
Amazon Web Services revenue rises 81% year over year - vizzah
http://blogs.wsj.com/moneybeat/2015/07/23/amazons-cloud-makes-the-cut/
======
fnayr
36% of Amazon's operating profit is now from AWS. That's crazy!

~~~
cft
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.

~~~
mdasen
If the point of a business is compensating its employees, that might be a
strategy. However, that isn't the point of the business. The point of the
business is to generate money for the shareholders. Over the short/medium
term, shareholders might be content with growth and revenue. Over the long
term, without profits the business has nothing for shareholders.

It really isn't a tax strategy any more than being unemployed with no income
is a tax strategy. Amazon's strategy seems to be keeping margins low enough
that it's hard for others to compete with them, in the hopes of great long-
term profits.

While the stock may be valued on its revenue, that valuation is premised on
the idea that Amazon will be making a lot of profits from that high revenue in
the future. Investors aren't buying Amazon stock believing that it's avoiding
profit as a tax strategy to funnel money to employees. They're buying Amazon
stock believing that it's the future of retail and that being the future of
retail will come with enormous profits.

~~~
ISL
The point of a business is whatever its shareholders want it to be.

------
afarrell
I wonder how much of that is people forgetting to shut down unused EC2
instances

~~~
syllogism
It really feels like they design the thing to make that happen.

I got stung for over $100 just as a casual user, because I never guessed that
I had to click through all the (slow loading) regions to see the instances and
volumes and snapshots I might have burning money.

The web interface is a total clusterfuck.

~~~
JosephRedfern
Whenever I've had a similar issue, I've emailed to explain and been given a
full refund.

~~~
henpa
Me too. Happened 2 times to me already. ;-)

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ksec
Off Topic, Previously I was always put off by Amazon's design. You can click
on anything Amazon related, AWS included and see some fugly UI and layout.

And i got to check AWS again and i am pleasantly surprised things have
improved dramatically!

~~~
mbesto
_Summary: Many design elements work for Amazon.com mainly because of its
status as the world 's largest and most established e-commerce site. Normal
sites should not copy Amazon's design._

[http://www.nngroup.com/articles/amazon-no-e-commerce-role-
mo...](http://www.nngroup.com/articles/amazon-no-e-commerce-role-model/)

~~~
yokohama11
That report is a decade old. While I'm not going to hold up Amazon as the
ideal e-commerce design, the site has been drastically altered since 2005 and
many of those complaints are invalid now.

------
sker
Interesting that it rose about the same amount as Microsoft's cloud revenue
which was around 90%.

Anyone has numbers for Google?

~~~
foobar2020
Seems like Google does not like to share details on a regular basis:
[http://fortune.com/2015/04/24/google-cloud-
numbers/](http://fortune.com/2015/04/24/google-cloud-numbers/)

Side note: numbers between Microsoft and Amazon are not directly comparable
because Microsoft includes SaaS solutions such as Office 365 in their cloud
revenue. So it is not Azure versus AWS.

------
sudhirj
Can someone explain how Amazon is different (in investor mindset, not
legality) from a Ponzi scheme? It seems like retail companies (and even some
startups) exist solely by churning investors with new money. Everyone invests
based on expected profit at the end of the rainbow, and a lot of money is made
selling to the next set of investors who want to carry on rainbow-chasing.

If Amazon were to stop and start making a profit, wouldn't they immediately be
undercut by the next generation of quasi-ponzi companies who are now willing
to sacrifice short term profits?

~~~
smackfu
It's not like Amazon is issuing a lot of new stock, so they aren't making any
money if the stock changes hands.

