Amazons Cloud Juggernaut Still Has World Domination In Its Sights

Author

Matt Asay

April 24, 2015

Amazon CEO Jeff Bezos

Amazon Web Services is on a mission, and as its name might suggest, it’s not a particularly small one. Indeed, as Gartner analyst Lydia Leong declares, “They are essentially pursuing world domination.”

And at its current course and speed, who would bet against Amazon?

On the eve of Amazon breaking out the financials for its cloud business for the first time, one thing is not in doubt: All cloud roads lead to Amazon, and its competitors can only have themselves to blame.

Giving AWS A Seven-Year Head Start

After all, when Amazon Web Services (AWS) launched, no one within the business unit expected “a seven-year head start,” as AWS chief Andy Jassy told Businessweek. But this cloud thing was new, hardly profitable, and sort of crazy. After all, what company in its right mind would put its data in the cloud?

Lots of them, it turns out. And some day, all of them.

Ultimately, it all comes down to convenience. As such, in some ways, the rise of AWS was inevitable. Box CEO Aaron Levie hinted at this in a recent tweet:

The user experience includes the look and feel (i.e., user interface) of an application, but it’s much deeper than this. Today’s consumer demands immediate gratification of an ever-widening array of wants. This, in turn, forces enterprises and the developers they employ to iterate quickly to appease those desires.

In this rush to get things done NOW, the data center is generally too slow. In order to evade cumbersome IT and procurement policies, developers have gone straight to the cloud and, generally, to Amazon’s cloud.

And today, for the first time, Amazon will tell us exactly how much it’s making from the stampede.

Dominating The Future

IDC expects the overall cloud infrastructure market to top $32 billion in 2015, with public cloud claiming $21 billion of the market, roughly double its private cloud peer. 

Until today, it has been guesswork to determine how much of that public cloud market is owned by Amazon. Andreessen Horowitz’s Benedict Evans, for example, put AWS revenue at roughly $5 billion in mid-2014, smartly assuming Amazon’s “Other” category mostly equates to Amazon Web Services:

That jibes with analyst Karl Keirstead at Deutsche Bank, who estimates current AWS annual revenue of about $6 billion. 

(Update, 2:52pm PT: Amazon Web Services reported $1.56 billion in first-quarter revenue, up 49% compared to a year earlier. Operating profit stood at $256 million, up just $20 million, or 8.5%.)

But that’s small change compared with where the market is headed.

After all, as Gartner analyst Thomas Bittman points out, “New stuff [workloads] tends to go to the public cloud … and new stuff is simply growing faster” than more traditional data center workloads. 

This trend is on display in Bittman’s analysis of the growth in VMs across different environments over the past few years:

Source: Gartner

So if the public cloud is growing roughly three times as fast as private cloud, and both are growing much faster than traditional data centers, and AWS can claim at least a third of that public cloud largesse….

Well, we live in Amazon’s world now.

Getting Fat On Skinny

Amazon, for its part, can’t get enough of AWS. As much as the overall company tends to lose money, AWS is very profitable. 

In fact, as Gartner analyst David Smith notes, “I’ve seen some estimates that AWS is a double digit profitability contribution to the company.” 

Importantly for Amazon, AWS doesn’t have to rack up gargantuan profits to make a huge impact at a company that thrives on razor-thin margins. Its competitors, however, can’t subsist on the same thin profitability gruel. IBM, for example, just announced its twelfth consecutive sales slide, even as its cloud business inches upward (by how much is subject to debate).  

In short, Amazon has every incentive to feed AWS, because AWS plumps its profits. Meanwhile, its competitors will be forced into a painful transition to lower-margin cloud services, often hobbling their success by trying to charge for “premium” services to make up the gap. It won’t, and they won’t.

Only Microsoft seems to have a credible answer to AWS today. There’s plenty of room in the public cloud’s billions for two.

Lead photo by Steve Jurvetson

This article was written by Matt Asay from ReadWrite and was legally licensed through the NewsCred publisher network.


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