Cloud Business Lifts Amazon’s 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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70 thoughts on “Cloud Business Lifts Amazon’s Record

  1. Laura

    The introduction of the cloud service is making Amazon so profitable. This is because it does not take much of the employees time to maintain it, meaning that Amazon does not have many costs to run the service because it is a technology that is designed to be efficient. Compared to other parts of amazon that are more labour intensive. As well it is able to reach so many people with the desire to use this service because it is so available to any user. With any small business owner or a new business owner who does not have the money to purchase large amounts of hardware this is a good alternative. They are now able to purchase this service for a lesser price. The use of this software also takes away the responsibility of the business owner to manage their own hardware or software. I believe that this will continue to be profitable for Amazon because it is something that companies will continue to need to run their business. Although there might be other companies that create their own version of this service, the companies that are already using the cloud will tend to stay with it.

    Reply
  2. jordan kwiecinski

    Amazon web service is helping amazon to capitalize on start-up and small business through creating a platform for them to market on. Where amazon is able to obtain a portion of profit off of small business transactions. These innovations are what helps amazon continue to remain a massive competitor while remaining very profitable. Being able to help these small business reach a larger audience easily, which another benefit amazon has going for them. Which makes amazon more appealing for a wide range of business to do their online e-commerce through. Amazon is continuously innovating new ideas into their business plan which in my opinion gives them the ability to grow a strong and consistent rate for years to come.

    Reply
  3. Kelsey Hallett

    Amazon is an extremely well-known online retail company that is best recognized for its diverse selection and practicality. Like any company, they have had to adapt and evolve to stay relevant and profitable. They have created ‘Amazon web services’, which is a cloud business that provides a platform for organizations who do not want to run their own hardware or software. Companies simply pay rent and are able to grow their own organizations while simultaneously helping Amazon’s success. I do believe that AWS can continue to prove profitable moving forward. The staggering double-digit revenue growth may not be easy to sustain, but I think that with the continuous implementation of complimentary services and updates that will aim to keep consumers interested and loyal, they will have no issues remaining competitive and successful. Amazon has done very well in all areas, from basic customer service to utilizing these advanced technologies, and I see no reason that they will not continue that trend in the future.

    Reply
  4. Tim

    Amazon is an interesting company, considering it started out over 20 years as an online book shop. It has since moved and morphed into a global brand selling everything from hard ware to software. The Amazon web service is quite a good money making strategy for amazon. It is relatively cheap to set up and run, and is able to leverage the advantages of the “brand” Amazon. These advantages are the fact that Amazon is a recognisable brand (I must admit that while I have never used amazon I have heard of it), and able to utilise the spare capacity that Amazon has on its computer / information systems, and even if it has to invest in new systems to allow for expansion the costs as mention above a relatively cheap.
    As to their growth, the argument is made that they should be able to grow due to the fact the online retailing is only a small part of retailing and general and therefore has huge opportunity for growth, my concern is that while they have had specular growth in the past I’m not sure they will be able to maintain it. There have been some interesting changes in the market place of recent years with the often-traditional retailers moving into the online space (Walmart, Staples etc.), the rise of online retailers such as Alibaba (while it is more of a wholesale linking market place, there is elements involved that will create competition for Amazon). Even Facebook has entered into the retail space with the ability to sell items, with a payment system using messenger. All of these will affect the potential growth of Amazon as a brand, but they have something the others don’t, and that is diversification in items they sell and potential business / profit making opportunities. So while I think they will grow I’m not confident it will be double digit growth.

    Reply
  5. R-M Nyberg

    1. Amazon is more profitable due to the services it provides through Amazon Web Services. Everything in the world is changing so quickly. Much of what will be part of tomorrow’s economic platform has not yet been defined, or created. As a cloud service for new businesses and for bigger companies that want to rent computing capacity, AWS contributes to a majority of Amazon’s total operating revenue. Online commerce continues to expand. As noted in the article, Amazon is able to be the rare technology to provide double digit revenue growth. In addition, the ability for drones to work alongside Amazon to provide delivery of online purchases accentuates the value placed on Amazon Web Services. When Warren Buffett pulled all his shares out of Walmart, it became a game-changer for the transition that is happening between traditional brick and mortar buildings and online commerce.
    2. AWS can keep rare technology profitable going into the future because its conception of the innovative and industry changing world of e-commerce and its ability to anticipate and move towards the direction of change. There is nothing as exhilarating as the capacity to anticipate change and be part of the process towards progress though planning and execution of service delivery in a changing industry. AWS is clearly able to get ahead of the pack and act as a leader in progress and changes for a yet undetermined future. It is the ability to observe the environment and act in a strategic way that enables front runners in industry to gain a competitive advantage.

