hosting product, and why it started small.
6. 50–60 min Transfer: participants list one internal tool or capability their organisation has built that others outside might pay for.

The case page records each participant’s choice, confidence and pre-mortem in their own browser, and scores the confidence once the outcome is revealed. Nothing is sent anywhere, so it can be used in any classroom.

The key facts on one page

• The company launched simple storage and computing services in 2006, priced by usage.
• The business had revenue of about $7.9 billion when first reported separately, for 2015.
• It grew to over $100 billion a year by the mid-2020s.

Where discussions go wrong

• Assuming the outcome was foreseeable. In 2003 few expected a retailer to become the largest supplier of computing infrastructure.
• Missing the role of the internal architecture, which made the external product possible.

The forces at work

• Why firms buy instead of build: Most companies built their own servers because renting computing was awkward and inflexible. A simple, reliable, pay-per-use service lowered the transaction costs of buying computing so far that building it in-house stopped making sense for many.
• Efficiency creates demand: Making computing cheap and instant to obtain did not just serve existing demand. It created enormous new demand, from start-ups to large companies running things they would never have built a data centre for.
• Starting small: The first services were simple primitives, storage and virtual machines, that could be launched, priced and improved without betting the company. Commitments grew as demand proved itself.
• Architecture mirrors organisation: The company had already reorganised so that internal teams communicated through service interfaces. That structure made its infrastructure something that could be offered to outsiders.

The lesson to carry out of the room Your best internal capability may be someone else's missing product.

Pairs well with: The idea Conway's Law, and the memo Steve Yegge's platforms rant.