Amazon’s Cloud Business Lifts Its Profit to a Record

Description: Helped by its fast-growing Amazon Web Services business, the company jumped to the most profitable quarter in its nearly 22-year history.

Source: NYTIMES:COM

Date: April 28, 2016

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Amazon often flip-flops between showing profits and losses, depending on how aggressively it decides to plow money into big new business bets. Investors have granted the company much wider leeway to do so than other technology companies of its size often receive, because of its history of delivering outsize growth.

For the first quarter, which ended March 31, Amazon reported net income of $513 million, or $1.07 a share, up from a loss of $57 million, or 12 cents a share, in the same period a year ago.

Revenue at the company rose to $29.13 billion from $22.72 billion a year ago.

Amazon’s share price jumped more than 12 percent in after-hours trading after the results were released. Investors were happy to see the company show profits after the disappointing run of reports from Apple, Google, Microsoft and Intel.

“The fact that they’re profitable is a big deal,” said Christian Magoon, chief executive of Amplify Investments, a fund manager that counts Amazon as a top holding. “It’s more of a big deal after some of the disappointing numbers from Apple and others.”  Read Rest of Story

 

Questions:
1.  What is making Amazon more profitable now?

2. ” Amazon is the rare technology company of its size to still deliver double-digit revenue growth.”  Do you feel that AWS can keep them profitable going into the future  Why or Why Not?

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25 thoughts on “Amazon’s Cloud Business Lifts Its Profit to a Record

  1. Erika Lauer

    Consumers like shopping on Amazon for many reasons. One is that consumers can shop a wide variety of items from the comfort of their own home. Being an online-based business, Amazon is able to have many different products available to their customers. Amazon is such a profitable company because of things like Amazon Web Services (AWS). AWS is what allows Amazon to rent computer capacity instead of doing their own hardware or software. This helps to decrease some of the overhead costs that Amazon incurs because they don’t have to set up their own data storage, which could be very costly. AWS allows for Amazon to have the competitive advantage right now, however other businesses with similar goals as Amazon will start to adapt this kind of technology as well and become competitors to Amazon. Having the competitive advantage is resulting in Amazon to be a very profitable business. Due to Amazons unique business diversification, it is able to compete with other online-based businesses such as Google and Facebook. If Amazon continues to deliver a unique shopping experience for it’s customers, while integrating new technology that helps to cut down costs, such as AWS, then it will continue to grow it’s profits each year.

    Reply
  2. Alan

    I think that one of the major factors that has made amazon so profitable is the fact that they have adapted to their consumer market. From selling books to broadening their sales to almost everything and now to meeting the demand for immediate service is what I think is making them profitable. They have also differentiated and marketed their brand well enough that they are considered more reliable and safe. A second reason that they are so profitable is because of their A.W.S. system. A.W.S is the cloud computing business for Amazon which allows them to rent computer capacity instead of doing their own hardware and software. This makes it much easier for big businesses as they do not have to worry about having their own hardware or software.

    Reply
  3. Sherry Lu

    Amazon is a fast growing web services business, with all kinds of transactions dealing online from cell phone to household supplies. According to eMarketer, “Online sales in 2016 are expected to reach about $385 billion in the United States.” Amazon’s investors believe that the company become a lot bigger because e-commerce and online commerce still represents a small portion of total retail sales. Amazon Web Services is the biggest source of the company’s profits, the cloud computing business that started just over a decade ago and is now on track to bring in more than $10 billion a year in revenue. I think that AWS can keep them profitable going into the future, because more and more people rely on online shopping and even if other web service competitor comes into the market, they still cannot over run Amazon. This is because Amazon already has its loyal customers and has a higher popularity in the web service industry.

    Reply
  4. Shiqi Wang

    The web service makes big profit for Amazon, which is being called AWS. The idea of a delivery system that finally brought the Byzantine world of publishing into the digital age was certainly heady. But there was always something a little weird about Amazon.com. Part of it Jeff Bezos, whose wide-eyed look and excited patter seemed a little too much like a demented gnome. Then there was the business itself. The books we could understand, though it was hard to see where the profits lay. But then Amazon went sideways — into CDs, then video, then furniture and appliances, then after eBay in auctions, the used goods. The company, unbelievably cash rich from its inflated stock prices, also went on an acquisition tear, buying, as Bezos now admits, not only companies in markets in which it wanted to compete, but also in markets it might someday maybe want to compete in. To the outside observer, this all started to look like a New Economy version of the Old Economy joke: the one about losing money on every item, but making it up in volume.

