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.
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:
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.
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.
This doesn't mean that Amazon only uses AWS products, though. Amazon continues to use e.g. Akamai for static content hosting for some use-cases, in addition to using CloudFront for other use-cases, and other products beyond that.
Amazon also uses third-party services. For example, while Amazon has long been using Chime internally for IM, chat, and voice/video calling (Chime being the AWS solution for those things), they recently announced a partnership with Slack [1]. To summarize, Amazon will deploy Slack and use it for chat, while Slack will deploy Chime and use it for voice/video calling. I believe that Slack has been running on AWS since its founding [2]. I would hazard a guess that an undertone of the agreement is that Chime will continue focusing on its strength (which is voice/video calling for organizations) and probably not invest a lot in the chat features where Slack is already strong, and vice versa.
All that being said, certainly not everything runs on AWS across all of Amazon, which is a big company, with a host of acquisitions like Zappos, Twitch, Whole Foods, etc., that come with their own legacy or custom infrastructure.
But bread-and-butter software teams at Amazon all typically run on AWS.
[1] https://www.businesswire.com/news/home/20200604005766/en/AWS...
[2] https://aws.amazon.com/solutions/case-studies/slack/#:~:text....
It is definitely wrong to say retail doesn't use AWS.
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-fr...
Which is then fueled by cheap credit and already existing high levels of free cash flow. It's not a problem until demand dries up, which as you are probably aware, does not look like its slowing down anytime soon.
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.
As he describes here, under "What about AWS?".
"AWS...is a different story".
https://www.tbray.org/ongoing/When/202x/2020/04/29/Leaving-A...
If the two parts of the business don't really gel, what's the benefit of keeping them together in one company?
Here are a few different ways that AWS and Retail interact:
1. The obvious that everyone knows: Retail uses AWS's products, providing feedback and ideas for new services and features.
2. Employee transfers: it's quite common for people to move between Retail and AWS and vice versa, and they bring what they learned in one org to their new org, helping to spread information about best practices.
3. Other employee knowledge transfers: I've personally benefited from engineers in AWS sharing their knowledge about general engineering topics on internal interest mailing lists or through tech talks.
4. Best practices: there are some differences, but AWS and Retail operate similarly in many ways: use of 6-pagers for sharing ideas (https://www.linkedin.com/pulse/beauty-amazons-6-pager-brad-p...), weekly review of metrics, hiring tools and practices being just a few examples.
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.
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.
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
It will in revenues but not in profits.
Right now, Wallmart, Exxon, GM etc. 'dwarf' most tech businesses in terms of revenues and the size of their businesses, but the profits are smaller, so tech companies have a higher valuation.
Sears is more or less dead. Walmart is struggling to keep market share with amz. With groceries their only saving grace
If price is their long term plan with retail that is a loosing proposal. Once they dominant they might be able to sqeeze the market for a few years maybe a decade but them something else will topple them
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.
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.
I'd argue that the existence of cloud providers have only accelerated the growth of the tech industry and has in fact put more money in the pockets of tech workers and VCs than there would have been without the existence of an AWS/Azure/GCP/etc
The company I work for used to have most of its revenue come from VC-backed startups. Over time that changed as we courted more well-capitalized enterprises. If our VC-backed-startup customers all went bankrupt tomorrow, it would certainly hurt, but it wouldn't kill us, not by a long shot.
I would expect that to be even more true for a product like AWS, not less.
As a consumer, you're almost certainly in a Salesforce system somewhere, but most people have no idea what Salesforce is.
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.
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.
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. :)
I know the party line, which is that Amazon chooses not to take retail profits because they would rather invest in growth.
But invert that statement to understand it a different way: it implies that when they choose to take retail profits, their growth will slow. (If they could take profits and keep growing they would already be doing that.) How will investors like an Amazon that’s not growing anymore?
Personally I think that the way Amazon’s retail side runs today is the only way it knows how to run, and is how it will always run. The expectation of massive retail profits will always dangle out there in the future like a carrot for investors to chase.
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.
To GP's point though, there is only so much market capacity for Amazon's growth so there will be a point that investors think that Amazon would best be using it's cash somewhere else, including dividends. It happened to Apple and it can happen to Amazon.
Not exactly.
To avoid paying taxes, any extra net income is reinvested. It's like a religion in senior management to avoid taxes. And to lobby for employee non-competes, too.
Also, margins on retail are not the same as pure tech companies, like Google or Microsoft. US grocery stores, like Safeway, have net income in the 1% of total revenue range, so if Amazon can make 10-15% on retail, that's impressive.
Of course, the longer the time horizon investors are considering, the greater the risk of someone disrupting Amazon's profits in that time frame.
If investments into efficiency and scale can produce AWS, and create an entirely new market segment; couldn't continued investments into efficiency and scale produce the next-AWS?
I would frequently get deliveries from Whole Foods Market or get stuff off amazon a couple times a week. Due to covid just making deliveries impossible I've cancelled my Prime Subscription and haven't bought anything from Amazon in months. It wouldn't surprise me to see their revenue go down from Prime memberships.
Does people donating to charities drive you mad? That's not even remotely profitable!
