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AWS’s Share of Amazon’s Profit
- orf 6y ago> So, if this graph is right, then over the last couple of years, somewhere between 50% and 80% of Amazon’s profit has been due to AWS.
- NickBusey 6y agoWhat makes this even more bonkers to me is this is from something most non-tech people haven’t even heard of.
- stu2b50 6y agoThat makes sense honestly, B2B SaaS is lucrative, steady, and honestly probably moreso than a B2C business could be. Many of the big software players most people have never heard of. As a consumer, you're almost certainly in a Salesforce system somewhere, but most people have no idea what Salesforce is.
- mulmen 6y agoI wonder what the equivalent is for tech people. What is an enormous industry-specific business we have never heard of?
- scylla 6y agoPharmaceutical Distribution - How many people have heard of McKesson?
- ByteJockey 6y agoOh god. I've worked at a place that uses their apis.
- djohnston 6y agoI am always amazed when I listen to my rancher buddy talk about cattle prices on weekly calls. There are so many industries I'm completely oblivious to.
- teruakohatu 6y agoAgriculture, including farming (mid sized or larger), fertilizer distribution and manufacturing and seeds.
- mulmen 6y agoI actually have agriculture experience. That's how I paid for college. You're absolutely right but I bet there's more than one AWS. I think many people have heard of John Deere and Monsanto but what about McGregor? They may not be as big as AWS but even with Ag experience I bet there are bigger similar organizations. I bet there are big custom harvest operations too. We had a two man operation on the Palouse but I heard stories about huge operations out of Texas that migrated through the midwest following harvest cycles.
- jfim 6y agoSince this is such a great question, I've posted an "Ask HN" about it: https://news.ycombinator.com/item?id=23534529 https://news.ycombinator.com/item?id=23534529
- deleted 6y ago[deleted]
- kamyarg 6y agoThe steel production and raw materials industry is a whole different world. I am not knowledgable in the area at all but a recent linkedin post by a friend was listing the biggest steel producers by country, I did not recognise any names except Tata from India and Thyssenkrupp from Germany. Here is a list I found from a quick search, try to guess which country the biggest producers is based in or how many of top 5 you expect to have heard of before opening the link. https://en.wikipedia.org/wiki/List_of_steel_producers https://en.wikipedia.org/wiki/List_of_steel_producers
- jfim 6y agoI didn't even know Thyssenkrupp did things other than elevators.
- kamyarg 6y ago"In February 2020, Thyssenkrup AG's board announced that it would sell its elevator segment to Advent International ... " https://en.wikipedia.org/wiki/ThyssenKrupp https://en.wikipedia.org/wiki/ThyssenKrupp This just keeps getting more interesting.
- mulmen 6y agoThis is actually pretty amazing. I predicted that the top few would be US based companies but I hadn't heard of them because they are rounding errors. I was wrong about that but the first US based steel company on the list is in my neighborhood. I ride up to their plant on my daily bike ride.
- kbenson 6y agoThat is a lot of Chinese steel, at what looks to be about 25% of the total worldwide production, just by the companies listed in the top 41. It looks like possibly a majority of worldwide production isn't in this list (which seems to gut off at less than 10 million tonnes), so it's possible it's even higher, if there's a lot of small steel companies based in China as well.
- rvz 6y agoWhich Amazon has thanked almost everyone and their grocery stores for jumping on their bandwagon and spending nearly all their VC money on these services. Those without any significant revenues will have a hard-time paying up that huge AWS bill if they dared to use K8s or auto-scaling features. I would not want to look at the balance sheet of a companies accounts or quarterly earnings if they cannot generate lots of revenue to pay that AWS bill.
- echelon 6y agoUnder these circumstances, how is AWS lock-in and cost escalation any different from Oracle of the past? Why would any startup shackle themselves to AWS or any cloud when it's not portable? Lambdas, in particular, seem like the worst idea in the history of ideas. Once your org adopts them, how do you keep track of these mysterious, business-critical pieces of functionality? How do you ever plan to port them to something else? It seems like you become an Amazon customer forever. I am incredibly skeptical of cloud at this point. If the other infrastructure and platform concerns of OS upgrades, patches, etc. were handled in an automated way, I'd strongly consider running Kubernetes on bare metal. Data centers and colocation all the way. I'm eager for self-management of k8s, DBs, Redis, etc. to be automated with tooling. On-prem, but easy to maintain. edit: wow, from +3 to 0 after an hour. I maintain that I articulated my opinion well in an unbiased way.
