I agree that AWS almost certainly has a great profit margin.. but that article includes no details. He says AWS has X in costs, trust me. I have no idea how he arrived at that number.

Disclaimer: I'm a software engineer working for AWS. But not on EC2.

I feel the margin number conclusion is deeply flawed for variety of reasons.

There are some questions the author cannot have answers for, that greatly change the margin numbers for EC2. A couple that comes to mind are:

1. What percentage of time are customers being charged for the available servers? 2. What percentage of instance hours are being charged at on-demand prices, vs reserved instance?

Also it completely ignores services that makes EC2 stand out from plain hosting, and adds much value, such as AutoScaling, CloudWatch, Elastic Load Balancing, OpsWorks, and Elastic BeanStalk. And believe me when I say that support cost is NOT trivial. In many cases, the number of engineer hours involved makes the support pricing look like a real bargain.

Even if this analysis was correct, it doesn't say anything about the margins of the rest of the business. There is plenty of gross margin in almost every business Amazon is involved in, but it will never show up in the net profit line until Amazon decides to stop reinvesting every cent of cash flow.

Well he's a cs grad. And one thing nearly all cs grads have in common is the idea that software/software products will dominate economies "real soon now". And they usually believe it's their own software that will do so. I actually found a 1950's article claiming that.

But let's face facts here : IaaS might dominate the hosting industry (I think not, but maybe ), but that's the furthest it can possibly go. Amazon's other businesses are way bigger.

But no way you're going to convince IT people of that.

I think PaaS vendors, the biggest of which will be Oracle/SAP/Salesforce (maybe, maybe salesforce) will realize their margins will be better served by not participating in any public cloud. I don't have good figures though.