Amazon Web Services is larger than a billion!
When you have a look at Amazons first quarter earnings, it is inescapable for you to estimate that Amazon Web Services is currently a $2 billion a year business. And you would be right!
This is due to the fact that Amazon’s revenue from the ‘other’ category for the quarter ending March 31, 2012 was about $500 million. This total is up from $311 million for the period that was a year ago. If you assume the ‘other’ category is AWS only, that’s a $2 billion-a-year run rate for 2012.
Before we get a head of ourselves i must state what the other includes, the way in which an Amazon spokeswoman put it before “non-retail activities, such as AWS, miscellaneous marketing and promotional activities, other seller sites, and our co-branded credit card agreements.” Still, even if AWS is 75 percent of that figure, that’s a $1.5 billion run rate for the year. Not too shabby. It has almost become a game for people who try to determine how big Amazons cloud actually is. Big in terms of instances and in terms of services. GigaOm has reported last week that It has become a popular game.
GigaOM’s Derrick Harris said last October, using statistics from UBS, that he predicted that AWS would become and extremely successful business that will pull in millions and millions of dollars. Looks like he was on the money! Even more recently, Morgan Stanley analysts put AWS at a $1.19 billion run rate for 2011.
This Thursday, on Amazon’s Q1 earnings call, CFO Thomas Szkutak time and time again mentioned how rapidly AWS is growing. As for the upcoming quarter, he told analysts to expect about $0.8 billion to $0.9 billion in capital expenditures relate to software development “driven primarily by our expectations of continued business growth, consisting of investments in technology infrastructure, including Amazon Web Services and additional capacity to support our fulfillment operations.” (There is a transcript of the call here)
Big revenue doesn’t mean big profit
Profitability is a completely different concept than revenue. And everyone who works outside of Amazon has no idea how profitable these services actually are. AWS continually cuts pricing on its EC2 and RDS and other services in the face of growing competition from other IaaS players and there will be more competition making way on the Web as more of the OpenStack camp go live.
Many people think of the existence of AWS as a way for Amazon to sell off things that they no longer have any use for such as compute and storage capacity. They think that they may do this as a way to make up for lost expenses. And yet it keeps adding higher value-added offerings like the DynamoDB database service, which it claims is its fastest-growing service ever. It its also carrying out things such as launching an official partner program which means that Amazon is lappearing to seem even more like a traditional IT provider. IT providers such as Microsoft or IBM for instance.
Well whatever the condition of the profit situation might be, it seems as though Amazon is set for and is focused on continuing to build, by using and selling off that compute and storage capacity. Amazon had announced last week that the Amazon Marketplace is a way to wager the company’s retail and also IT expertise to sell third-party technology services. They want to sell these services and also their own services.