
Amazon Reports Surge in Profit - gist
http://www.wsj.com/articles/amazon-reports-surge-in-profit-1461874333
======
cs702
The most interesting tidbit for me is that Amazon would have reported losses
without AWS.

The AWS business generated $2.6B in revenues in the fourth quarter, which is
only 9% of Amazon's total revenues of $29.1B; but operating income for the AWS
business was $607M, or 118% of company-wide net income of $513M.[1]

Without AWS, Amazon would have reported losses!

[1] [http://phx.corporate-
ir.net/External.File?item=UGFyZW50SUQ9N...](http://phx.corporate-
ir.net/External.File?item=UGFyZW50SUQ9NjMxNDUwfENoaWxkSUQ9MzM1OTQyfFR5cGU9MQ==&t=1)

~~~
izacus
Which means that they're using profits from an unrelated market to undercut
and push out / destroy any competition in their storefront market. Not a good
situation for future competition.

~~~
richmarr
How to you reach that conclusion from those numbers?

~~~
kuschku
Because that’s literally what they say?

Amazon’s physical stores and Amazon’s online retail business are not
profitable. They are selling below price. This is per definition predatory
pricing.

They are only able to offset this because AWS is making more profit.

This is evident if you just look at the numbers.

~~~
Arnt
Perhaps it's correct but it's not evident from the numbers.

The numbers can be acceptably explained by expansion, which Amazon does all
the time. For example Amazon is just investing in a new retail business in
India.

~~~
matt4077
Investments don't actually diminish profits. If Amazon buys a house for
10mill$, their profit doesn't change by a cent, because while they may have
less cash, they also own a 10mill$ building.

The value of investments is spread out over whatever is reasonable for the
category (i. e.: Building: 10 years or so, car: 3 or 4 years, javascript
framework: 8 hours).

~~~
Arnt
True for the building itself, but is buying office space and warehouses a
large part of setting up a new business? I'd have thought that market surveys,
planning and negotiations, hiring the initial staff etc would dominate.

~~~
matt4077
It depends – you can generally expense anything you buy over it's useful
lifetime, so if you aquire a patent for your new project, you'll spread that
investment over the next few years. If you hire an architect, it's part of the
building's cost.

The only exemption I've ever encountered is intellectual property that you
create with employees – there'd be just too much uncertainty over it's value
so you suffer those costs immediately (which can be a good thing, it lowers
your taxes etc).

But yes, if you're investing a lot there will be some negative effect from the
beginning because everything starts losing value immediately and revenue only
starts later.

Note that all this is completely removed from cash flow. You'll have to pay
for all the stuff you buy – usually pretty quickly. There have been companies
with excellent balance sheets which still ran out of money because all the
value was in illiquid investments. That's why companies often prefer to lease
cars or machinery: it gets the different cycles in sync.

(all based on the laws of my small European country. Not endorsed by GAAP.
Lack of acronyms caused by inexplicable loss of the relevant vocabulary once I
got away from all the CXXs)

~~~
siliconviking
Well said. Though here in the US a significant (sometimes) portion of employee
costs lies in stock based comp. And many times, co's present non-GAAP numbers
that strip out this part from their income (which inflates their income, and
sometimes that can be the difference between making a profit or a loss). The
stock based comp gets reflected in increased share count over time, so it will
show up in the stock price, just not in the presented non-GAAP income.

------
tuna-piano
Amazon's rationale for its lack of profits is well known... Why does this
rationale not apply to its cloud business?

Is the cloud business so good that it generates profits regardless of the
investment it makes... or is the retail business so bad that it can't generate
profits regardless of the investment AMZN makes in it?

~~~
njitram
The switching cost for retail is really low; one Google and you know where you
can get the same product for a potential lower price. This means that to win
in the retail business you have to accept incredible low margins or even
periodically a loss. Online retail is almost a 'perfect' market.

While with hosting, it isn't as easy to switch. When you have chosen AWS, of
course you can switch to another vendor, but that is not without an investment
in time and money. The higher the switching cost, the more you can raise the
price above cost without customers (immediately) running away.

~~~
treehau5
I would argue the exact opposite, but it's because it's not only just the
product, but also the customer service and experience.

Switching from Amazon to a similar service is a huge risk to me. Will I get
the same customer service when I order something and it comes shattered at my
door? Can I rely on two day shipping being really 2 days? (I know some people
here are whining about it being 3, the majority of us get it within 2,
sometimes 1) Can I trust the reviews on the other sites? Will they know my
preferences and suggest me other items or books as well as Amazon or are they
coercing me? Do I get the same value added from the "premium" subscription
such as Prime? Who knows.

