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> Despite being the runaway leader in cloud service, they make very little money in it From a year ago: "The biggest source of the company’s profits is Amazon

by panarky 10y ago

> Despite being the runaway leader in cloud service, they make very little money in it From a year ago: "The biggest source of the company’s profits is Amazon Web Services, the cloud computing business that started just over a decade ago and is now on track to bring in more than $10 billion a year in revenue." "Cloud computing is also much more profitable than Amazon’s North American retail business, which runs on thinner margins, and its international retail business, which runs at a loss. The operating income for A.W.S. more than tripled in the quarter to $604 million." https://www.nytimes.com/2016/04/29/technology/amazon-q1-earnings.html https://www.nytimes.com/2016/04/29/technology/amazon-q1-earn...

dkrich 10y ago
Exactly- they made $604 million in profit in the quarter. Certainly nothing to sneeze at, but to put that into perspective, the company currently has a market cap of about $430 billion.
- panarky 10y ago
  That's $604 million per quarter. Annualized that's $2.4 billion. In profit. On a $10 billion business. That's growing at a 59% annual rate. With no competitor anywhere close. And AWS is just 10% of Amazon's business. Your claim that Amazon makes "very little" on AWS makes no sense.
  - dkrich 10y ago
    Okay, no money was hyperbole. It makes some money. But in the large cap tech space, it's a pittance. Apple probably makes more money on sales of the iPhone 6S. It's 10% of their business and yet it makes them the more money than the other 90%. What does that say about the overall business? Any other company that operated with similar fundamentals would get skewered. But because it's Amazon, they get a pass.
    - robszumski 10y ago
      Keep in mind that they're putting up these numbers in the hosting space, which has traditionally been a "race to the bottom", low margin game. While they do cut prices, they still maintain healthy margins on the services up stack. Pretty impressive profit numbers when you take into account their hardware spend, which must be enormous.
    - justicezyx 10y ago
      > It's 10% of their business and yet it makes them the more money than the other 90%. What does that say about the overall business? It says that Amazon successfully found themselves a cash cow. So, they have a fantastic business sense. They are smart. They executed perfectly (mind you, MSFT and Google and many other companies are doing IT and public computing service long before Amazon). I am not sure what you want to say here. Google makes most revenue and profit on Ads. But Google does all kinds of things. Does that make Google stupid? Of cuz not. Same here. I hope you ditch the thinking that everything should be the same. Diversity is not only useful in culture, it's useful in business too.
      - dkrich 10y ago
        Google works on tons of different products but their only real business is the ad business and it is hugely profitable and has been so for a very long time. I have no doubt about Google's ability to make large profits because they've demonstrated that they can do so. People keep saying Amazon can make similar profits whenever they want but I see zero proof that that is true. AWS isn't a cash cow. It hasn't been proven to be a hugely profitable business yet. It makes a decent amount of money but at this point it's peanuts compared to the valuation. That said, I see a lot more long term potential in the AWS business than the ecommerce business but AWS has to grow by leaps and bounds to justify the current valuation.
        justicezyx 10y ago
        > AWS isn't a cash cow. Wow... I thought HN does not have people who would make such statement. Did you see the quarterly report?... That's a 14B business on a 23.5% profit margin, and still under relentless price cutting, and are gaining market everyday from traditional IT service company... > it's peanuts compared to the valuation. I dont know what to say. It's started in 2006, and now is 14B. If this says anything, this just shows how strong Amazon's business is! AWS alone is worth 100B market cap, and it's just a peanut to Amazon. I am not sure you are downplaying Amazon's success, or just trying to point out how impressive they really are. [1] http://www.businessinsider.com/amazons-q1-2016-cloud-business-2016-4 http://www.businessinsider.com/amazons-q1-2016-cloud-busines...
kjksf 10y ago
That's neither here nor there. Amazon has been running at a loss or close to 0 profit by design. They could be profitable if they wanted but the choose to use the revenue to expand their expanding business (e.g. building warehouses, buying a fleet of planes etc.) or fund other businesses (e.g. successful Kindle tablets or failed Kindle phones, or Alexa or opening physical bookstores or opening physical grocery stores). When they run out of warehouses to build (or crazy ideas to invest in) their costs will drop and that will turn into profit in an instant. And there's not much competition there (Walmart, maybe) for the kind of ecommerce + physical commerce combination so we can assume that Amazon will grow in that space and other players will, collectively, shrink.
- kristianc 10y ago
  What you're essentially saying is 'when Amazon decides to stop investing in its 'moat' and milk the profits? The problem is Bezos is on the record in his annual letter saying he doesn't ever intend to do that. That's 'Day 2' thinking to him.
  - kjksf 10y ago
    Yes. It doesn't really matter what Bezos says - if they keep growing their business, some day they will find themselves in the same position as Apple, Google and Microsoft: they generate so much revenue that they don't know how to invest it intelligently. It'll take Amazon longer because their margins are lower and their expenses (warehouses, planes etc.) higher than very generous programmer salaries but there will be a time where it won't make sense for them to build another warehouse in, say, California. My comment was also in context: some people apparently believe that AWS is the only business that matters in context of Amazon and ignore massive revenue and continuous growth of the ecommerce business. I believe that ecommerce business will ultimately be more profitable (as total profits, not profit margins) to Amazon than AWS. And yes, it might take a couple of decades.
    - koreyb 10y ago
      Amazon captured the MAJORITY of ecommerce growth in 2016. http://www.cnbc.com/2017/02/01/amazon-captured-more-than-half-of-all-online-sales-growth-last-year.html http://www.cnbc.com/2017/02/01/amazon-captured-more-than-hal... They've made it rough for physical retailers and malls. Not to mention half of all households in the US have a Prime membership at roughly $99/yr. Allows them to leverage in to video, music, etc with a different value/cost model than Netflix for example.

