Amazon Web Services revenue rises 81% year over year
blogs.wsj.com
blogs.wsj.com
AWS have about ... zero competition where they are right now. Google CLoud, Azure and the like are not doing quite the same thing just yet.
* The usual caveat about everything varying with geography applies here too, I'm sure.
When I need something in a few days (or later), I'll order it from Amazon when I think about it. If I need something "now" or today, I'll just drive to the store and go get it. I, personally, don't really see the point of the "in-store pickup" -- why order it online if I have to go there to get it anyways?
Yeah.
> I'll just drive to the store and go get it.
Its faster if you know what is stocked at your local Walmart. Order on your lunch break, pick it up on the way home without running around the store for 30min.
Sometimes I'll "click and collect" just to be sure that the item is in stock. For example I did a price comparison recently to buy a bike saddle, it was cheaper (including postage) from Halfords and I can add stopping there to my journey for very close to zero cost (except time). If I'd ordered it from Amazon then I'd probably be out and end up having to travel to my local postal distribution office, less convenient and more expensive.
Huge Disclaimer: I work at Google on GCE.
http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-n...
Amazon is notorious for capital expenditures, some of which is probably why AWS exists.
This isn't to suggest amazon as a whole is doing anything wrong, they are following accounting standards, but that is one place where the standards for capital leases are misleading if you don't read the fine print.
Apple has this weird problem of being so profitable that they have no clue what to do with all that money. And then everyone picks on them for their loophole-based tax mitigation strategies.
What if the share price is not undervalued, the investors would get hurt if you do a buyback.
(Some) taxes are definitely designed around incentives.
Thus, taxes on sins can produce higher revenues than taxes on more price sensitive goods or activities would.
I'd say the optimal strategy is what Facebook and Google do with the double Irish Dutch sandwich http://conversableeconomist.blogspot.com/2014/07/double-iris...
There are all sorts of strategies for optimization. Many involve lobbying Congress for special carve-outs.
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.
If so, then it's natural that stock price increases when revenue increases, albeit at a discount to actual profit depending on what your expected revenue:profit conversion ratio is.
The interesting part is the next step. Someone buys a stock expecting to benefit from the exchange (sell at a higher price that one purchased it for). Thus, if the stock price is correlated with revenue, and Amazon can increase revenue even without increasing profit, stockholders will still be happy.* Stockholders are looking for increased value for their stock, not any particular metric thereof.
*This is assuming Amazon finances the revenue increases through free cash flow (as mentioned elsewhere) rather than diluting stock
Interestingly the Bank of England's Chief Economist has today attacked that principle of company law: http://www.bbc.co.uk/news/business-33660426
To quote from the article:
The Bank of England's chief economist has expressed concern that shareholder power is leading to slower growth.
Andy Haldane told BBC Newsnight that business investment had been lower than was "desirable" for years.
One reason was that a high proportion of corporate profits were being paid out to shareholders rather than reinvested in the company.
He said that in 1970, £10 out of each £100 of profits were typically paid to shareholders through dividends.
Today, however, that figure was between £60 and £70. Mr Haldane argued that left far less cash available for growth-boosting investment and that firms risked "eating themselves".
Corporate short-termism - a focus on immediate gains rather than long-term prospects - was a rising problem for companies and pre-dated the financial crisis, he said.
https://hbr.org/2014/10/at-amazon-its-all-about-cash-flow/
They are essentially borrowing from their own customers (or maybe more accurately, vendors), at zero interest, to continually build the business.
He realized that insurance generated enormous carry, and if you were able to better utilize that (say, by buying other companies and improving them) then you had a pretty winning strategy.
Buffett has done well by choosing companies and people that are good at avoiding losing money.
If Amazon had a viable competitor, the profits of float investments would be the ammunition in the resulting price war. Amazon's margin is someone's opportunity.
I'd assume there would be advantages on that closer relationship vs a stand-alone insurance company simply investing in a publicly traded offering.
Also, some companies like Netflix and Zynga, which are AWS'es main customers, are fine to pay AWS a premium to have most of their infrastructure better managed and on-demand. Whereas most sizable businesses deploy something like OpenStack for baseline load on real, bare metal gear they buy and use AWS for traditional uses: PoCs, disaster recovery and peaking capacity. Startups tend to use AWS at first because it's easy, popular and low-risk, but it's not a panacea because it tends to get very expensive, very quickly. (It is however, clearly, a great business in itself, which probably should be spun-off.)
Disclaimer: I was with a premier enterprise AWS external consultancy shop early on that had significant access to capabilities and expanded limitation perks beyond other shops. Interestingly, they've built limitation increase requests available to most everyone now, which were manual before and depended on how much clout a customer or vendor garnered.
I've investigated colocs near some AWS locations and found AWS to be around 20% cheaper than the cheapest viable option. With AWS's occasional price drops on top of that and general flexibility it's not a difficult choice.
One thing I found was that most providers were trying to sell vertical reliability (e.g. hardware RAID1), with a matching price. Our redundancy is horizontal at the application level (e.g. Zookeeper, Cassandra) so this has no value for us.
Someone also has to know how to negotiate with DC's (because power circuits are often the biggest cost factor) and how to separately get good deals on fiber (which is usually far cheaper than the DC's charges because most customers don't know better). DC's often nickel and dime for simple tasks if you don't do it yourself (or have hands that can do it for you). (RackSpace used to charge something $75 every time a box need to be reimaged. DC's will often take forever and charge several arms and legs to rack & stack & cable in your cage, but you will still be at their mercy for freight & delivery and pulling outside fiber, electrical circuits, cooling & rack leveling.)
