AWS Ten Year Birthday – Risky Bet to Winning Formula

When Amazon.com launched its first Web service 10 years ago today, offering storage in the cloud, people thought it was yet another crazy, profit-nuking idea from Chief Executive Jeff Bezos.

Why on Earth, investors and analysts griped, was a company still struggling with a marginally profitable retail business embarking on what looked like an entirely unrelated business: selling the storage and computing services it used in its own operations to other companies? In “Jeff Bezos’ Risky Bet,” an October 2006 BusinessWeek cover story that was the first major media account of Bezos’ thinking behind Amazon Web Services, one Wall Street analyst groused that new investments such as AWS were “probably more of a distraction than anything else.” Even Tim O’Reilly, the CEO of tech book publisher O’Reilly Media who recognized Bezos’ strategy early on, called Amazon a “dark horse” against the likes of Microsoft and Google.

From dark horse to Triple Crown winner

A decade later, that dark horse is nothing less than a Triple Crown winner. There’s scarcely a startup that hasn’t run on AWS, and it’s critical to the digital operations of every company from General Electric Co. to Netflix Inc., which runs all its massive streaming video on Amazon. The unlikely offspring of a retail company, AWS has managed to outmaneuver computing and Internet giants from Microsoft and Google to IBM and Oracle.

Now, the onetime distraction is Amazon’s key distinction in a consolidating group of technology giants. AWS grossed $7.9 billion in revenues last year, up 70 percent from 2014, a growth rate four times as fast as the retail operations. AWS could start to become even more of a revenue driver, too. Morgan Stanley estimates that revenues will grow to $12 billion this year and $16 billion in 2017.

What’s more, AWS has arguably become  Amazon’s new profit engine. Although the unit constitutes only 7 percent of Amazon’s overall revenues, its $1.9 billion in operating profit isn’t far off the $2.8 billion operating profit of the entire $99 billion retail business. No wonder that Ben Schachter, an analyst at Macquarie Securities, last year valued AWS at $75 billion, almost half as much as the rest of Amazon’s business.

Read more