    Reply
  6. Jordan Doram

    The use of Amazon Web Services is the reason that Amazon is more profitable now. People are jumping on the idea of the Cloud and using it to their benefit. This growth in revenue will only continue to grow as people become more interested in the idea and they began to make improvements on their already great system. Using the web in such a way is a really good use of advertising and resources to get a product or brand name out there. The majority of consumers can be found searching the web and finding new sites to purchase items off of and because of this online shopping has become the new fad. Amazon made massive storage space very convenient at a low cost and this has helped them be more efficient and increase their net income. If Amazon continues to progress and develop the Cloud for people to use as storage then I believe they will continue to make an increasing profit on this idea.

    Reply
  7. Keshah Austin

    Honestly, this article was difficult to follow. Not because of the numbers but I felt like it was just a way to “make a humble” brag for Amazon. From my understand what is making Amazon so profitable is their Amazon Web Services, the cloud computing business they have. From my understanding this article is stating that they are a forerunner in cloud based computing. Many others come to them instead of trying to have their own.  This is their competitive advantage.  They also have recently tried to get into the video streaming with their Amazon Prime. I do not believe they will be ever able to compete with their competitor, Netflix, but it did seem to also help with their profits.  With Amazon Web Service, for now, can keep their profits in the black from this. This is their competitive advantage and there is not much for competitors. That being said this also seems to be an untapped market. So for the foreseeable future, they will still remain profitable.  But as other businesses learn and see the affect of how well it supports Amazon’s bottom line, and depending on the barriers to entry, we may see more competitors and in the future they may not be as successful.

    Reply
  8. Alex Geates

    The purchase of hardware and software can be a challenge for small companies. Amazon offers this with its cloud service so that business can get the same benefits of technology without having to pay as much for it. This business strategy has proved to be very profitable for amazon and makes up a large portion of their income.

    Staying profitable in the tech industry is not always easy. Generally web based tech is believed to have a seven year relevance period. If amazon can keep ahead of the competition and differentiate its product by introducing class leading aspects. Then yes I believe they could remain profitable.

    Reply
  9. Jessica L

    Amazon Web services allows for people to rent computing capacity rather than by software or hardware. This is a huge attraction for small companies looking to start up and I need a way to ease the burden on financial capital. Amazon Web services is the word currently makes Amazon more revenue than retail sales, even though that’s what the company is typically known for. I don’t think it’s a far stretch to see that initial image when you think of Amazon to slowly switch. They mentioned in the article that they anticipate online sales to increase which would therefore increase the retail revenue of Amazon. Even though this increase is likely to occur, I believe that Amazon Web services Will still be the company’s main source of revenue. This is because it’s not just small companies that are going to want to rent storage capabilities. As a society we have become more dependent on knowing things, and having things. The Internet has provided us with easy access to both. One example of what technology allows us to have more of is photos. With nearly everyone having a smart phone, we are able to take pictures more frequently. We can capture tender moments that a film camera may have missed in the past. Having more pictures though, means that we have more images to store. People no longer have shoeboxes full of old photographs. Now it is a storage device of some kind that allows people to hang onto these memories. If Amazon is able to continue to tap in to our need for storage facilities online, I believe they will continue to be profitable.

    Reply
  10. Simone Bowes

    Amazon Web Services, a cloud business that serves organizations who do not want to run their own hardware or software and instead pay rent to Amazon. It is hard to say whether or not it will keep them profitable – data will always be generated and therefore need to be stored somewhere for a duration of time if not the lifetime of a company. However, I agree with the observation that online commerce will become a much larger portion of retail sales, therefore I think it is important for them to maintain their investments into technology that will improve e-commerce transactions. As more global businesses become integrated into e-commerce, they will be able to offer even more products. I constantly online shop but rarely purchase and recently purchased products from Amazon. I was amazed by their integration of suggestions, similar products and mostly the delivery time. It is amusing looking at the difference in product options versus the American Amazon and Canadian sites. I think American suppliers/businesses are the ones holding up the momentum of Amazon.ca. When I searched for Levi’s jeans for example on both sites, I was given 11 pages of options from the American site and only 4 pages from Levi’s. While that is probably just consumer bitterness, and I have not looked into the legislative/trade practices that prevent more trade, there really is a deficit of options in online Canadian shopping compared to American which Amazon really needs to work on.

