How Big is Amazon's Cloud Computing Business? Find Out

18 thoughts on “How Big is Amazon's Cloud Computing Business? Find Out”

  1. Nice piece Om. One of the things I am most curious about is what the gross margins of Ec2 and S3 have been over time. Depending on how much of the total cost is affected by Moore’s law, they must be improving dramatically as Amazon has been relatively conservative in dropping the price over time.

    Do you know if anyone has done this particular piece of analysis?

    1. If your read the analysts P&L statement, the margins are pretty steady at around 50 percent. My guess is that it is from scale, utilization and becoming more efficient. Take a look and let me know what you make of those numbers.

  2. These margin estimates are too low.

    Just look at the most discounted tier of S3, .055 cents/GB vs. the entry tier at .15 cents. The bottom price is not under water, and thus you can quickly see an over 50% margin on the .15 cent tier of S3.

    1. James

      Interesting observation. I am trying to dig into this more — also I feel (after talking to a lot of people in the industry), the revenue numbers might be lighter than they actually are.

      Any thoughts on that?

  3. Only one problem with the AWS world domination theory – competition. The lack of competition allowed Amazon to preserve its the August 2006 $0.10 per hr per ECU pricing. Amazon’s failure to pass along any of the benefits accrued via Moore’s Law over the last four years leaves the company’s offers vulnerable. Selling compute resources on an hourly basis means end users are not stuck with the outdated computer they purchased last year. Amazon will lose momentum unless it re-prices the ECU. The threat and implications of re-pricing is a fact of life in infotech and something authors Pitz and Fitzgerald seem to have ignored. The unstated assumption Amazon continues into the future without competition undermines the conclusions.

    Daniel Berninger
    CEO, FWD dan@danielberninger.com

  4. Nice analysis. two questions. Where are the costs associated with the platform R&D and operations? I suspect they are in part shared with the e-commerce business so I may be hard to break out. Since there is no break-out for R&D below the line, are they factored into the G&A line? Also, what would you guess for capex for server, networking, storage, etc? Any thoughts much appreciated.

  5. Good to see some numbers! But I am skeptical about their G&A. IF they are running the R&D and Ops for this as a separate business, its going to be higher than $23M. Also these numbers are going to grow faster (see job postings for AWS).

    Also related to costs, how much compute are they giving away to developers for free? And are these developers staying on instead of migrating to cheaper hosting providers once they enter production? If they hold the line on prices, they’ll be leaking ISVs.

  6. Huge numbers but they prove to be real. Amazon is really one of the first companies to offer different web services. The only thing I can’t understand why the numbers of revenue grow so fast? Isn’t there some competetion to amazon?! Nevertheless amazon support useful and reliable services so the benefits must be also appropriate

  7. Real good stuff. I was curious to know these details since long time.

    Couple of points
    I see the margin estimates are extremely low
    Missing or lack of competition allowed Amazon to dominate
    how real are the above numbers?

    Basharat

  8. Om, you’ve piqued our curiosity so we prepared this report on AWS for you. Our analysis corroborates much of this, uses a few additional sources and also shows some data on the size of the operation. We also talk about the cloud computing scene in general. Our researcher spent 8 hours on this report and we welcome your comments!

    Interested readers can find our report (500k PDF warning) here: http://brainmaven.com/media/samples/GigaOm,CloudComputingalaAWS.pdf

  9. Good insight Om. Is there any similar analysis or projections or case study for Indian market ? How would this market florish with existing limited bandwidth – product and reach scenerio in India – example for cloud storage / online storage or computing requires high bandwidth of 10 Mbps if not 100 Mbps and more. How would this market aid in development of high bandwidth market in India ?

  10. Are the margins really only 50%? For a company the size of Amazon, $500 million, may not sound like a lot but most of that number should be pure profit. As an on-line retailer Amazon has to maintain its computing infrastructure as a cost of doing business. The excess computer capacity they sell after that should be pure gravy.

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