by panarky 10y ago

dkrich 10y ago

Exactly- they made $604 million in profit in the quarter. Certainly nothing to sneeze at, but to put that into perspective, the company currently has a market cap of about $430 billion.

panarky 10y ago
That's $604 million per quarter. Annualized that's $2.4 billion. In profit. On a $10 billion business. That's growing at a 59% annual rate. With no competitor anywhere close. And AWS is just 10% of Amazon's business. Your claim that Amazon makes "very little" on AWS makes no sense.
- dkrich 10y ago
  Okay, no money was hyperbole. It makes some money. But in the large cap tech space, it's a pittance. Apple probably makes more money on sales of the iPhone 6S. It's 10% of their business and yet it makes them the more money than the other 90%. What does that say about the overall business? Any other company that operated with similar fundamentals would get skewered. But because it's Amazon, they get a pass.
  - robszumski 10y ago
    Keep in mind that they're putting up these numbers in the hosting space, which has traditionally been a "race to the bottom", low margin game. While they do cut prices, they still maintain healthy margins on the services up stack. Pretty impressive profit numbers when you take into account their hardware spend, which must be enormous.
  - justicezyx 10y ago
    > It's 10% of their business and yet it makes them the more money than the other 90%. What does that say about the overall business? It says that Amazon successfully found themselves a cash cow. So, they have a fantastic business sense. They are smart. They executed perfectly (mind you, MSFT and Google and many other companies are doing IT and public computing service long before Amazon). I am not sure what you want to say here. Google makes most revenue and profit on Ads. But Google does all kinds of things. Does that make Google stupid? Of cuz not. Same here. I hope you ditch the thinking that everything should be the same. Diversity is not only useful in culture, it's useful in business too.
    - dkrich 10y ago
      Google works on tons of different products but their only real business is the ad business and it is hugely profitable and has been so for a very long time. I have no doubt about Google's ability to make large profits because they've demonstrated that they can do so. People keep saying Amazon can make similar profits whenever they want but I see zero proof that that is true. AWS isn't a cash cow. It hasn't been proven to be a hugely profitable business yet. It makes a decent amount of money but at this point it's peanuts compared to the valuation. That said, I see a lot more long term potential in the AWS business than the ecommerce business but AWS has to grow by leaps and bounds to justify the current valuation.
      - justicezyx 10y ago
        > AWS isn't a cash cow. Wow... I thought HN does not have people who would make such statement. Did you see the quarterly report?... That's a 14B business on a 23.5% profit margin, and still under relentless price cutting, and are gaining market everyday from traditional IT service company... > it's peanuts compared to the valuation. I dont know what to say. It's started in 2006, and now is 14B. If this says anything, this just shows how strong Amazon's business is! AWS alone is worth 100B market cap, and it's just a peanut to Amazon. I am not sure you are downplaying Amazon's success, or just trying to point out how impressive they really are. [1] http://www.businessinsider.com/amazons-q1-2016-cloud-business-2016-4 http://www.businessinsider.com/amazons-q1-2016-cloud-busines...

kjksf 10y ago

That's neither here nor there. Amazon has been running at a loss or close to 0 profit by design. They could be profitable if they wanted but the choose to use the revenue to expand their expanding business (e.g. building warehouses, buying a fleet of planes etc.) or fund other businesses (e.g. successful Kindle tablets or failed Kindle phones, or Alexa or opening physical bookstores or opening physical grocery stores). When they run out of warehouses to build (or crazy ideas to invest in) their costs will drop and that will turn into profit in an instant. And there's not much competition there (Walmart, maybe) for the kind of ecommerce + physical commerce combination so we can assume that Amazon will grow in that space and other players will, collectively, shrink.

kristianc 10y ago
What you're essentially saying is 'when Amazon decides to stop investing in its 'moat' and milk the profits? The problem is Bezos is on the record in his annual letter saying he doesn't ever intend to do that. That's 'Day 2' thinking to him.
- kjksf 10y ago
  Yes. It doesn't really matter what Bezos says - if they keep growing their business, some day they will find themselves in the same position as Apple, Google and Microsoft: they generate so much revenue that they don't know how to invest it intelligently. It'll take Amazon longer because their margins are lower and their expenses (warehouses, planes etc.) higher than very generous programmer salaries but there will be a time where it won't make sense for them to build another warehouse in, say, California. My comment was also in context: some people apparently believe that AWS is the only business that matters in context of Amazon and ignore massive revenue and continuous growth of the ecommerce business. I believe that ecommerce business will ultimately be more profitable (as total profits, not profit margins) to Amazon than AWS. And yes, it might take a couple of decades.
  - koreyb 10y ago
    Amazon captured the MAJORITY of ecommerce growth in 2016. http://www.cnbc.com/2017/02/01/amazon-captured-more-than-half-of-all-online-sales-growth-last-year.html http://www.cnbc.com/2017/02/01/amazon-captured-more-than-hal... They've made it rough for physical retailers and malls. Not to mention half of all households in the US have a Prime membership at roughly $99/yr. Allows them to leverage in to video, music, etc with a different value/cost model than Netflix for example.