    Reply
  11. Layla Lahiji

    Amazon is best-known for their online retail services. They sell different kinds of products, from books and book bags, to kitchen appliances and patio furniture. They attained competitive advantage by providing a large variety of products and delivering them as quickly as the next day. Before reading thing article, I had no idea about the various other services they provide.
    Today, Amazon is using web services to increase its revenue and become more profitable. I believe that AWS will be able to keep them profitable going into the future, but I also don’t think AWS will keep Amazon afloat forever. Companies need constant innovation in order to stay profitable. AWS is the ‘new innovation’ for now, but once this service moves into the maturity stage, Amazon will need to develop a new service or improve their old services in order to keep the attention and the demand of their consumers. Today, the consumers have a very ‘do it yourself’ mindset. They would rather spend $80 on craft supplies and put hours of free time into the project rather than buying it at the store for $20. This could be disastrous for service companies, but very profitable for Amazon Web Services who take advantage of the new ‘do it yourself’ market. In my opinion, AWS is a great opportunity for Amazon to increase their profitability. This service is beneficial to large and small companies alike. It will allow consumers the ability to tailor their services to their preferences, allowing Amazon to charge more for a customized platform.

    Reply
  12. Robert Mercer

    Cloud computing is making Amazon more profitable. Its Amazon Web Services business allowed the company to have its most profitable quarter ever in early 2016. Barely 10 years old, AMS is the company’s biggest profit source (even bigger than its retail business) and was estimated to bring in over 10 billion dollars last year. AWS allows start-ups and other companies to rent cloud space from Amazon, rather than buying their hardware.

    It’s difficult to say whether Amazon Web Services will be able to Amazon profitable into the future. The article states that Amazon is always alternating between profits and losses, depending on how much they invest into new businesses. With how the company is known to operate, it would be difficult to keep the company profitable all the time.

    With big potential to make money, also comes big competition. With estimations that the cloud computing market will double to over 150 billion in the next 4 years, you can be sure the number of competitors will also increase significantly. Yes, Amazon is the cloud computing leader, but nipping on their heels are other tech giants. Microsoft, with Microsoft Azure was estimated to generate around 10 billion in revenue as well. IBM is also seeing a huge increase in there cloud computing revenue with estimates around 7 billion. Other big players include Google, Salesforce.com, Adobe and Oracle. Each of these competitors will be fighting to gain as much of this market as possible. Even if Amazon is only able to maintain its percentage of the market, the same percentage of a bigger market would mean an increase in revenue.

    Reply
  13. Spensor Griffith-Cochrane

    The Amazon web service (AWS) is Amazons most profitable service, it allows them to provide computational services to smaller companies who cannot afford to invest in all the hardware and software while they are getting started (or would like to allocate larger portions of their funds to other projects). This industry is huge, with many other companies including IBM and Google also renting out hardware, server space, software, and other services to businesses that are willing to pay. The beautiful thing about this service is once the initial hardware investment is made it can be a very profitable business model. The profit margins on handling data for other companies can be enormous. If you add to it Amazons ability to deliver a wide range of products to just about anywhere you could want, in a timely manner, you have a company that has a lot of the right ingredients to be profitable.
    I do believe that AWS can keep Amazon profitable going into the future, however I do not believe that the rate of profit growth is at all maintainable eventually even the giant have to slow down, and the bigger you get the harder it is to grow at the same rate. The same thing can be seen in world economies, emerging markets are able to attain a double-digit economic growth rate, while those developed economies struggle to get anywhere near that. That does not mean that developed economies are failing though, but to grow 2% from $2T is much more difficult than growing 10% from $2M.

    Reply
  14. Michael Isfeld

    Amazons profitability is coming from their Amazon Web Services (A.W.S.). They reported that over 50% of their total revenue came from A.W.S. which is astonishing. The A.W.S. is an online cloud service that many businesses, especially small ones, use to store information that saves on the cost of having to buy more expensive hardware and software from other companies. Not only is it significantly cheaper, but it has comparable service level to these more expensive alternatives. Also, because it is an online cloud service, it can reach more people easier than buying hardware can and is also more convenient to many users of products like A.W.S. In addition to their fantastic product, Amazon also has a good consumer experience which includes a good customer service which keeps the consumer reeled in.
    I can’t imagine that A.W.S. will get less profitable than it is now with the growing world of technology. My best guess is that A.W.S. will continue to make Amazon more and more money as the use of technology becomes more wide spread and relied on. While it may one day contribute less of a percentage to Amazons total revenue than it does now I believe that it will continue being a reliable source of revenue for the company. Also, Amazon is still growing in popularity, which means more and more people each day rely and find out about all of Amazons many services. I believe that there will still be many more people who will clamor to use A.W.S when they realize that such technology exists.

