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I 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

I 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 ago
They 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 ago
Amazon 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 ago
  I'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 ago
    Internally, 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.
    - roymurdock 8y ago
      microsoft did it pretty easily, albeit 4 years later than amazon, which is partially why they're playing catch up. microsoft didn't have any "industrial warehouse buying" expertise and was a lot more familiar with server tech than amazon was at the time they started aws in 2006, and probably had a good number of data centers already, they just weren't built for rental services. although it's outside facebooks current core competency i think they wouldn't have too many issues getting into the cloud game if they wanted to. they could hire all the expertise they need and get 100 data centers up and running in 5 years. but why would they? it's like google getting into the ISP market to compete with verizon et al. google runs its very profitable business on top of the commodity rails and keeps limited deployments of google fiber as a stick to threaten slow or uncooperative ISPs. facebook can run its profitable software based businesses on top of the infrastructure instead of joining the cutthroat race to the bottom of cloud computing that may or may not be semi nationalized/regulated as ISPs and utilities are today
      - busterarm 8y ago
        Microsoft did it pretty easily because they have the financial flexibility to make a multi-billion dollar investment and already have a global enterprise sales and support organization with a 20 year head start on the competition. Facebook can't say the same and getting 100 datacenters up and running would cost them 25 billion before hiring anyone -- that's more than half of their cash. I agree with you though that it makes zero sense for Facebook to do this.
- redisman 8y ago
  I don't think Lambda-lock-in is nearly as powerful or widespread as OS/device. Most frameworks these days are container independent.
- tootie 8y ago
  Microsoft also has Active Directory and Visual Studio.
- fukbezos 8y ago
  You're really underselling Microsoft's presence in enterprise.
mhermher 8y ago
Apple? Did I miss something?
PopeDotNinja 8y ago
> Specifically when it comes to Amazon, because Amazon really has razor thin margins in its retail sector What do you consider thin margins? Their overall margins are better than Walmart's. Amazon: 65_932_000 / 177_866_000 = 37% [1] Walmart: 126_947_000 / 500_343_000 = 25% [2] [1] https://finance.yahoo.com/quote/AMZN/financials?p=AMZN https://finance.yahoo.com/quote/AMZN/financials?p=AMZN [2] https://finance.yahoo.com/quote/WMT/financials?p=WMT https://finance.yahoo.com/quote/WMT/financials?p=WMT
- greedo 8y ago
  That's the gross margins for ALL of Amazon's business, so the fat profits of cloud are included. Their margin on physical goods must be lower.
- altmind 8y ago
  Operating margin is not Gross Profit/Total Revenue, its Operating Profit/Total Revenue. You were not surprised by the number 37% you got?
- mcrae 8y ago
  Just looking at Q4 results [0], looks like operating margins for the businesses are: US Retail: 5% [$2,251 / $44,124] Intl Retail: -3% [-$642 / $20,849] AWS: 29% [$2,177 / $7,430] Really striking diff between Retail and AWS biz. Walmart, for what its worth, had operating income of $20B on $500B in revenue, so about 5% there too. [0] https://ir.aboutamazon.com/static-files/a5035fcd-5646-45df-b1ad-cef3f376a61a https://ir.aboutamazon.com/static-files/a5035fcd-5646-45df-b...
tanilama 8y ago
> Amazon really has razor thin margins in its retail sector Not any more, if their advertising business keeps skyrocketing, Amazon will be US's Alibaba.

bigdubs 8y ago

They 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 ago

Amazon 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 ago
I'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 ago
  Internally, 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.
  - roymurdock 8y ago
    microsoft did it pretty easily, albeit 4 years later than amazon, which is partially why they're playing catch up. microsoft didn't have any "industrial warehouse buying" expertise and was a lot more familiar with server tech than amazon was at the time they started aws in 2006, and probably had a good number of data centers already, they just weren't built for rental services. although it's outside facebooks current core competency i think they wouldn't have too many issues getting into the cloud game if they wanted to. they could hire all the expertise they need and get 100 data centers up and running in 5 years. but why would they? it's like google getting into the ISP market to compete with verizon et al. google runs its very profitable business on top of the commodity rails and keeps limited deployments of google fiber as a stick to threaten slow or uncooperative ISPs. facebook can run its profitable software based businesses on top of the infrastructure instead of joining the cutthroat race to the bottom of cloud computing that may or may not be semi nationalized/regulated as ISPs and utilities are today
    - busterarm 8y ago
      Microsoft did it pretty easily because they have the financial flexibility to make a multi-billion dollar investment and already have a global enterprise sales and support organization with a 20 year head start on the competition. Facebook can't say the same and getting 100 datacenters up and running would cost them 25 billion before hiring anyone -- that's more than half of their cash. I agree with you though that it makes zero sense for Facebook to do this.
redisman 8y ago
I don't think Lambda-lock-in is nearly as powerful or widespread as OS/device. Most frameworks these days are container independent.
tootie 8y ago
Microsoft also has Active Directory and Visual Studio.
fukbezos 8y ago
You're really underselling Microsoft's presence in enterprise.

mhermher 8y ago

Apple? Did I miss something?

PopeDotNinja 8y ago

> Specifically when it comes to Amazon, because Amazon really has razor thin margins in its retail sector What do you consider thin margins? Their overall margins are better than Walmart's. Amazon: 65_932_000 / 177_866_000 = 37% [1] Walmart: 126_947_000 / 500_343_000 = 25% [2] [1] https://finance.yahoo.com/quote/AMZN/financials?p=AMZN https://finance.yahoo.com/quote/AMZN/financials?p=AMZN [2] https://finance.yahoo.com/quote/WMT/financials?p=WMT https://finance.yahoo.com/quote/WMT/financials?p=WMT

greedo 8y ago
That's the gross margins for ALL of Amazon's business, so the fat profits of cloud are included. Their margin on physical goods must be lower.
altmind 8y ago
Operating margin is not Gross Profit/Total Revenue, its Operating Profit/Total Revenue. You were not surprised by the number 37% you got?
mcrae 8y ago
Just looking at Q4 results [0], looks like operating margins for the businesses are: US Retail: 5% [$2,251 / $44,124] Intl Retail: -3% [-$642 / $20,849] AWS: 29% [$2,177 / $7,430] Really striking diff between Retail and AWS biz. Walmart, for what its worth, had operating income of $20B on $500B in revenue, so about 5% there too. [0] https://ir.aboutamazon.com/static-files/a5035fcd-5646-45df-b1ad-cef3f376a61a https://ir.aboutamazon.com/static-files/a5035fcd-5646-45df-b...

tanilama 8y ago

> Amazon really has razor thin margins in its retail sector Not any more, if their advertising business keeps skyrocketing, Amazon will be US's Alibaba.