[https://ycharts.com/companies/AMZN/shares_outstanding](https://ycharts.com/companies/AMZN/shares_outstanding)

------
downandout
I'm trying to understand why large companies use AWS for their primary
infrastructure. Both AWS and Azure are obscenely expensive when compared to
buying servers and colocating them somewhere. The cloud model works well for
bootstrapped startups, but anyone with the resources to buy and manage their
own servers is crazy if they use AWS or Azure as their primary server
platform.

~~~
lostcolony
Is it?

Cloud providers bring you not just localized infrastructure, but distributed
infrastructure, with clear mechanisms for scaling as needed, plus support,
etc. With AWS, you have a predictable cost, predictable up-time, and ability
to scale at peak, and your costs are spread over time, rather than all up
front.

With your own servers you have to build out to handle peak load (and run
mostly dormant during non-peak hours), across multiple locations, to achieve
the same availability.

I'm not sure the costs for the convenience of AWS are so obscene in such a
case. They may still be higher, I honestly don't know, but the convenience
benefit is huge. They key bit is that AWS' costs are largely -known-, whereas
the costs of DIYing aren't.

Per Netflix's blog post about why they use AWS for serving everything except
video content - "We could have chosen to build out new data centers, build our
own redundancy and failover, data synchronization systems, etc. Or, we could
opt to write a check to someone else to do that instead."

Oftentimes for enterprise, having all your infrastructure in place, done right
the first time, with someone else eating any costs associated with the
unexpected, and ready to start building your application on, is worth the
cost. For enterprise, paying a known amount to avoid risk is oftentimes worth
it.

~~~
latch
Yes, it is.

"If you’re used to designing and deploying applications in your own data
centers, you need to be prepared to unlearn a lot of what you know."

Which is it? Did it save them money because they didn't have to "build their
own redundancy and failover" or did they have to build a bunch of custom tools
like Chaos Monkey because "I knew to expect higher rates of individual
instance failure in AWS, but I hadn’t thought through some of these sorts of
implications." ???

From reading Netflix' blog, it's clear that it was a huge learning and
engineering effort. That cost has to be taken into account and added to the
fact that across many AWS offerings, you're looking at as much as a 10x price
/ performance penalty versus dedicated or collocation. I'm unconvinced that
they couldn't have done it cheaper and better through more transitional
approaches, and moreso that it's a meaningful indicator for anyone else.

AWS has been massively innovative. But it's _much_ more expensive, and a huge
part of their business is sales and getting CXOs onboard, not necessarily
providing good value.

~~~
amazon_not
"That cost has to be taken into account and added to the fact that across many
AWS offerings, you're looking at as much as a 10x price / performance penalty
versus dedicated or collocation."

This.

The pricing is especially egrerious in bandwidth charges which for AWS are
almost pure profit.

Amazon is only cheap if you don't use it.

~~~
nulltype
I've heard that the prices are egregious only in bandwidth charges and that
other things were not as bad. Does anyone have concrete numbers to compare?

------
brwnll
The drop in operating profit from Q1 to Q2 2014 of about 50% (~$100m) made me
look into some of their acquisitions being made for AWS.

Might be able to get more clarity into what they are paying for these
undisclosed acquisitions prices, assuming their cost for constructing data
farms stays relatively constant.

\- Peritor (Ops, Mar 2013)

\- ClusterK (Apr 2014, $20M-$50M)

\- Amiato (NoSQL, May 2014)

\- 2lemetry (IoT, Mar 2014)

\- Annapurna Labs (Jan 2015, ~$370M)

\- AppThwack (Mobile testing, Jul 2015)

------
x0x0
But is it even profitable? Operating profits don't include capex. And data
centers full of xeons are expensive.

~~~
sokoloff
Operating profits take a charge for depreciation of capital assets over the
(tax) economic life of the asset. So, AWS is charged between 1/36 and 1/60th
of the value of the server per month for 36 or 60 months. (Exact schedule of
depreciation is facts and circumstances dependent.)

But it's not like they're making a profit just because the servers are "free".

Source: I ran tech ops for an e-commerce company you've likely heard of for
~half a decade.