Switching cloud providers? A snap, provided you have architected your systems
according and not treated AWS offerings as black boxes and understand "OK I am
using RDS, I can just switch to another MySQL provider easy enough" and
prepared accordingly. "Ok I am using Elasticache, time for Redis." I imagine
it's even easier if you stuck to containers. And unlike Amazon retail where
there really isn't an online store that can match it in terms of customer
service and experience, many would argue that a DigitalOcean or similar have
better customer service, so there is competition there.

------
cosmoharrigan
It's interesting to note that Amazon third-party seller unit share is at 48%
of total units shipped, which is a record high. It has grown by 1% per quarter
for the last 4 quarters in a row.

~~~
draw_down
I don't really like how they sell things from third parties on there. If it's
sold by someone else and fulfilled by Amazon that's ok, but otherwise the
whole point of buying on Amazon is to not have to deal with weirdo possibly-
shady little retailers.

~~~
hga
Amazon is selling trust there; in my experience, if the seller has a 96% or
better rating you'll seldom be disappointed when it arrives, and they'll work
hard to give you satisfaction if you aren't.

Much better than eBay in my family's experience.

------
jonhohle
May 15th is going to be a nice day for a lot of people ;-)

~~~
laxatives
What is the significance of May 15th?

~~~
mabbo
Employee stock vesting day. If you get stocks granted as a bonus (most of us
do), they vest in may and November.

I know guys who've never sold any of their stocks. This will be literally $10k
or more in their pockets, if they finally decide to sell.

~~~
eclipxe
Jeff just made $6.1B afterhours...

~~~
csomar
It's "papers" money. It's not cash until cashed out.

~~~
redblacktree
If he's giving any of his "paper money" away, I'm first in line.

------
hokuriku
You know what this means, right?

Jeff Bezos will increase investment into AWS and Blue Origin, while not
investing anything into improving engineer work-life balance.

Seriously, at _least_ cover MSP and transit! Even partially covering a transit
pass would be nice!

Sincerely, an Amazon Vancouver SDE I

~~~
vehementi
I don't think the work-life balance issues at Amazon revolve around whether
they pay for your transit or negligible medical fee

------
redorb
honestly - stuffing video in with prime then raising the price. recently
offering video stand alone but for $9 more a year than prime (with video)...
Hard to tell who is actually shipping an item - sketchy pricing based on
region / or account etc..

why trust them with aws? it seems their strategy is to price things stupid low
- get you on board then raise it when they think they 'got you by the balls'

no thanks

~~~
andrewstuart2
Jump on board, but don't wear the shackles! Use something like Kubernetes and
FOSS projects and you can shift to whomever has the cheapest VMs today.

Easier said than done, I know, but a fine goal to have, I'd say. :-)

~~~
xyzzy123
I totally agree with you in the ideal case. Problem is in some ways, AWS is
too awesome due to all the add-on services.

Systems are more than just compute, and the last 3 companies I've worked for
have become increasingly coupled to AWS over time due to use of the add-on
services.

You build your system and over time you need message queuing, ability to send
emails, databases, load balancing...

You can run / build these yourself but do you want to use up your team's
bandwidth setting up say, postgresql replication ... or just use RDS?

If you use third-party (e.g. out of AWS) services, you lose the ability to do
security with say, instance roles and in larger orgs you lose time to the "new
vendor due diligence" process and getting the business to sign off on new
support contracts etc. Maybe you also need some new automation tooling.

Because all that business-ey stuff is already in place with AWS and
administering say, event queues, is sure not core business, most project teams
will SaaS that capability if they can. Whatever service is already in AWS ends
up being the no-brainer answer.

So hard to avoid architectural coupling. Then you look at the devops scripts
and realise all the usage accounting, security configuration, deployment
scripts and so on would need to be rewritten, and you have to go through
compliance again if, hypothetically, you were to move on from AWS...

~~~
JBReefer
Apprenda does all of that, without relying on a company far larger than you

------
serge2k
On one hand I miss my RSUs

on the other hand I do not miss working there.

well maybe a little. it was fun for a while.

~~~
eva1984
Same...But good to know that it is executing well.

