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AWS Drives More Than Half of Amazon's Operating Income
- kgwgk 8y agoUS retail also drives more than half of Amazon's operating income.
- SketchySeaBeast 8y agoWait a second....
- sokoloff 8y agoIt's surprising, but correct. In 2018-Q4, North American retail drove $2.25B (59%) of OI; AWS drove $2.18B (58%) of OI. International retail lost ($642M) (-17%) of OI. https://ir.aboutamazon.com/static-files/a5035fcd-5646-45df-b1ad-cef3f376a61a https://ir.aboutamazon.com/static-files/a5035fcd-5646-45df-b...
- pezdeath 8y agoFor Amazon, the cloud is the little engine that could. Amazon Web Services comprised just 11% of the company's overall sales in 2018, but delivered more operating income than all other business units combined. I think that's the point the article is trying to make (first sentence of the article)
- partiallypro 8y agoI do wonder what is going to happen when/if there is more margin compression in the cloud space. Specifically when it comes to Amazon, because Amazon really has razor thin margins in its retail sector. Other cloud providers have high profit margins outside of the cloud (Google, Microsoft, Apple) so they could still be ok. They all have so much pricing power too, that I wonder if there is some mutually assured destruction of margin that prevents them all from competing heavily on price. Or if the space is growing so fast that they simply don't need to compete on price as much.
- bigdubs 8y agoThey double and triple dip customers pretty hard today, I'd imagine margin lost on basic services like EC2 would shift to AWS specific services they can layer more costs on top of (i.e. RDS)
- marcosdumay 8y agoAmazon has people locked into Lambda, Google and Apple have people locked into device integration, and Microsoft has people locked into Office and in a short while Github CI integration. All three are trying to differentiate more and more (with varying degrees of success) while they increase the price of the commodity services so it doesn't compete with the differentiated ones. They will not compete on price with each other. I just don't know what will happen if somebody plays an Amazon at the commodity segment, and go selling services with thin margins.
- crowdpleaser 8y agoI've always wondered if FB could get into the cloud game, it seems like they might have some data center expertise. However, your comment has me thinking that FB doesn't have a way to lock people to their cloud - they'd be forced to compete on price more than any other major cloud provider. Probably not a great business. But is Apple a cloud provider? I recall they have some data centers but I thought that it was rumored they used Google Cloud or AWS (or both) too.
- busterarm 8y agoInternally, Facebook has always struggled with infrastructure capacity throughout their history. They still have growing pains as far as physical space for equipment goes. When Amazon got into the cloud business, they actually had most all of the non-software challenges solved already. It turns out that datacenters and distribution centers go in the same kinds of places and have very similar kinds of challenges. They benefited significantly from knock-on effects from running their existing business. If Facebook got into the cloud game, they would have to learn two new businesses at once: cloud hosting and industrial real estate. I don't think that they would be able to obtain good pricing on either real estate or server hardware. Their current hardware vendor can't absorb that large of a scale out.
- empath75 8y agoAWS, Facebook and amazon are going to get absolutely crushed if there’s a recession that triggers a tech industry pullback. All the VC funding that goes to these hot tech companies goes to Facebook and google for ads and AWS for server space. In addition, kubernetes is going to start squeezing aws’s profit margins, particularly ec2 as people move to commodity k8s hosting.
- ilikerashers 8y agoIt's too easy to steal market share with software. There are no moats. Kubernetes is the first of many equalisers, crossplane.io is next. There's no monopoly effect.
- dymk 8y agoThat's an absolute fantasy. I've worked at companies who tried to move between cloud providers. Unless you build your service like that from the start (e.g.: prematurely optimize, which practically no successful company has the chance to do), you will experience some amount of AWS lock-in.
- benburleson 8y agoIs the implication that people/businesses will stop developing and using web services? I just don't see how we can go back now. Further, web tech is cheaper to scale than anything else, so when the wallet tightens it seems that's where budgets would focus. Also, AWS moves faster than web tech on the whole, so even if the general shift to k8s continues, AWS will be there to make it easier than rolling your own, and at a price point that's "worth it."
- zawazzi 8y agoHistorically, teams would just make their existing servers last longer. Considering most of AWS premium services have an open source alternative, guessing most people will port to containers. Built on open source has been their source of strength but is also their achilles heel. They shortened the learning curve on to their platform and off of it.
- mbesto 8y ago“Percentage margins are not one of the things we are seeking to optimize. It’s the absolute dollar free cash flow per share that you want to maximize, and if you can do that by lowering margins, we would do that. So if you could take the free cash flow, that’s something that investors can spend. Investors can’t spend percentage margins.” “What matters always is dollar margins: the actual dollar amount. Companies are valued not on their percentage margins, but on how many dollars they actually make, and a multiple of that.” “When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.” Jeff Bezos is very focused on this “absolute dollar free cash flow metric.” https://25iq.com/2014/04/26/a-dozen-things-i-have-learned-from-jeff-bezos/ https://25iq.com/2014/04/26/a-dozen-things-i-have-learned-fr... People really need to get off of the "income analysis" trope with Amazon. It's not how they operate their business, so why do people (analysts and media mainly) analyze it any other way?
- got2surf 8y agoGreat read. Points #5 (on being able to use a longer time horizon when investing in ideas to let them grow) and #6 (on the growing importance of consumers) stood out to me as well.
