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AWS’s Share of Amazon’s Profit

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101–110 of 136 posts

Re: AWS’s Share of Amazon’s Profit

#101
post #57

I'm not sure if this helps or hurts Tim's assertions (not mentioned in this piece, but from context he wants AWS to be spun off into a separate company). if AWS' share is so high, would AMZN shareholders approve a spinoff? does it matter since they get ownership of new-AWS anyway? unclear 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 blogpo…

If AWS had been a separate company, then he probably wouldn't have felt the need to quit over the whistleblower incidents.

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...

Re: AWS’s Share of Amazon’s Profit

#102
post #97

Earlier quoted context omitted.

But also, what synergy do the tech giant and retail giant parts of Amazon have? If the two parts of the business don't really gel, what's the benefit of keeping them together in one company?

In general, investors would prefer two companies because those looking to invest in retail wouldn’t have to expose themselves to cloud & vice versa. That increase in demand for each component (investors who formerly ignored the stock owing to the above) would make the share price go up, all else constant. Amazon stock performs well because a lot of investors want access to both, so it’s not that big of a deal. Also J…

> 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.

People have been complaining about Amazon's investing policies (like reinvesting every penny instead of paying out dividends) for decades and not gotten anywhere though.

Re: AWS’s Share of Amazon’s Profit

#103

Earlier quoted context omitted.

This is called cross-org transfer pricing. It's a common practice in accounting. In fact, imagine a company where this doesn't happen. Retail decides that they can "excessively" use AWS. This contributes to waste and problematic accounting when it comes time to report finances. https://en.wikipedia.org/wiki/Transfer_pricing

Indeed half the point of AWS was to facilitate cost accounting. Probably because Bezos thought they had expertise in online marketplaces that would transfer. Jury's still deliberating on whether AWS' incomprehensible billing is a signal of incompetence or sheer brilliance.

Designing billing for a service can be really challenging. The ideal pricing structure exactly aligns the incentives of the customer with the costs of the service provider.

As a service designer, it is challenging to achieve this and strike the right balance. One naive solution is to account for all of the possible costs that users generate, and surface them with a price in the bill. But this can result in extremely complex pricing structures with many dimensions. If you account for many cost dimensions, then your pricing plan is complex and can be hard to understand, and difficult for users to forecast for.

However, if you over-simplify, and reduce the pricing plan to too few dimensions, then you risk running into other problems, such as failing to charge adequately for user behavior that can cause the service to run at a loss (consider e.g. MoviePass -- which simply charged less for the service than what it cost to operate).

Another common alternative is to charge a fixed price and over-subscribe the underlying infrastructure. This can be a reasonable solution in some situations: it's not very likely for literally every person with a cell phone to make a call at the same time, for example. Many infrastructure providers charge a flat rate and scale for the expected regular (daily or weekly) peak. But if there's a massive natural disaster then a large number of people might make calls, and the network might fail. If you are an e.g. doctor who needs to be called to a hospital, or a first responder who needs to be called to a scene, no matter the situation, then perhaps the right pricing plan and offering for you is something like a guaranteed cell phone line, which comes with the promise that it will not be over-subscribed; but this will come with a cost, since you are paying the infrastructure provider to keep that circuit around and idle. Most retail cell phone users don't want this trade-off, but a few specialized users might. These are the kinds of complications that you encounter when designing business plans and prices.

(I'm making up an example about phones but hopefully it gets the point across.)

I can share a personal anecdote about a challenge in designing the pricing plan for Simple Email Service: we launched the service charging a flat rate of $0.10 per thousand emails (a price substantially lower than other providers at the time). Then one user decided to use us as a data delivery platform, doing nothing but sending maximum-sized emails with attachments. We expected some variation in email size but didn't account for a use-case of constantly sending max-size emails.

What are our options?

1. We could do nothing and potentially take a loss on this customer, subsidizing their usage forever from the revenue from other customers. That's not fair to other customers of the service, and subsidies like this might prevent us from lowering the price of the service in the future.

2. You can tell a customer that you can't support their usage -- essentially kick them off the platform. That's the last resort for all businesses, but it is an option.

3. We could introduce a price per byte of email size, but email size is insignificant for the vast majority of users. Most users want to be charged by the number of emails that they send -- they don't want to have to think about the size of their emails, which are typically not significant. Charging per message is also the industry standard, what users expect, and keeps the pricing plan simple.

Charging per message also has the important property of making it simple for users to forecast what their costs will be for some potential usage, which is an important property of a pricing plan: this is not necessarily true if we charge for the byte-size of emails. Companies can't necessarily forecast the size of all the emails they will send since they can be generated as the result of e.g. personalization or user behavior.

Here's what we actually did:

4. We resolved this particular challenge by introducing a price that only applies if the email has a data attachment. If you send an email with an attachment, then there is an additional price that applies per GB of attachments sent. In this way we kept the price simple for the vast majority of the user base, while accounting for this cost in a way that allowed the user to keep doing what they were doing if they wanted to.