    Reply
  5. Sandra Kang

    Amazon makes profit by selling many products categories not only consumer to consumer but also business to consumers. Amazon also offers many variety of products for consumers. Amazon provides much more product alternatives than a physical store. Amazon provides much more convenience than a physical store consumers as they are not limited to store hours and are able to order for delivery. Web Service Business (WSB) or Amazon Web Services (AWS) is a key part in what makes Amazon a much more profitable company. AWS is the cloud computing business for Amazon which allows a business to rent computer capacity instead of doing their own hardware and software. This makes is much easier for businesses as they do not have to use their own time or resources to perform these activities. However, like all other products have lifecycles, I believe that ASW does as well. Amazon is doing great now and has a competitive advantage but other competing companies in the market place will try to create their own version of a web service that will eventually enter the marketplace. Once these substitute products make their way into the market, it will be more and more difficult for Amazon to be as profitable with this service.

    Reply
  6. Karla Carcamo

    Amazon Web Services, a cloud computing business for Amazon is a competitor for other storage companies but Amazon instead of just relying on virtual, is looking at the physical. I don’t think this is going to remain profitable for a long time. Since more and more people are going towards cloud computing that does not require any physical hardware at all. They may be the first to provide this service but I don’t think its going to last. We are moving towards a world where our storage devices are seen with less actual materials and more virtual.

    Reply
  7. Leah Kling

    Amazon is reaping large profits from their cloud computing service: Amazon Web Service; Amazon Web Services offer businesses a viable solution for their storage needs allowing businesses to store their data on the more accessible cloud. Through using third-party storage, businesses can save money that would have otherwise been spent on setting up big data storage solutions that are frequently very expensive, thus making Amazon Web Services largely enticing. Amazon’s double digit net profit growth can largely be attributed to its success in making strategic business investments, most notably in the technology sector. Amazon’s ability to strategically investment in new technologies allows them to diversify their business and ultimately increase their customer base through offering a large number of services. Although it is likely that Amazon will continue to grow, it is difficult to know whether its large number of competitors will allow for long-term double digit growth. Amazon faces many challenges in attempting to compete in the technology sector against mega giants such as google and apple, however, Amazon’s unique business diversification may allow them to gain a competitive advantage against competitors. Amazon Web Service’s profitability means it is likely that other companies will attempt to penetrate the market in hopes of capturing part of the market so they can have a share in the profits too.

    Reply
  8. Zhiyao Guan

    Web Services Business (WSB) makes Amazon more profitable nowadays. It’s also becoming more and more popular among start-ups as well as growing companies.
    I also hold the view that Web Services Business can help Amazon to be profitable in the future because it truly provides a great quantity of advantages for Amazon. From the recent statistics, Web Service Business has brought more than $10 million a year for them. Amazon can be running smoothly and profitable if they stick to the Web Service Business. The reason for this is that Web Service Business helps Amazon increase the number of consumers they have. Instead of letting consumers in their local area having access to their products, consumers from all over the world can easily know what products they have. By just clicking their mouse and enter Amazon’s web pages, consumers from all over the world can find the products they need. It’s not only convenient but also reduce costs. Therefore, I believe that Amazon will benefit from Web Service Business not only for current time period but also for the long run.

    Reply
  9. Narinder

    As indicated in the article, what’s making Amazon more profitable is their web service (A.W.S.).
    It indicated that their A.W.S. is the most popular for start up businesses and growing companies.
    With a large number of companies being registered and started on a daily business, they have a
    strong niche market. The fact that this service gives an opportunity to rent rather than for
    companies to have their own hardware and software is clearly giving Amazon an advantage
    which can be verified with the quantitative numbers. Amazon is essentially making it easier and
    offering an alternative to a lot of companies by enabling them to rent instead of run their own
    hardware and software. By offering this services to start ups it allows the startups to save money
    initially by renting which is imperative for companies entering into a market. I believe with more
    companies opening up everyday, this will allow Amazon to continue to be successful and
    generate an even bigger profit. This combined with the fact that they offer such a diverse range of products and eliminating the middleman, it will continue to see more success in the future.

