Friday, 25 April 2014

Amazon Q1 results


Amazon published its Q4 results:
http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-presentations

AWS is bundled under "Other" revenues:


Google recently cut prices on their GCE cloud platform and suggested that cloud prices should be more aligned to Moore's Law, see my blog entry for details:
http://blog.zorangagic.com/2014/04/google-aligns-cloud-pricing-with-moores.html 

It didn't take long for Amazon to shoot back with price cuts of its own that range from 36%-65%, effective April 1. AWS senior vice president Andy Jassy made light of the price cuts, noting that AWS has reduced prices 42 times in its relatively brief history.

If AWS needs to respond in kind to every competitor's price cuts, it will have two negative impacts on the business. First, it will cause revenue growth to slow dramatically -- if prices fall 50%, AWS would need to double its volume just to keep revenue flat. Second, it will ensure that AWS remains a perpetually low-margin business.

As AWS grows, it needs more and more computing power and storage to rent out to its clients. This has driven a massive jump in Amazon's capital expenditures recently. From 2005 to 2009, Amazon's annual CapEx rose from $204 million to $373 million, which was significantly slower than the rate of revenue growth.
By 2013, CapEx had skyrocketed to $3.44 billion: up nine-fold in just four years. Some of that growth is related to new distribution centers for the retail business, but a large portion can be attributed to AWS.
All of the above implies cloud is growing, yet it is a cut throat business where only the largest cloud provides with massive scale can compete....this is bad news for traditional IT companies that have much smaller scale and little experience running massive software defined cloud environments, furthermore they are scrambling to come to terms with this low margin business model.

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