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AWS’s Share of Amazon’s Profit

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Re: AWS’s Share of Amazon’s Profit

#51

Post by runawaybottle »

fragsworth wrote: post #14
orf wrote: post #2

> So, if this graph is right, then over the last couple of years, somewhere between 50% and 80% of Amazon’s profit has been due to AWS.

It is important to consider that Amazon probably still considers its retail business a growth business, and that it has not captured enough of the market yet to start raising prices. 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.

Competing on price never pays off imho. You’ll race to the bottom. Amazon already has a massive monopoly on retail, and they wouldn’t dare mess with the prices.

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

Re: AWS’s Share of Amazon’s Profit

#52

Post by ByteJockey »

scylla wrote: post #22
mulmen wrote: post #11

Earlier quoted context omitted.

I wonder what the equivalent is for tech people. What is an enormous industry-specific business we have never heard of?

Pharmaceutical Distribution - How many people have heard of McKesson?

Oh god. I've worked at a place that uses their apis.

Re: AWS’s Share of Amazon’s Profit

#53

Post by dylan604 »

runawaybottle wrote: post #51
fragsworth wrote: post #14

Earlier quoted context omitted.

It is important to consider that Amazon probably still considers its retail business a growth business, and that it has not captured enough of the market yet to start raising prices. 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.

Competing on price never pays off imho. You’ll race to the bottom. Amazon already has a massive monopoly on retail, and they wouldn’t dare mess with the prices. 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

Cornering the real world silver market is a tough thing to do as well. Just ask the Hunt brothers. https://en.wikipedia.org/wiki/Silver_Thursday

Re: AWS’s Share of Amazon’s Profit

#54

Post by nojito »

elastic_outlook wrote: post #25
rvz wrote: post #4

Earlier quoted context omitted.

Which Amazon has thanked almost everyone and their grocery stores for jumping on their bandwagon and spending nearly all their VC money on these services. 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…

What's your alternative? Go on prem or build your own competing cloud provider? Probably not. The open markets have set the prices for cloud compute and storage resources. 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

Bare Metal is cheaper and more effective than running your startup on fumes just to offload your expenses on unsuspecting VCs.

Re: AWS’s Share of Amazon’s Profit

#55

Post by alexashka »

legitster wrote: post #20

This drives me mad. I have no idea why Amazon even bothers with the retail side. It barely pays for itself, they are already the biggest player by a mile, and there is no horizon in which economies of scale start paying off (the uptick of demand from Covid probably lost them money!) 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 p…

I'm not sure which part drives you mad. That retail is not profitable?

Does people donating to charities drive you mad? That's not even remotely profitable!

Re: AWS’s Share of Amazon’s Profit

#56

Post by snowwrestler »

crazygringo wrote: post #23
legitster wrote: post #20

This drives me mad. I have no idea why Amazon even bothers with the retail side. It barely pays for itself, they are already the biggest player by a mile, and there is no horizon in which economies of scale start paying off (the uptick of demand from Covid probably lost them money!) 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 p…

> It barely pays for itself 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’s speculative to say that “Amazon can start turning on major retail profits at any time it chooses.” Amazon has not done it yet, so there’s really no proof that it would be so easy, or even possible.

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.

Re: AWS’s Share of Amazon’s Profit

#57

Post by swyx »

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 blogpost on the topic soon.

Re: AWS’s Share of Amazon’s Profit

#58

Post by aledalgrande »

mbesto wrote: post #38

Profit can be a really weird number, especially when it comes to data centers. So looking at pure earning statements numbers is likely going to be misleading no matter how you try to look at (unless you actually look at bank statements, you can create as many interpretations as you want). First, data centers require A LOT of upfront capital. This capital is then capitalized over years, which is how it ultimately affe…

Is looking only at FCF valid for startups/investments too? Or is higher profit % still important? I think Amazon might be a special case with its size and stage.

Re: AWS’s Share of Amazon’s Profit

#59

Post by rb808 »

mbesto wrote: post #38

Profit can be a really weird number, especially when it comes to data centers. So looking at pure earning statements numbers is likely going to be misleading no matter how you try to look at (unless you actually look at bank statements, you can create as many interpretations as you want). First, data centers require A LOT of upfront capital. This capital is then capitalized over years, which is how it ultimately affe…

"printing money" yes today, but if GCP/Azure or something else comes in and competes heavily the margins could easily shrink to something negative.

Re: AWS’s Share of Amazon’s Profit

#60

Post by airstrike »

rb808 wrote: post #59
mbesto wrote: post #38

Profit can be a really weird number, especially when it comes to data centers. So looking at pure earning statements numbers is likely going to be misleading no matter how you try to look at (unless you actually look at bank statements, you can create as many interpretations as you want). First, data centers require A LOT of upfront capital. This capital is then capitalized over years, which is how it ultimately affe…

"printing money" yes today, but if GCP/Azure or something else comes in and competes heavily the margins could easily shrink to something negative.

Not necessarily negative margins, but low enough that EBITDA less Capex looks thinner and thinner
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