    Reply
  10. David Zhang

    Amazon’s recent bottom line earnings have been boosted by its fast-growing AWS division, short for “Amazon Web Services”. “A.W.S is the most popular cloud service for start-ups and for a growing number of big companies, and the division’s contribution to Amazon’s revenue is a staggering $10 billion a year proforma” (Meyer, J.). AWS will be a major driver of Amazon’s earnings in the future because it is relatively small compared to Amazon’s retail divisions, therefore AWS still has plenty of room to grow. The speed of its growth would depend on the current degree of market saturation within the cloud computing industry, as well as the expected demand for cloud computing services in the future. If the AWS division can generate 56% of Amazon’s total operating income now by being only 9% of Amazon’s total revenue. Then, if it were to grow at the optimistic double digits YOY, that would lead to double digit operating income growth for Amazon Inc. entirely YOY as well. If AWS is the real deal, with sustainable growth, stable cash flows, and stable market share. The next ten years for Amazon will be driven by its Cloud Computing division and the pipeline of value-added services to support its AWS division.

    Reply
  11. Anji Sanusi

    Amazon has been profitable form time because it operates on a Consumer to Consumer bases, allowing different merchants to sell their products to other individuals anywhere in the world.The Web service that Amazon provides makes it become more profitable now. Although Amazon did not run this service for a very long time, it brings a hung profit and shows a good prospects for development. A.W.S now brings more than $10 billion a year in revenue, and it is the go to for start-ups and evolving number of companies willing to run computing capacity instead of running their own hardware and software, as stated in the article. If Amazon can continue with their advantage and continuing creating a friendly relationship with its customers, the Web Service can be successful alongside with the other businesses they are involved with.

    Reply
  12. Jiani Z

    The Web service that Amazon provides makes it become more profitable now. Although Amazon did not run this service for a very long time, it brings a hung profit and shows a good prospects for development. As the article mentioned that A.W.S now brings more than $10 billion a year in revenue, and it is “the most popular cloud service for start-ups and for a growing number of big companies that want to rent computing capacity, rather than run their own hardware and software”. Compared with retail business, A.W.S brings more profit for Amazon. What is more, Amazon finds that hardware is another area to earn a revenue and it may develop more on it even though there are some limits right now. However, Amazon’s big success may cause the increase of competitors. Other businesses may start the same businesses like A.W.S. so it is hard to keep the increase rate of revenue from the Web Service for Amazon, but keeping this service profitable is still possible because the trust and loyalty of its customers. If Amazon can keep their advantage and create a friendly relationship with its customers, the Web Service could still earn the most profit rather than retail or other businesses that Amazon runs.

    Reply
  13. Jackson Tiefenbach

    AWS seems to be a key part of Amazon’s ever expanding profits. (Though personally, I think the influence of what we could call… “Creative accounting” may also be a factor involved here.) That, coupled with the fact that Amazon seems to consistently stay ahead of the game in terms of brokerage-model e-commerce websites seems to all but guarantee Amazon a place at the table in terms of web-based businesses, at least for the foreseeable future. That being said, in class today we watched a 60 minutes clip which emphasized Jeff Bezos’ awareness of the fact that no part of his company is guaranteed to exist forever, and that it is to be expected that at some point, Amazon will fade away. I’d be hesitant to argue with his assessment that one day Amazon will fade away, or at least lose a significant chunk of their market share. AWS does serve, on some level, I believe, to establish Amazon’s profitability for a number of years into the future though, even if it’s status as an e-commerce website begins to dwindle. Though I suppose by that same logic, AWS will eventually fade, though Bezos’ tactics are all about delaying that date as much as possible, by his own admission.

    Reply
  14. Yichao Jing

    Amazon make profit by selling many product’s categories and selling a lot of products. Amazon also use A.W.S. and storage to store data to make more profit recently. According to the article, the company make profits by using Amazon Web Service which is the biggest source of cloud computing business in the last few years. As we all known, online shopping like Amazon is cheaper and more convenience than physical stores, so Amazon need to use same quality lower price or higher quality same price to make profit. It is important for Amazon to make profit and keep customers to have high quality online service. In my opinion, AWS (i.e. Amazon Web Service) can keep them profitable going into the future. AWS already made more than half profits of Amazon’s total operating income and it will be keep growth. Customer will be attracted by good web service and high quality of storage. Thus, Amazon can keep make profit by using AWS no matter its size.