- chrisco255 6y agoLambdas, at least the JS ones, are Node.js based and not hard at all to migrate to an alternative cloud service. You can even use a framework that handles all the cloud-specific functionality for you and works across AWS, Azure, GCloud, etc: https://www.serverless.com/ https://www.serverless.com/ The lock-in really comes from AWS-specific services. Redis, Mongo, etc will have the same API no matter where you're hosting them, so it's pretty trivial to point your client-side code to a different cloud-hosted Redis instance if you find AWS lacking there.
- mwakerman 6y agoI agree and just want to add IAM to the list of AWS Lock In services. We provisions environments almost entirely using Config-as-code tools (packer, ansible, terraform) and generally have a good blueprint for what an environment looks like and the parts I’ve had the hardest time thinking about migrating to another cloud provider is all the IAM rules that magically give hosts/services the ability to talk to other services.
- fragsworth 6y agoIt is important to consider that Amazon probably still considers its retail business a growth business, and that it has not captured enough of the market yet to start raising prices. I am pretty sure Amazon's retail business is going to completely dwarf AWS in the long term, because they are currently willing to break even on it (and possibly lose money) just to outdo the competition.
- runawaybottle 6y agoCompeting on price never pays off imho. You’ll race to the bottom. Amazon already has a massive monopoly on retail, and they wouldn’t dare mess with the prices. My experience: I once tried to corner the market on WoW gems by buying out the undercutters and setting my desired price. My money wasn’t long enough. I really don’t think anyone’s money is long enough :p
- dylan604 6y agoCornering the real world silver market is a tough thing to do as well. Just ask the Hunt brothers. https://en.wikipedia.org/wiki/Silver_Thursday https://en.wikipedia.org/wiki/Silver_Thursday
- c1b 6y agoYes this example is very pertinent to Amazons profit strategy thank you for sharing.
- runawaybottle 6y agoWaiting for some Eve fans to share their economic exploits.
- monocasa 6y agoI think they're viewing it instead as continuing to reinvest profits until they're a cyberpunk level corporate power. It's not that they're cutting prices, it's that they're using the excess to buy companies like Whole Foods and vertically integrate them rather than paying out to shareholders, or building a bigger war chest in an index fund.
- deleted 6y ago[deleted]
- julianeon 6y ago50 years from now, historians will say... Amazon's online store was basically an incubator that allowed the company to pivot to its real profit center: virtualized online services for startups and companies seeking to move to the cloud.
- hangonhn 6y agoOr that AWS reduced the cost of its retail operations (no store, no real estate, no staff, etc.) so dramatically that it drove out nearly all its competitors that it became the universal intermediary between buyers and sellers. The profits from its retail operations allowed it to reinvest in its data centers that it achieved ever greater economies of scale. The two arms of Amazon were synergistic.
- legitster 6y agoThis drives me mad. I have no idea why Amazon even bothers with the retail side. It barely pays for itself, they are already the biggest player by a mile, and there is no horizon in which economies of scale start paying off (the uptick of demand from Covid probably lost them money!) The only thing that makes sense to me is some political long play. The Amazon retail operation employs a lot more people in a lot more places than just the coast. I think leadership has realized they need to be seen as a job creator by politicians in order to join the "big boy industry" club. Which is why Amazon doesn't mind paying their warehouse workers more than all the other guys. To that end, the Amazon.com is just a giant, self-funded employment program designed to make Amazon a bigger company.
- crazygringo 6y ago> It barely pays for itself Because they're constantly reinvesting for even bigger economies of scale. All investors are well aware that Amazon can start turning on major retail profits at any time it chooses. But the more it grows first, the more entrenched it is, the fewer competitors remain, and the even larger those future profits will be. Seeing as AMZN's stock price has increased roughly 25% since COVID started, it doesn't seem like investors think it "probably lost them money". You don't seem to actually understand Amazon's business model at all, so please don't get too mad about it. :)
- legitster 6y ago"Constantly reinvesting for even bigger economies of scale." This may have made sense 5 years ago, but this doesn't make sense when their margins have only gotten lower and their number one expense is employees, which is a marginal cost. They are well into the "diseconomies of scale" territory. And there are more competitors now then when they started! > You don't seem to actually understand Amazon's business model at all Source: I have worked in and out of the Amazon ecosystem for 5 years.
- notyourwork 6y ago> Source: I have worked in and out of the Amazon ecosystem for 5 years. In and out of Amazon or Amazon's eco-system. You should qualify this as they are very different perspectives.
