Amazon probably isn’t going all that far in it [cloud]. It’s got great utilities; you can get very low-cost computing from its virtual machines. And it’s got some other services that are kind of ‘cute’ but good, like Mechanical Turk. But it’s partly a gee-whiz factor, and partly a way for them to service an online developer bank for people who need to build online stores.
Two days ago, two analysts from UBS – Brian Pitz and Brian Fitzgerald – projected Amazon Web Services revenues at $500 million. Many were disappointed, expecting more from the widely acknowledged market leader: a half a billion dollars is approximately what Microsoft spent per datacenter pre-2010.Those who would focus on the actual revenue figure, however, are likely to miss the more important margin numbers.
According to UBS, Amazon Web Services gross margins for the years 2006 through 2014 are 47%, 48%, 48%, 49%, 49%, 50%, 50.5%, 51%, 53%.….If this is true, most of what what we’ve believed about Amazon’s business – that it was in fact a high volume over low margin business – is wrong. And if that’s wrong, it changes the way we must evaluate the cloud industry and the attendant economic opportunities.