    Reply
  15. Chanelle

    Amazon has been successful over the years due to their capability to sell thousands of different products to millions of people in various locations. This ability allows Amazon to reach many different target markets of people, making them much more profitable than different types of companies. Amazon has helped create the experience of going online to make a purchase and having it shipped right to your door in a short amount of time. A.W.S is just another target market Amazon can add to their belt. It targets a different group of customers looking to use this service. Data storage is big, Amazon seen that opportunity and jumped on and because of this it is paying off. I believe for the near future A.W.S and Amazon will continue to be profitable in the time that data storage and online shopping/shipping is popular. Amazon will have to work to create new ideas and new reasons for customers to want their data storage, especially when competition is there and will continue to increase. Also, until a new way to do these things and a new technology comes along that is more profitable, efficient and easier in everyday life comes along, i believe it will stay that way.

    Reply
  16. Mitch

    A.W.S, Amazon Web Services is predominantly what is making Amazon so profitable. AWS is the most popular cloud computing service for companies who want to rent computing space rather than own their own hardware and software. It is hard to say if this will continue to be such a profitable section of Amazon. On one hand, I can see it slowing down as information technologies become even more important to companies to the point of all companies needing to own their own hardware and software for day-to-day operations. But on the other hand there is obviously a reason companies are currently using the AWS service and foregoing owning their own hardware and software in favour of renting computing capacity. I think either way the need for computing capacity is going to continue to grow as more and more businesses use information technologies and more complex information technologies, so AWS will either need to grow with it and become even more profitable, or companies will quantify owning their own hardware and software when they need even more of it and AWS will not continue to be as profitable.

    Reply
  17. Hunter Ascroft

    It is super ironic seeing this here due to the fact that this has a large part to do with what my groups presentation will be on. Amazon was one of the first companies to break into the cloud computing industry so that has largely to do with there booming success in the feild. Amazon is also highly profitable now because it is such a large corporation and they have such a wide reach on a lot of different markets. Amazon Web Service is a good way for them to be making money now but it will not do them well in the future. Many companies, such as Apple who have been using Amazon for years are now realizing that they can cut out the middle man. Although it is costly they can set up there own data centres and save money in the long run by doing so. Apple is in the process of doing so presently but in the mean time they have switched over to google for there cloud computing. It is my prediction that many of the larger companies will also realize this soon and do the same.

    Reply
  18. Kirsti Osowetski

    Amazon is profitable because they have a large variety of products and services that meet up the needs of every customer. Amazon is a consumer to consumer which is effective because it allows negotiation from each consumer directly leaving the final buyer happy and the seller at an agreed consensus. They have actual everyday products that you can buy from other people as well as digital downloads that you can access off your phone like ebooks. Amazon does not only focus on certain brand of products to merchandise, instead, it is getting their brand differentiation as wide as possible, from famous highland brands to small businesses throughout the region. The people that shop online will continue to grow and this will continue to help there profits grow and their market shares to grow as well.

    Reply
  19. Sadie R

    Currently Amazon is profitable because it sells 1000s of different products at varied prices and quality to fit any consumers needs. Amazon is C2C, which in marketing means consumer to consumer, which is effective because it allows negotiation from each consumer directly leaving the final buyer happy and the seller at an agreed consensus. Amazon is more profitable now because they have extended their sights into selling storage, which holds a target market for almost all individuals with any sort of electronic storing device. Amazon recently started A.W.S (amazon web service) which is a cloud computing service that allows businesses and many individuals to access extra storage. I think amazon has integrated its business into the growing technical world early enough to maintain steady market growth with in the new years of technological innovation. Now technology is beginning to break the surface with more individuals, opening up more profitability to amazon and many doors later to come. I strongly think A.W.S will bring amazon high profits in the upcoming years.

    Reply
  20. Bryce V

    With Amazon historically being a more growth focused company, it is impressive to see lately that arguably the worlds largest retailer is now becoming a profitable investment. Amazon has always been a logistic master in how they distribute products, which in turn has help with the current profits. Amazon also has prime subscription fees that help the company be profitable. But I believe that the reason that they have finally become profitable is not only because their data storage sales, but because of peoples continued growth and trust in e transactions. More and more people are no longer needing a sales rep just to help them buy a product such as a book. You can now just buy a book without actually having to go to go a store, which also lowers amazons costs. I believe that this could only be the beginning of Amazon riding the profit train. Their growth numbers are staggering, their market dominance is obvious, and the number of people who continue to shop online I believe will only continue to grow.