    Reply
  15. Amanda Brown

    Amazons current strength is their Amazon Web Service AWS. With AWS pulling in over 50% of revenue it is by far their biggest selling point. The AWS software is widely used by small startup business that do not need or cannot afford their own computing capacity. Therefore instead of creating and running their own hardware and software they can rent out computing space as they need to meet business needs. Amazon has many other strengths such as their quick delivery system and the large variety of goods and services they provide, but in terms of profitability they earn a higher percentage of profit through AWS.
    I think that AWS can continue to make amazon profitable into the future. Since it has continued to deliver double-digit revenue growth there is definitely a market fore their service. Many people are becoming entrepreneurs and starting their own businesses. Without the services that AWS provides a lot of small businesses may not have seen the light of day. The advantage amazon has it the simplicity and ease of the system along with trial periods and lower prices that will keep them leading as a technology company for many more years to come.

    Reply
  16. Cole Malaka

    1) Interestingly enough, Amazon’s biggest revenue contributor is not it’s retail sector, which is what most people think of when they hear Amazon. Amazon Web Services has contributed to over 50% of Amazon’s revenue in the last quarter. A.W.S. is an online cloud service used by a wide variety of start up’s and small businesses. It eliminated the need for expensive hardware and software that firms would otherwise have to purchase, for significantly less money, you can get the same, if not better service from A.W.S.

    2) I feel like A.W.S. will continue generating huge profits for Amazon in the foreseeable future. For a couple of reasons. Firstly, a lot of businesses are still using other, more expensive data and information management systems. Due to the rising popularity and publicity of A.W.S I highly doubt it will be long before firms start coming in the masses for this newer, easy, and most importantly cheaper service. Also, A.W.S. has the advantage of being the leader in this field by a long shot. With their current standing as well as excellent reputation and reviews if they continue offering the same service and continually work on making it better they should be able to retain this position fairly easily. I’m sure they will face competition, but until they make a serious mistake, they should remain in the lead and continue to rake in enormous profits from A.W.S.

    Reply
  17. Taylor Kraft

    More than online sales, amazon web services is the most popular cloud service for start up and small businesses. It is a big piece of amazon’s revenue, this is because it allows small businesses and start-ups to avoid the big cost of hardware and software you need to store information and data. AWC provides multiple services so not only are the appealing to businesses they are also appealing to individual consumers. Being able to reach a wide ranch of consumers makes it easier for amazon to market its self and make a bigger profit. Another bonus to amazon’s web services is that it also offers free trials to new customers. Aside from AWS, amazon has a great consistency when you purchase things off of it, it’s the same across the board no matter what you are buying. They also have a good customer service which keeps people coming back time and time again.
    I feel like AWS will stay steady at collecting profit but I feel it won’t grow much more. The reason for this is because other companies are soon going to catch up to AWS and start providing a cheaper and better way of storing people’s data. The competition may get t big for AWS to grow at the rate it currently is,

    Reply
  18. Taylor Kraft

    More than online sales, amazon web services is the most popular cloud service for start up and small businesses. It is a big piece of amazon’s revenue, this is because it allows small businesses and start-ups to avoid the big cost of hardware and software you need to store information and data. AWC provides multiple services so not only are the appealing to businesses they are also appealing to individual consumers. Being able to reach a wide ranch of consumers makes it easier for amazon to market its self and make a bigger profit. Another bonus to amazon’s web services is that it also offers free trials to new customers. Aside from AWS, amazon has a great consistency when you purchase things off of it, it’s the same across the board no matter what you are buying. They also have a good customer service which keeps people coming back time and time again.
    I feel like AWS will stay steady at collecting profit but I feel it won’t grow much more. The reason for this is because other companies are soon going to catch up to AWS and start providing a cheaper and better way of storing people’s data. The competition may get t big for AWS to grow at the rate it currently is.

    Reply

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