Go google cloud go! Bring AWS price down!! We need competition!!

~~~
prohor
Google indeed seems the strongest competitor now for AWS, but there are far
more providers who compete - see a comparison:
[https://www.cloudorado.com/](https://www.cloudorado.com/) . We just need to
choose them to avoid monopoly or at least oligopoly.

~~~
fgonzag
I wouldn't touch any Google product that my business critically depended on
with a 10 foot pole. Their non existent customer service, willingness to kill
products if it does not meet their user or revenue expectations, among many
other things. It's a good strategy for them, but bad for their consumers.

~~~
chatmasta
My experience with GCE customer service has been < 10 minute replies.

~~~
chatmasta
Strange to see 8 upvotes 16 hours after I posted this... are some googlers out
there on an upvote spree? :)

------
neom
Go cloud go!!

------
kimcheekumquat
update:

after hour currently at 675.01. Price increase +73.01 (12.13%)

~~~
coldcode
With a market cap of half of Apple's they made ... 1/20 of the profit. For the
first time ever.

~~~
sangnoir
what are the growth prospects for Apple vs. Amazon? Market cap is influenced
by speculators who want to buy low and sell high, and to them - the bigger the
growth prospects, the better.

------
DasIch
Is there any reason why Amazon would suddenly "waste" money on profit? Could
this be an indication of a change in strategy or is this just a temporary
thing?

~~~
laxatives
There should eventually be some time when Amazon does finally cash out,
presumably on some timeline as a function of Bezos's mortality. Its
unrealistic to be around forever. How many companies last hundreds of years?
How many tech companies last decades?

~~~
serge2k
> How many tech companies last decades?

Amazon is at 2 decades and going strong. Any reason to think they won't last a
long time?

~~~
discodave
My prediction is AWS will split after Jeff dies (or is otherwise not involved
in the company). Then Amazon retail will split from Amazon logistics, and so
on.

------
gist
AWS currently improves product and cuts prices. My feeling is that as they
mature over time and get even more of a lock on the market (and their
customers) with the obvious lock in they have that will reverse and prices
will increase over time resulting in even more profit than they reported
today. Impossible to think this won't happen, especially with the
differentiation they have with their product as well as the FUD of changing to
a marginally less expensive provider (who will probably follow suit).

~~~
jonhohle
One significant advantage of AWS is that they have a very large, built-in
retail customer with relatively demanding requirements. I've always been under
the impression that Microsoft doesn't really have a business that would lend
itself to consuming its own services[0] and it's unclear to me whether or not
Google uses their stuff internally.

0 - as an anecdote, I recall their salesmen coming to sell my employer their
caching solution around 2008. I asked the rep I'd Microsoft was using their
caching product on any of Microsofts web properties and he replied that they
were not.

~~~
abritishguy
Xbox live runs on azure

~~~
GeechieCloud
Certain, newer pieces of some of these services, such as the Azure Active
Directory service at the heart of Office 365 and some of the newer,
complementary Xbox Live services are hosted on Azure. But the core Bing,
Office 365 Commercial and Consumer offerings and Xbox Live services are not
hosted on Azure. (same article as above)

~~~
mrep
It seems like amazon is using an "all in" strategy which seems to be working
out pretty well. They first focused on porting the entire amazon retail
website onto AWS which I believe they completed in 2011. They also went "all
in" with the service oriented architecture for AWS. Both of these have paid
off quite handsomely.

Granted, that hasn't always paid off (we all know how the fire phone turned
out), but the wins have definitely made up for the losses.

------
jerryhuang100
so i guess my super super slow free-shipping orders (non-prime) from amzn as a
result of their curbing capex?

------
Quinner
Why do people link to basic stories like this behind a paywall? If WSJ has an
original piece out, fine, but this could've come from any one of a thousand
sources.

[http://www.bloomberg.com/news/articles/2016-04-28/amazon-
sal...](http://www.bloomberg.com/news/articles/2016-04-28/amazon-sales-top-
estimates-as-fast-delivery-options-fuel-growth)

~~~
paulddraper
So....block ad blockers and HN screams.

"I will pay for content", they say. "I just don't like your 25MB flash ads."

Link to crap, and HN screams.

"Is journalism dead? This stuff is just click bait. I appreciate good writing
and quality content."

Put up a paywall and HN screams.

