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36% of Amazon's operating profit is now from AWS. That's crazy!

• artursapek 11y ago
  That is crazy. AWS revenue is nothing compared to their total revenue, right?
  • dangrossman 11y ago
    AWS contributed $1.82B of the $23.18B in total revenue for the quarter.
    • guelo 11y ago
      That's way more significant than I would have expected. Still, 8% of their revenue contributes 36% of their profits. Makes you wonder why they don't run AWS at the same cutthroat prices as their other businesses.
      • deleted 11y ago
        [deleted]
      • NhanH 11y ago
        Amazon retailer still have competitors coming behind their back, albeit at a distance, but Walmart & co. is nothing to sneeze at. AWS have about ... zero competition where they are right now. Google CLoud, Azure and the like are not doing quite the same thing just yet.
        • thoman23 11y ago
          Agreed, but Amazon as a retail operation is so well run with such excellent customer service it's hard to imagine Walmart outcompeting them.
          • jjoonathan 11y ago
            Walmart is cheaper. Significantly cheaper. You don't have to pay $100-$300 per year plus Amazon's typical 10-20% price premium* in exchange for "free" 2-day shipping. If you live in the right place you can pick up the goods same-day from Walmart, maybe even on your commute, so for some people it's more convenient too. * The usual caveat about everything varying with geography applies here too, I'm sure.
            • jlgaddis 11y ago
              Is "in-store pickup" really that popular? When I need something in a few days (or later), I'll order it from Amazon when I think about it. If I need something "now" or today, I'll just drive to the store and go get it. I, personally, don't really see the point of the "in-store pickup" -- why order it online if I have to go there to get it anyways?
              • alaxsxaq 11y ago
                There is one advantage to ordering online for local store pickup that is worth considering. The online price can be - from my experience - cheaper than than the in-store price. I was surprised to find this on a number of different products recently.
              • fweespeech 11y ago
                > Is "in-store pickup" really that popular? Yeah. > I'll just drive to the store and go get it. Its faster if you know what is stocked at your local Walmart. Order on your lunch break, pick it up on the way home without running around the store for 30min.
              • qq66 11y ago
                I use in-store pickup at Best Buy almost any time I buy something there. I don't have to worry about it being out of stock, and even better, I don't have to go find it in the store.
              • GregQuinn 11y ago
                Here in the UK "in-store pickup" is known as "click and collect" and it's becoming very popular. In addition the on line price is often lower than the in store price.
        • colechristensen 11y ago
          There was a big price correction last year which was fairly clearly attributable to competition, especially Google. There will never be quite the cutthroat competition that retail brings, but Amazon is positioning itself as a logistics provider not a retailer.
          • thrownaway2424 11y ago
            The competition for cloud will be more like Intel vs. AMD. There will never be half a million different cloud providers, like there were book stores. A cloud is a huge capital asset that few can afford to build.
      • ChuckMcM 11y ago
        You have to realize they have been consistently cutting prices (and pulling Google and somewhat Azure) along with them.
        • boulos 11y ago
          I think you misinterpret the causality of recent cloud price drops: Google's price drops at year pushed AWS to follow suit, and they haven't matched since (the gap is greater than 20% for GCE vs EC2 now). Microsoft is also publicly committed to matching AWS. Huge Disclaimer: I work at Google on GCE.
          • _pmf_ 11y ago
            Well, given that Google's support consists of an automatic E-mail reply bot, I wonder why the gap is only 20%.
            • boulos 11y ago
              You mean our Free / Bronze support listed here: https://cloud.google.com/support/ https://cloud.google.com/support/ ? As people have mentioned on several threads, Google Cloud is actually a business so there are actual support people paid to help when you need it.
  • tomphoolery 11y ago
    Correct, but as they said Amazon's retail revenue gets poured back into R&D and other projects, while AWS is left to generate profits. It's a bit like an insurance policy. AWS is definitely Amazon's most profitable "spinoff" product, besides the Kindle I can't really think of anything else they've made so far that has been that successful.
• molecule 11y ago
  profit is the key word: Amazon has historically operated w/ a profit of slim to none. http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-no-profits-and-why-it-works http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-n...
  • bduerst 11y ago
    The slim overall profit is different than the operating profit, as that article explains when talking about Amazon's capex. Amazon is notorious for capital expenditures, some of which is probably why AWS exists.
• boomshucka 11y ago
  They do some kinda misleading accounting for AWS. They don't count the capital leases as expenses in "operating income" for AWS, it get's counted at the entire company level. So, because they don't have to expense any depreciation/(expense for capital expenditure in some form) at the AWS level, the "operating profit" at AWS is artificially high and would be negative if it was properly showing the economics of that business. This isn't to suggest amazon as a whole is doing anything wrong, they are following accounting standards, but that is one place where the standards for capital leases are misleading if you don't read the fine print.