Overall though, it's still cheaper for web-ops shops to do bare metal in (Google, Yahoo, Apple, etc. in their own DC's and other large/medium shops with predictable baseline loads in someone else's DC's) otherwise everyone would be using AWS. And that's clearly not the case for anyone who's ever been in a real enterprise shop.
Look at Wikia or most any other enterprise shop for baseline loads: mostly bare metal, because it's far cheaper for people whom know what they're doing. Also, BackBlaze... pretty much no way to undercut with them apart from buying an HDD manufacturer and going multi-datacenter-scale.
(For smaller stuff/side projects: In the UK, ByteMark.co.uk is awesome, flexible (colo/rent) and cheap. In the US, Pair.com is great. Linode is also decent.)
(For bigger stuff, there are datacenters in the middle of nowhere where power is cheap. That's the often limiting factor for green-field projects... cost of renting circuits from DC's, not the rack real-estate.)
The magic of AWS is that the transactional nature of it gives you more flexibility. I was working with somebody with about a storage requirement that will be in the 800-900TB range. But to hit the price point they want, they'd be buying a 1PB capacity solution.
The catch is, what's next? If they exceed their growth projection (a strong possibility), they need to spend $$$ in capital funds to buy some large block of capacity. That procurement takes time. Implementation requires more planning.
With Amazon, the prices are high/competitive, but the marginal cost of a unit of capacity is the cost of that capacity!
On the other hand, this user also has a large transaction system with well known performance an scaling characteristics. In their case, their buying power and size makes it much cheaper (by 3x) to host in a datacenter with customer-owned equipment.
You can certainly find more expensive options than AWS if you look, but similarly paying less than for AWS is easy too unless you start relying on specific AWS features.
And as I reply to this, I decided to check my AWS console, because there is an instance for the life of me I can't terminate.
for region in `aws ec2 describe-regions | awk '{print $NF}'`; do echo $region; aws ec2 describe-instances --region $region --query 'Reservations[].Instances[].[[Tags[?Key==`Name`]| [0].Value], PublicIpAddress]'; echo ; doneWhere I live, every grocery store sells them without requiring ID.
This is the #1 benefit of B2B vs B2C. It's someone else's money.
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.
Just like you, I got burned for about a hundred dollars whenever they switched their UI for EC2 to only show instances per region. I have no idea when that change happened, but they weren't loud enough announcing it.
The billing and cost management page should show you which regions you are incurring costs from on an ongoing basis.
But yeah, you have to know about all of this to use it. They should probably set a default alert at about $25/month on every new account, then let you change or delete it if you want.
And i got to check AWS again and i am pleasantly surprised things have improved dramatically!
The amusing part to me (this was years ago) was internally I was always thinking "their website is, at the very least, non-intuitive and overwhelming" when he told such stories.
I guess they found better UX people. =pp
edit: typo
http://www.nngroup.com/articles/amazon-no-e-commerce-role-mo...
It's clearly a symptom of a large number of people working on stuff that all ends up on the same page.
Anyone has numbers for Google?
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.
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?
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.
"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.
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.
We've run the numbers, and we can't host it ourselves anywhere close to what we pay Amazon if we want the same amount of redundancy that AWS gives us "for free" -- we'd have to duplicate most of our infrastructure across 4 separate datacenters to get the kind of multi-AZ, Multi-region redundancy we have now.
Because they are corrupt? Could be? Large companies are basically centrally controlled economies, and we know how that turns out..
It seems to me that large companies live in a special bubble where they are willing to pay extra for everything. On the other hand, they also charge extra, so externally, it will mostly cancel out.
The winners of this scheme are probably the people involved in running (either directly or as shareholders) these large companies, because their salaries (and other bonuses) are artificially inflated compared to the rest of the society. The losers are probably the government and the taxpayer (i.e. the public), these can be easily made to pay extra but it's difficult for them to charge extra.
If you run your 24/7 steady state load using on-demand hourly charged instances, and don't factor in the cost of managing your own hardware and data centres then yes, EC2 is hideously expensive.
If you plan your spend (much like you would in buying your own hardware and DC space) it really isn't - reserved instances considerably reduce prices, and come with bulk discounts when you buy enough of them.
It's been a while, but when costing out our migration to EC2 it came out cheaper than any other VM provider, and was in the same ballpark as leasing our own hardware.
Eh, I think the bar is a lot higher than that, especially if you have to meet external compliance standards with yearly audits, or have to have good disaster recovery with multiple datacenters. Those kind of things get very expensive if you are under a certain scale.
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)
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.
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...
Operating Profit = Operating Revenue - COGS - Operating Expenses - Depreciation & Amortization
AWS Q2 conf call slides: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9M...
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.
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"...
I try to post here this weekend
I think the more likely path is going to be services like their photo library, which can clearly make use of AWS, but doesn't directly expose it to customers. I could see some sort of backup service happening in the near future, and someone else mentioned Echo.
If anything, they could leverage their cloud tech further in the consumer space by developing uses for it beyond just video streaming (could be other uses but this is the main one I am aware of). I think we've seen that with Echo and a next-gen version could easily do more as an assistant, an all encompassing one for any digital support needs. Perhaps also stream games a la PS Now.
https://www.srgresearch.com/articles/aws-market-share-reache...