"Why u make me pay?!?!?!?"

~~~
dredmorbius
The problem is the business model.

All of these behaviors 1) are hostile to high-quality accessble content and 2)
are fundamentally driven by advertising (or its failure).

 _Information is a public good._ This doesn't mean it costs nothing to produce
(the contrary), but high-quality public information has a high positive
externality to the common wealth (that is, the commonwealth), and is essential
in a democratic society.

Some see the solution as micropayments. I disagree strongly, see Nick Szabo,
Clay Shirky, and Hal Varian as to why not. _Superbundling_ might work, but the
ultimate superbundle is a highly aggregated, means-based fee. Either a direct
tax (income or wealth-indexed) or bundled into broadband services. The former
strikes me as more equitable, the latter as more viable.

 _The costs are low._ A $100/year average fee per $30k in income, charged
_only_ among OECD nations, would cover all online advertising revenues. A
$500/30k rate would cover the _entire_ advertising industry. ($30k is chosen
as roughly median OECD per capita income.)

(Note: corrected from earlier figures which applied to worldwide population:
$20/person and $100/person would cover everything, if paid by everyone, though
I see an argument for progressivity applying the tax to developed nations.)

The distortions, perverse incentives, inefficiencies, privacy invasions,
security risks, and more, of the present model simply aren't worth it.

HN's policy is that paywall-based stories are acceptable. I disagree strongly
with this view. The WSJ is trying to play both sides of the subscriber-only /
viral content game. And are providing increasingly slanted, unreliable,
Murdoch-tainted content to boot. I view it as barely above spam.

There are other sources, they should be allowed and encouraged. WSJ should be
blacklisted.

And yes, I absolutely would like to see an alternative publication financing
model pursued. I'm not holding my breath. But supporters of the model I've
proposed include Richard M. Stallman of FSF and Phil Hunt of Pirate Party, UK,
among others.

Previously, on global advertising spend, publishing models, and per-capita
costs:
[https://plus.google.com/104092656004159577193/post](https://plus.google.com/104092656004159577193/post)
/adKy4gM317c

Several posts on content syndication, and inherent problems of information
goods and markets:
[https://www.reddit.com/r/dredmorbius/search?q=content+syndic...](https://www.reddit.com/r/dredmorbius/search?q=content+syndication&restrict_sr=on&sort=relevance&t=all)

Hal Varian (UC Berkeley economist, Google's chief economist) on information
goods and markets:
[http://people.ischool.berkeley.edu/~hal/Papers/japan/index.h...](http://people.ischool.berkeley.edu/~hal/Papers/japan/index.html)

~~~
cm2012
Since the government doesn't currently pay for Media, how should journalists
currently get paid?

~~~
dredmorbius
I've addressed that in a few articles, posts, and comments, though nothing
particularly comprehensive.

One option would be similar to how performance rights organisations
([https://en.wikipedia.org/wiki/Performance_rights_organisatio...](https://en.wikipedia.org/wiki/Performance_rights_organisation))
operate in music and broadcast based on mechanical copyrights.

Another option would be to identify _who_ the most valuable authors,
reporters, composers, performers are, and provide a stable annualised income
based on this and related elements.

In the UK, broadcast taxes are paid to the BBC, which funds creatives.

The _details_ of how specifically individuals are paid isn't so important _as
the fact that they are_ , in a manner sufficient to provide the information
and media necessary for a vibrant culture and society, as well as polity.

If you look at Adam Smith's discussion of compensation for labour, he comes up
with a fivefold set of factors, on top of the basic fundamental imperative
that wages be sufficient to live on and raise a family.

Somewhere in there lurks at least one successful formula, I'd suspect.

(I'll see if I can't find some relevant links.)

------
jessriedel
> Starbucks To Begin Sinister 'Phase Two' Of Operation

> SEATTLE–After a decade of aggressive expansion throughout North America and
> abroad, Starbucks suddenly and unexpectedly closed its 2,870 worldwide
> locations Monday to prepare for what company insiders are calling "Phase
> Two" of the company's long-range plan....

> Though the coffee chain's specific plans are not known, existing Starbucks
> franchises across the nation have been locked down with titanium shutters
> across all windows. In each coffee shop's door hangs the familiar Starbucks
> logo, slightly altered to present the familiar mermaid figure as a cyclopean
> mermaid whose all-seeing eye forms the apex of a world-spanning pyramid.

[http://www.theonion.com/article/starbucks-to-begin-
sinister-...](http://www.theonion.com/article/starbucks-to-begin-sinister-
phase-two-of-operation-416)

~~~
guscost
Whoops, promoting your cynical humorous reference while this was trending
might have caused a backlash, sorry.

For the record I still want to buy Amazon stock someday.