AWS teams invest a lot of thought into getting pricing right. It's a very difficult design challenge, especially when you involve the combination of many services, many potential user behaviors, as well as in what state your infrastructure will be in during yearly peak usage (whenever that might be -- e.g. tax day, Prime Day, Chinese New Year, or whatever is relevant to your service). In designing pricing plans, it is a constant struggle between trying to keep them simple, while trying to allow them to be complex enough to model the important parameters of users behavior.

Re: AWS’s Share of Amazon’s Profit

#104

Earlier quoted context omitted.

This is called cross-org transfer pricing. It's a common practice in accounting. In fact, imagine a company where this doesn't happen. Retail decides that they can "excessively" use AWS. This contributes to waste and problematic accounting when it comes time to report finances. https://en.wikipedia.org/wiki/Transfer_pricing

Indeed half the point of AWS was to facilitate cost accounting. Probably because Bezos thought they had expertise in online marketplaces that would transfer. Jury's still deliberating on whether AWS' incomprehensible billing is a signal of incompetence or sheer brilliance.

I've had to build out my own dashboards using their api to make sense of our AWS envs.

Re: AWS’s Share of Amazon’s Profit

#105
post #69

He's overly simplifying the contribution to profit by not understanding the contribution to expenses. It's not his fault because Amazon doesn't break it out that way. They don't allocate certain expenses to AWS and other expenses to other branches. 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…

I would presume AWS is so large these days that Amazon retail's infra is only a small fraction of the fleet? 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: https://blog.sqlizer.io/posts/facebook-on-aws/

This article is about how much profit from Amazon comes from AWS. Not how big of a 'client' Amazon is in AWS itself.

Re: AWS’s Share of Amazon’s Profit

#106

Earlier quoted context omitted.

Indeed half the point of AWS was to facilitate cost accounting. Probably because Bezos thought they had expertise in online marketplaces that would transfer. Jury's still deliberating on whether AWS' incomprehensible billing is a signal of incompetence or sheer brilliance.

Designing billing for a service can be really challenging. The ideal pricing structure exactly aligns the incentives of the customer with the costs of the service provider. As a service designer, it is challenging to achieve this and strike the right balance. One naive solution is to account for all of the possible costs that users generate, and surface them with a price in the bill. But this can result in extremely…

So why didn't that customer just start sending emails that weren't MIME compatible--and so wouldn't have "attachments"--but still carried a very large amount of base64 encoded data (which is all MIME is doing anyway)?

Re: AWS’s Share of Amazon’s Profit

#107
post #98

Earlier quoted context omitted.

I thought Amazon don't use aws for their main product. Do they use it for alexa?

Amazon runs virtually everything on AWS. There are probably some exceptions for exotic infrastructure, but the vast majority of compute and storage systems at Amazon run on top of AWS. There's probably a team using every single AWS service somewhere in the company. 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 additi…

> Amazon continues to use e.g. Akamai for static content hosting for some use-cases, in addition to using CloudFront for other use-cases

I find this pretty surprising. Do you know the reason?

Re: AWS’s Share of Amazon’s Profit

#108
post #106

Earlier quoted context omitted.

Designing billing for a service can be really challenging. The ideal pricing structure exactly aligns the incentives of the customer with the costs of the service provider. As a service designer, it is challenging to achieve this and strike the right balance. One naive solution is to account for all of the possible costs that users generate, and surface them with a price in the bill. But this can result in extremely…

So why didn't that customer just start sending emails that weren't MIME compatible--and so wouldn't have "attachments"--but still carried a very large amount of base64 encoded data (which is all MIME is doing anyway)?

As I recall, in this customer's use case, they wanted to deliver the data as email attachments that the recipient could download (recipients were regular people). I think they were selling ringtones or MP3s or something of that nature and the email was the method of delivery. It was a pretty cool concept.

Re: AWS’s Share of Amazon’s Profit

#109
post #65

Earlier quoted context omitted.

Hmm.. they might want to look at Sears or Walmart. 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

Sears was started over 115 years ago and was a dominating force for most of those years. Walmart is responsible for the 7th, 8th and 9th largest fortunes in the world built before modern monetary policy. Further they completely changed retail in America. Those seem like weird counter examples.

and a new king is born

Re: AWS’s Share of Amazon’s Profit

#110
post #85

Earlier quoted context omitted.

I know a colleague that worked on Alexa stuff and he said they did use AWS infrastructure and part of his job was reducing the cost Alexa paid to AWS...

On the one hand that sounds weird and AWS could just offer any discount, on the other if they can get done the same on less resources, others can rent the freed up resources at a premium

> On the one hand that sounds weird

It wouldn’t sound weird if one’s goal was reduce the number of servers used by 20%. Excess spend is excess spend.

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