5 ms·

He'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 tha

He'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 ago
I 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 ago
  This article is about how much profit from Amazon comes from AWS. Not how big of a 'client' Amazon is in AWS itself.
  - thenaturalist 6y ago
    Well, 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.
- 1592343403 6y ago
  Amazon retail's total combined capacity usage can on most days fit entirely into the spare capacity that AWS keeps available for spot and burst usage by other customers
Illniyar 6y ago
I thought Amazon don't use aws for their main product. Do they use it for alexa?
- dlhavema 6y ago
  I know a colleague that worked on Alexa stuff and he said they did use AWS infrastructure and part of his job was reducing the cost Alexa paid to AWS...
  - kvz 6y ago
    On the one hand that sounds weird and AWS could just offer any discount, on the other if they can get done the same on less resources, others can rent the freed up resources at a premium
    - nl 6y ago
      It's pretty normal to account for use of cross department internal resources in some kind of financial way within corporations.
    - yomly 6y ago
      That compute isn't free - it comes at the opportunity cost of being sold to a paying customer so it makes sense to price it internally even if it is "virtual"
    - blahblah12 6y ago
      This is called cross-org transfer pricing. It's a common practice in accounting. In fact, imagine a company where this doesn't happen. Retail decides that they can "excessively" use AWS. This contributes to waste and problematic accounting when it comes time to report finances. https://en.wikipedia.org/wiki/Transfer_pricing https://en.wikipedia.org/wiki/Transfer_pricing
      - jldugger 6y ago
        Indeed half the point of AWS was to facilitate cost accounting. Probably because Bezos thought they had expertise in online marketplaces that would transfer. Jury's still deliberating on whether AWS' incomprehensible billing is a signal of incompetence or sheer brilliance.
jariel 6y ago
1) "very difficult to extricate costs of server farms that support the retail operation from server farms that host client services from overall operating costs." Not only is not not hard to do, they are almost assuredly already doing it. 2) It matters a lot, and the article does not miss the point. As for 1 - AWS Retail is a 'customer account', and they can track and measure the services used. They have to do this because that's how 'management accounting' works. 'Accounting' is not just a 'GATT' thing, it's also for measuring how profitable units and businesses are. AWS services used by a product will be charged not only to AWS services but even internally to a product account at Amazon Retail. As for 2 - it matters a lot because Amazon is dumping on Amazon retail, which may be an anti-competitive practice. Not only does AWS show x% contribution to profit, but it's also probably much worse: Amazon Retail may be significantly in the red after 25 years of operation, subsidized by AWS. Given Amazon's size and leverage in retail, it's definitely time to look at breaking them up in order to separate the two businesses. In normal times, this would be 'good for America' for obvious reasons. But in a 'big global economic fight' - it might be better from a nationalist perspective to let it go on at AWS, G, Oracle, MS etc. Has anyone noticed all the big, fat successful cloud players are only ever built by companies with zillions to spare? Implying that this is huge competitive advantage of America vis-a-vis other nations (and continents) who can't hope to compete without government intervention. AWS/Amazon Retail is an anomalous cojoining of businesses, which is fine, but it probably needs to be looked at along with the overlapping of the other cloud providers and their main businesses.
scarface74 6y ago
Every large corporation has the concept of “Organizational Finance” and cost accounting where they charge internal departments and treat them like customers. Also, not all of Amazon retail’s infrastructure is hosted on AWS. As an aside, I was listening to an interview by someone at GCP and they said that almost none of Google’s infrastructure is part of GCP besides some internal software.

9nGQluzmnq3M 6y ago

I 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 ago
This article is about how much profit from Amazon comes from AWS. Not how big of a 'client' Amazon is in AWS itself.
- thenaturalist 6y ago
  Well, 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.
1592343403 6y ago
Amazon retail's total combined capacity usage can on most days fit entirely into the spare capacity that AWS keeps available for spot and burst usage by other customers

Illniyar 6y ago

I thought Amazon don't use aws for their main product. Do they use it for alexa?

dlhavema 6y ago
I know a colleague that worked on Alexa stuff and he said they did use AWS infrastructure and part of his job was reducing the cost Alexa paid to AWS...
- kvz 6y ago
  On the one hand that sounds weird and AWS could just offer any discount, on the other if they can get done the same on less resources, others can rent the freed up resources at a premium
  - nl 6y ago
    It's pretty normal to account for use of cross department internal resources in some kind of financial way within corporations.
  - yomly 6y ago
    That compute isn't free - it comes at the opportunity cost of being sold to a paying customer so it makes sense to price it internally even if it is "virtual"
  - blahblah12 6y ago
    This is called cross-org transfer pricing. It's a common practice in accounting. In fact, imagine a company where this doesn't happen. Retail decides that they can "excessively" use AWS. This contributes to waste and problematic accounting when it comes time to report finances. https://en.wikipedia.org/wiki/Transfer_pricing https://en.wikipedia.org/wiki/Transfer_pricing
    - jldugger 6y ago
      Indeed half the point of AWS was to facilitate cost accounting. Probably because Bezos thought they had expertise in online marketplaces that would transfer. Jury's still deliberating on whether AWS' incomprehensible billing is a signal of incompetence or sheer brilliance.

jariel 6y ago

1) "very difficult to extricate costs of server farms that support the retail operation from server farms that host client services from overall operating costs." Not only is not not hard to do, they are almost assuredly already doing it. 2) It matters a lot, and the article does not miss the point. As for 1 - AWS Retail is a 'customer account', and they can track and measure the services used. They have to do this because that's how 'management accounting' works. 'Accounting' is not just a 'GATT' thing, it's also for measuring how profitable units and businesses are. AWS services used by a product will be charged not only to AWS services but even internally to a product account at Amazon Retail. As for 2 - it matters a lot because Amazon is dumping on Amazon retail, which may be an anti-competitive practice. Not only does AWS show x% contribution to profit, but it's also probably much worse: Amazon Retail may be significantly in the red after 25 years of operation, subsidized by AWS. Given Amazon's size and leverage in retail, it's definitely time to look at breaking them up in order to separate the two businesses. In normal times, this would be 'good for America' for obvious reasons. But in a 'big global economic fight' - it might be better from a nationalist perspective to let it go on at AWS, G, Oracle, MS etc. Has anyone noticed all the big, fat successful cloud players are only ever built by companies with zillions to spare? Implying that this is huge competitive advantage of America vis-a-vis other nations (and continents) who can't hope to compete without government intervention. AWS/Amazon Retail is an anomalous cojoining of businesses, which is fine, but it probably needs to be looked at along with the overlapping of the other cloud providers and their main businesses.

scarface74 6y ago

Every large corporation has the concept of “Organizational Finance” and cost accounting where they charge internal departments and treat them like customers. Also, not all of Amazon retail’s infrastructure is hosted on AWS. As an aside, I was listening to an interview by someone at GCP and they said that almost none of Google’s infrastructure is part of GCP besides some internal software.