~~~
x0x0
They could well be making that profit exactly because servers are free. AWS
operating profit q2: $400m, for a $1.6B/year run rate.

A fascinating post from Benedict Evans looks at Amazon's capex/sales ratio
from 2009 and looks at what free cash flow would have been had Amazon
preserved that ratio through 2014 instead of incurring massive capex. They
would have had another $5B over the year previous to that article. [1]
Obviously some of that is warehouses, but unless they speak to how much of
that is datacenters, I don't see how anyone can assume aws is actually
profitable.

[1] [http://ben-evans.com/benedictevans/2014/9/4/why-amazon-
has-n...](http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-no-
profits-and-why-it-works)

~~~
sokoloff
There is a well understood (and "generally accepted" [GAAP]) formula for
operating profits:

Operating Profit = Operating Revenue - COGS - Operating Expenses -
Depreciation & Amortization

AWS Q2 conf call slides: [http://phx.corporate-
ir.net/External.File?item=UGFyZW50SUQ9M...](http://phx.corporate-
ir.net/External.File?item=UGFyZW50SUQ9Mjk2MTUxfENoaWxkSUQ9LTF8VHlwZT0z&t=1&cb=635732807364984824)

You can see on slide 15 "Segment Results-AWS" that the segment profit for Q2
was $391MM on net AWS sales of $1.842BB. Both numbers are for the quarter.

The article you linked talks about FCF, not operating income, and free cash
flow is still hit with, in Amazon's case, what appears to be capital lease
payments. (See slides 21 and 22 for the FCF reconciliation for newly acquired
capital equipment, which they don't break out at the segment level.)

E&Y audits Amazon's financials. I'm not sure what evidence you have to suggest
that Amazon is improperly "not counting" server expenses in AWS profitability
numbers, but that would be an extraordinary claim, which would require some
substantial evidence to overcome the presumption that E&Y and Amazon finance
are correctly reporting.

It is true that E&Y has not signed a full-year audit for a year when AWS broke
out AWS P&L separately, as that only happened for two quarters so far.

~~~
x0x0
But your capital lease payments aren't included in (ie removed from) that
operating profit. Since you don't know which is larger, I remain befuddled how
you claim aws is profitable.

~~~
sokoloff
Capital lease principal payments are absolutely charged against operating
profit per GAAP.

If Amazon is breaking out a segment P&L for AWS, they are no doubt making a
good faith effort to correctly charge operating expenses, including capital
leases, against that P&L. They also don't break out their electricity costs to
run their DCs nor their engineering costs attributable to AWS, yet I'm
confident that they are charging those costs against the AWS segment as
appropriate.

What evidence do you have that Amazon is not removing the capital lease
principal payments from the operating profit they're reporting? It's not like
they could possibly imagine that's going to "fly"...

~~~
x0x0
hmm... I'm going through their 10q and taking notes =P

I try to post here this weekend

~~~
sokoloff
I'll be here to read it. (not trying to be snarky, just confirming that I'm
interested enough in the thread to follow what you write)

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gargarplex
I think it will only continue to grow (for the next 5 years).

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jasondc
It's only a matter of time before they split AWS from Amazon, just wondering
why they're waiting so long.

~~~
lostcolony
Don't forget that AWS came out of Amazon's need for infrastructure. Amazon is
dogfooding with AWS, and that's one of the reasons AWS remains in the lead
when it comes to cloud compute platforms. They keep launching new, useful
services, that come out of real business use cases.

------
_pmf_
"Bezos ... Click Here For 100 Reasons Why Shortsighted Silicon Valley ADHD
Investors Hate Him"

------
Fratercula
now thats some nice growth!

~~~
foobar2020
The entire cloud is growing at a similar rate. Comparing market shares seems
more reasonable at this point:

[https://www.srgresearch.com/articles/aws-market-share-
reache...](https://www.srgresearch.com/articles/aws-market-share-reaches-five-
year-high-despite-microsoft-growth-surge)