• cft 11y ago
  Bezos long ago figured out that the best tax strategy in modern America for a public company is to operate without profit. The company operates with a relatively (to the revenue) small loss, maintaining positive cash flow by issuing and selling additional stock. Selling new stock is (remarkably) tax free. The dilution is negligible since the stock is valued by the revenue (not profit so much). Everybody benefits: executives are now compensated mainly by the RSUs and options, and the corporate profit is only a tax drag that does not really affect this compensation.
  • sudhirj 11y ago
    Isn't this pretty much the best strategy anywhere in the world? Is there any country that taxes by revenue? Apple has this weird problem of being so profitable that they have no clue what to do with all that money. And then everyone picks on them for their loophole-based tax mitigation strategies.
    • jnky 11y ago
      Maybe taxes on profits were created so that companies invest their profit instead of hoarding it or giving it to shareholders, creating jobs and infrastructure in the process. As far as I'm concerned, Amazon is using its profits (or lack thereof) exactly as intended.
      • calpaterson 11y ago
        If you returned it to shareholders they would be reinvesting it too (just somewhere else). You can return capital to investors tax efficiently using share buybacks. Haven't looked at Amazon's annual report in detail so can't tell if they are reinvesting profit in areas that will have high return or not.
        • sumedh 11y ago
          > You can return capital to investors tax efficiently using share buybacks. What if the share price is not undervalued, the investors would get hurt if you do a buyback.
• bmir-alum-007 11y ago
  Not really. Amazon as a whole is dial-a-yield depending on the rate of profit reinvested to grow existing/new capabilities. If Bezos wanted, he could halt expansion and return more profit in the short-term, but that would delay long-term revenue (and hence profit) generation plans (however long he's able to find other business expansion directions which avoid the perils of overexpansion and also avoid plateauing for too long). Also, some companies like Netflix and Zynga, which are AWS'es main customers, are fine to pay AWS a premium to have most of their infrastructure better managed and on-demand. Whereas most sizable businesses deploy something like OpenStack for baseline load on real, bare metal gear they buy and use AWS for traditional uses: PoCs, disaster recovery and peaking capacity. Startups tend to use AWS at first because it's easy, popular and low-risk, but it's not a panacea because it tends to get very expensive, very quickly. (It is however, clearly, a great business in itself, which probably should be spun-off.) Disclaimer: I was with a premier enterprise AWS external consultancy shop early on that had significant access to capabilities and expanded limitation perks beyond other shops. Interestingly, they've built limitation increase requests available to most everyone now, which were manual before and depended on how much clout a customer or vendor garnered.
  • bbrazil 11y ago
    > it's not a panacea because it tends to get very expensive, very quickly. I've investigated colocs near some AWS locations and found AWS to be around 20% cheaper than the cheapest viable option. With AWS's occasional price drops on top of that and general flexibility it's not a difficult choice. One thing I found was that most providers were trying to sell vertical reliability (e.g. hardware RAID1), with a matching price. Our redundancy is horizontal at the application level (e.g. Zookeeper, Cassandra) so this has no value for us.
    • bmir-alum-007 11y ago
      Is that rented gear in someone else's racks or your own gear in racks you rent? Beyond a few boxes, the TCO of buying your own gear is far, far cheaper (look at the prices of Supermicro boxes, not luxury, overpriced enterprise boxes that aren't use-case appropriate). Someone also has to know how to negotiate with DC's (because power circuits are often the biggest cost factor) and how to separately get good deals on fiber (which is usually far cheaper than the DC's charges because most customers don't know better). DC's often nickel and dime for simple tasks if you don't do it yourself (or have hands that can do it for you). (RackSpace used to charge something $75 every time a box need to be reimaged. DC's will often take forever and charge several arms and legs to rack & stack & cable in your cage, but you will still be at their mercy for freight & delivery and pulling outside fiber, electrical circuits, cooling & rack leveling.) Overall though, it's still cheaper for web-ops shops to do bare metal in (Google, Yahoo, Apple, etc. in their own DC's and other large/medium shops with predictable baseline loads in someone else's DC's) otherwise everyone would be using AWS. And that's clearly not the case for anyone who's ever been in a real enterprise shop. Look at Wikia or most any other enterprise shop for baseline loads: mostly bare metal, because it's far cheaper for people whom know what they're doing. Also, BackBlaze... pretty much no way to undercut with them apart from buying an HDD manufacturer and going multi-datacenter-scale.