    Reply
  21. Cecile

    Amazon is profitable because they have a large variety of products and services that meet up the needs of every customer. They go from actual products trading, to digital services that could be purchased online and downloaded into our personal devices. Amazon does not only focus on certain brand of products to merchandise, instead, it is getting their brand differentiation as wide as possible, from famous highland brands to small businesses throughout the region. The speed of their delivery services is also one of the biggest attraction to customers which saves them a lot of time in ordering and waiting for the product to be delivered. Recently, Amazon has set foot on the cloud storage business known as the AWS, Amazon Web Service that allows customers to have access in large capacity of storage in their server. I believe that AWS can keep Amazon profitable going in the future as a bigger company can always offer customers the lowest price compare to small businesses and the repetition of Amazon is good enough to keep them going into more profitable.

    Reply
  22. Nisali

    Amazon id probably more profitable now because they have developed a pretty solid business plan. They started out as just a shipping middle man, and now they have a tonne of warehouses all across the world and have expanded their market base to include grocery delivery. They also probably show more profit this year because last year they were building so may warehouses and they are massive and expensive. This year they have a bunch of warehouses and instead of focusing on expanding and building more locations, they are just running business as normal meaning they have a lot less expenses and probably close to the same amount of revenues as the previous year.

    They’re increase in profits could also be attributed to the increase in use of technology in terms of retail. Most major stores have moved to online and so have small businesses and Amazon is capitalizing on it. Overall i don’t think that Amazon did anything particularly special this year versus the last but they have been intelligent on how they use their money and have been utilizing the changing global economy to grow.

    Reply
  23. Amy Giesbrecht

    Amazon is still profitable because they have a large hand in many categories. They sell products through their amazon warehouse. They also allow third party sellers to sell on the website and take a commission (just like ebay), they also allow you to download digital content such as ebooks, music and movies (just like itunes, hulu) and they recently started A.W.S or amazon web service which is their cloud computing service that allows businesses and individuals access to extra storage capacity. Amazon’s strength is capitalizing on any business ventures they start by knowing and understanding the new technologies and going into the market when competition is low but the profit is high. They also understand that their customers will purchase multiple items if they have focus In multiple businesses and categories as customers will end up saving time and money shopping in one place. I dont think that A.W.S will continue to be profitable as Amazon has already shown that they grow and innovate with the market around them so they will have to continue to grow and change with technology to remain profitable.

    Reply
  24. Evan

    Amazon is profitable now because they have their hand in storage and also selling storage devices because everyone needs data storage. I didn’t know Amazon was in the storage business until recently when my desktop Linux machine everyday asks if I want to have Amazon do a backup of my desktop. The article mentioned Amazon was in this storage business but failed to let me know, I like Amazon and shop on their website often and purchased quite a few flash drives from them. Amazon is unique as a business, it has many sides to it and by offering storage services it gives them revenue that other large companies miss out on. As a Amazon user I am not confident in their storage security abilities, it is a new concept that where I shop online is also the holder of my data beyond my website traffic cookies and payment information (which they have a great history of keeping secure) but storage is different.

    Amazon should do more advertising to get their users like me to see why I should pay to use their service when I currently have free storage. If Amazon does do this advertising to its customer base they would further their profits and keep their foot in the door of future data technology and information.

    Reply
  25. Matthew Sentes

    A.W.S is the Amazon Web Service. It is the cloud computing business for Amazon which allows business to rent computer capacity instead of doing their own hardware and software. This makes it much easier for big businesses as they do not have to worry about doing their own hardware or software. Like everything else in business, services have a lifecycle and if they do not modify the A.W.S eventually it will run its course. It is important for Amazon to capitalize on this now while there are fewer competitors. After other businesses see how profitable the Amazon Web Service is, they will try to create their own version of this to get a piece of the pie. In the long term future they can not rely solely upon this if they want to remain profitable. They will have to continue to grow and find different ways to make a profit if they want to remain relevant in the long term future. Amazon Web Service is a great way for Amazon to make money now as they are capitalizing on the current needs of so many different businesses. It does not matter what size business it is, every business in this technological age needs to have computing capacity.

    Reply

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