Well, finally. After almost 10 years since the first AWS service started, the Amazon shareholders are looking at the AWS revenues, growing over $5B, and its profitability.
Yesterday Amazon said that while its cloud business almost doubled (by over 90%) compared to last year, it was significantly less profitable. Amazon’s AWS cloud business makes up the majority of its income statement it labels as “other” (along with its credit card and advertising revenue). Amazon is piling on customers faster than it’s adding dollars to its bottom line.
While most of the technology companies like VMware, Cisco operate at a 60-85% gross margins, the AWS' significantly low-margin business (estimated 14-20%) makes it impossible for the other companies to set a level playing field. While, AWS is capturing the market share and investing heavily into the new technology services, do the shareholders expect AWS to be in this low-margin business forever? What happens when the margins need to go up? How much do the shareholders expect them to go up?
The market advantage that AWS currently has, with its closest competitors, is about 12 months and the moment the prices become comparative - at least 2 or 3 of the closest competitors will baseline within an year. As such, the customer loyalty in the cloud business is very little and massive movements would trigger all over the place.
While AWS has great products, Amazon's shareholders have undue expectations that only Amazon can build the future. To me, it looks like as if the wall street does not encourage building profitable businesses (or companies) any more!
Yesterday Amazon said that while its cloud business almost doubled (by over 90%) compared to last year, it was significantly less profitable. Amazon’s AWS cloud business makes up the majority of its income statement it labels as “other” (along with its credit card and advertising revenue). Amazon is piling on customers faster than it’s adding dollars to its bottom line.
While most of the technology companies like VMware, Cisco operate at a 60-85% gross margins, the AWS' significantly low-margin business (estimated 14-20%) makes it impossible for the other companies to set a level playing field. While, AWS is capturing the market share and investing heavily into the new technology services, do the shareholders expect AWS to be in this low-margin business forever? What happens when the margins need to go up? How much do the shareholders expect them to go up?
The market advantage that AWS currently has, with its closest competitors, is about 12 months and the moment the prices become comparative - at least 2 or 3 of the closest competitors will baseline within an year. As such, the customer loyalty in the cloud business is very little and massive movements would trigger all over the place.
While AWS has great products, Amazon's shareholders have undue expectations that only Amazon can build the future. To me, it looks like as if the wall street does not encourage building profitable businesses (or companies) any more!