- mbesto 6y agoProfit can be a really weird number, especially when it comes to data centers. So looking at pure earning statements numbers is likely going to be misleading no matter how you try to look at (unless you actually look at bank statements, you can create as many interpretations as you want). First, data centers require A LOT of upfront capital. This capital is then capitalized over years, which is how it ultimately affects "profit". So depending on the capitalization schedule, how much they are investing in future growth, etc. will all affect this number. It's why, in short, Bezo's doesn't ever look at these numbers, but instead free cash flow (FCF). “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.”[0] So, the real metric to look at is the FCF/DCF generated by AWS. If we had that number, I think you could basically conclude that it's "printing money". [0] - 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...
- aledalgrande 6y agoIs looking only at FCF valid for startups/investments too? Or is higher profit % still important? I think Amazon might be a special case with its size and stage.
- rb808 6y ago"printing money" yes today, but if GCP/Azure or something else comes in and competes heavily the margins could easily shrink to something negative.
- swyx 6y agoI'm not sure if this helps or hurts Tim's assertions (not mentioned in this piece, but from context he wants AWS to be spun off into a separate company). if AWS' share is so high, would AMZN shareholders approve a spinoff? does it matter since they get ownership of new-AWS anyway? unclear whatever it is I think Tim has a research agenda here and we shouldn't be surprised to see him come up with a more forceful blogpost on the topic soon.
- cromulent 6y agoIf AWS had been a separate company, then he probably wouldn't have felt the need to quit over the whistleblower incidents. As he describes here, under "What about AWS?". "AWS...is a different story". https://www.tbray.org/ongoing/When/202x/2020/04/29/Leaving-Amazon https://www.tbray.org/ongoing/When/202x/2020/04/29/Leaving-A...
- swyx 6y agoright but I'm saying in this particular piece I don't think he's made a strong case either way to the people who will decide.
- biggestdecision 6y agoBut also, what synergy do the tech giant and retail giant parts of Amazon have? If the two parts of the business don't really gel, what's the benefit of keeping them together in one company?
- RC_ITR 6y agoIn general, investors would prefer two companies because those looking to invest in retail wouldn’t have to expose themselves to cloud & vice versa. That increase in demand for each component (investors who formerly ignored the stock owing to the above) would make the share price go up, all else constant. Amazon stock performs well because a lot of investors want access to both, so it’s not that big of a deal. Also Jeff Bezos holds a disproportionate amount of voting power (part of why he’s the richest person is because he held on to an unusually high percent of an unusually valuable company). Ultimately they won’t split until one of them stops being a world-eating monster because no one will have leverage to force it on Jeff. It may never happen as long as amazon exists. But I guarantee the day amazon cloud stops growing at insane rates, people will call for a breakup.
- rexreed 6y agoHe's overly simplifying the contribution to profit by not understanding the contribution to expenses. It's not his fault because Amazon doesn't break it out that way. They don't allocate certain expenses to AWS and other expenses to other branches. While there's no doubt that AWS is very profitable, to say it contributes a certain percentage to overall profits probably misses the mark tremendously. It's probably and most likely very difficult to extricate costs of server farms that support the retail operation from server farms that host client services from overall operating costs. You'd need far more detail on gross margins and tight definitions for contribution of revenue. For example, do people who order things on Alexa get revenue counted for non-AWS while the Alexa infrastructure is counted as AWS expense? These are not easy questions. This is why it's not broken out as you'd like. I'd wager that the contribution to profits is not as suggested here, but it's hard to know just how far off the calculation is. And it might not matter.
- 9nGQluzmnq3M 6y agoI would presume AWS is so large these days that Amazon retail's infra is only a small fraction of the fleet? Published data on their scale is thin on the ground, but this post from 2017 guesstimated that they had 4 million physical servers at the time, and AWS certainly hasn't shrunk since then: https://blog.sqlizer.io/posts/facebook-on-aws/ https://blog.sqlizer.io/posts/facebook-on-aws/
- boredpudding 6y agoThis article is about how much profit from Amazon comes from AWS. Not how big of a 'client' Amazon is in AWS itself.
- thenaturalist 6y agoWell, if you read the parent comment here again, I hope you can understand that "how big of a 'client' Amazon is in AWS itself" is _precisely_ about estimating profits for AWS. The fact that Amazon is self-serving AWS resources is obfuscating profit calculations or estimates as there is no way of determining ROI on assets Amazon consumes itself - most likely in a somewhat shared model together with other, actually paying customers.
- askjdlkasdjsd 6y agoTo anyone who wants to learn more I highly recommend https://www.profgalloway.com https://www.profgalloway.com - Basically a bunch of idealogy around why the big four need to be broken up.