- landryraccoon 8y agoThere's a tradeoff here. Bezos is of course a world class executive and founder, but he's underselling the advantage of big margins which is risk. In a downturn, a slight decrease in margins across the board will push a company on the razor's edge from profitability to unprofitability. Margin means margin for error - when the company isn't doing well and investors are scattering to safety and liquidity is nowhere to be found a higher margin gives your company a buffer when you have to cut. Of course when revenues are growing like crazy and the economy is gangbusters it sounds great to cut margins for absolute growth but that's a booming economy. Things are very different in a downturn.
- nostrademons 8y agoThere's also an asymmetry of information and of control. In a downturn, Bezos has full visibility into where all of Amazon's COGS is going, and a number of levers he can turn to axe some of that spending, reduce future investment, or shed unprofitable business lines. Wall Street has virtually zero of that information (they get the consolidated financial statements, but none of the detailed breakdown) and zero of that leverage. Therefore, it's significantly less risky to Bezos to run on razor-thin margins than it is to an Amazon shareholder. Same reason that founding a startup is significantly less risky for a world expert in its problem domain than for a random investor in that startup. The founder has full knowledge of the domain and a lot of levers they can pull to adjust strategy; the investor has none of that. That's also why many VCs require terms to reduce their risk (liquidation preferences, participation, anti-dilution, warrants) or increase their control (board seats, voting rights, information rights).
- altmind 8y agoso, with operational margin 28.42%, aws outruns apple with operational margin 22.72%. if you've told me aws takes more premium on their products than apple per $, i wouldn't believed.
- babaganoosh89 8y agoYou should compare AWS's pricing vs dedicated providers, it's near a 3x difference compared to OVH last time I looked.
- partingshots 8y agoWhen you’ve got Kubernetes on top, it literally makes zero difference who the underlying cloud provider is. And thank god Kubernetes exists. Not about to waste my time relearning the API of every new cloud offering a company wants me to try.
- paulddraper 8y agoSort of. It depends if you want to use Kubernetes to operate your own S3, your own RDS, your own SQS, your own Kinesis, your own Cloudfront, your own DynamoDB, etc. If you have the dev resources to do that, great. But lots of other players will prefer to use off-the-shelf stuff from cloud providers.
- partingshots 8y agoI think that’s a different question you’re answering though. For sure, continued automation is 100% the modus operandi. I wouldn’t be surprised if in the future IT departments don’t really exist anymore. But even with “off-the-shelf stuff”, your site reliability engineers would still be using Kubernetes as the primary language to communicate. Or I guess you could go all cutting edge and go one layer up with Istio instead. In that case then, Kubernetes is still there hiding underneath.
- bilbo0s 8y agoUntil Amazon, Microsoft, or Google move up the stack. (Or maybe all three. They really are eating the industry, but they add value so, yeah, I guess they deserve their rent. Just sucks for anyone else in that space.)
- partingshots 8y agoEver upwards abstraction my friend. Seriously, I thought Kubernetes would be it, but now all my coworkers are trying to get me to use Istio, which at first glance seems to be ... a managed containerization for different Kubernetes managed containers? Turtles all the way down I guess, which now I’ll have to spend all weekend on researching unfortunately.
- roadkillon101 8y agoAWS is a byproduct of Amazon's e-commerce business, that became a viable service of it's own. It was a brilliant move to monetize the excess compute power Amazon had to have on hand for it's e-commerce business. Without the e-commerce business, AWS wouldn't exist.
- MrStonedOne 8y agoPart of that success was a mandate back in the earlier days of the company that all development and systems administration assets be designed with the presumption that they may be converted into a customer accessible frameworks one day.
- throwaway2048 8y agoThis is a myth, and it needs to die. AWS was not designed for amazon's infrastructure, nor was it spare capacity of said infrastructure at any point. It was built from the ground up to be an independent service selling to third parties, on independent servers in independent data centers. It took many years for amazon.com retail stuff to migrate to it, and supposedly some parts still aren't migrated.
- nothrabannosir 8y agoI mean, I'm gullible so I believe you, but I also believe Steve Yegge who wrote about this: > Well, the first big thing Bezos realized is that the infrastructure they'd built for selling and shipping books and sundry could be transformed an excellent repurposable computing platform. So now they have the Amazon Elastic Compute Cloud, and the Amazon Elastic MapReduce, and the Amazon Relational Database Service, and a whole passel' o' other services browsable at aws.amazon.com. These services host the backends for some pretty successful companies, reddit being my personal favorite of the bunch. https://plus.google.com/+RipRowan/posts/eVeouesvaVX https://plus.google.com/+RipRowan/posts/eVeouesvaVX (posted in 2011, and he claims he left amazon 6½y before that) You sound confident so I'm sure there's something to it. But on the other hand, there's loads more, similar comments in that memo. And Steve, well, Steve is known to be quite the iconoclast. I never took him to suffer fools gladly.
- RickJWagner 8y agoI'm a recent convert to 'Boglehead' investing. Among the principles Bogleheads follow, we don't like to pick individual stocks-- index funds are far safer. But I cheat a little. One of my small holdings is Amazon. They look set to dominate in multiple arenas. Fingers crossed at least one pans out!
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- vira28 8y agoDon't see much discussion around AWS support. Man, In my opinion its not AWS is great, its more about GCP & Azure are not even good.
- scarface74 8y agoDo you work for a company that has a business support plan?
- Wordball 8y agoMackenzie Bezos now drives half of Jeff's income