When Does AWS Break Through $100 Billion?
While there is no question that Amazon Web Services is the largest and most profitable public cloud on planet earth, and that it provides the best subsidy imaginable for a cut-throat online retail business that is its parent company, AWS has not taken over the entire IT world any more than Amazon has become the sole place to buy stuff.
It may feel like that sometimes, but the data doesn’t support that.
As we mused way back in 2015 when The Next Platform was founded, it is hard to imagine how in hell any public cloud provider will catch AWS. Some providers – notably Google and Microsoft – have been growing faster than AWS, but it doesn’t feel like they are really gaining on it. It is helpful to remember that AWS is getting only about a third of public cloud spending, and that the public cloud probably only represents about one-eighth to one-tenth of the worldwide spending on datacenter systems and enterprise software together. (Around $614 billion in total for 2019 is the latest projection we have seen from the prognosticators at Gartner.) The share that AWS has of the whole pie depends on the assumptions in the larger models.
No business can grow forever at triple digits or even double digits, and we pointed this out three years ago as it relates to AWS. The trick is to grow fast for as long as possible, and AWS has been brilliant at moving up the stack from infrastructure to platform to software as services, using one to build the foundation for the next one in a manner that is consistent with the way the world thinks about information technology. This layering gave it different waves of triple and then double digit growth, which prolonged the overall growth cycle and which has kept AWS growing faster than the public cloud market at large and many multiples faster than overall IT spending or global gross domestic product.
Given the frequent price cuts, enormous and lumpy infrastructure investment cycles, and varying nature of the workloads and customers that use AWS, it can be tricky to predict what the company will do looking ahead. The dozen years of estimated and actual financial results for AWS are handy, to be sure. But past performance is no guarantee of future performance, as they say on Wall Street.
In the fourth quarter, which Amazon reported its figures for this week, sales at AWS rose by 45.3 percent to $7.43 billion, and as has been the case for the prior four quarters, operating income on the Amazon public cloud unit rose faster than revenues did, in this case for the final quarter of 2018 rising by 60.8 percent to $2.18 billion. AWS is getting better a wringing more money from its investments, and we think that has as much to do with adding platform and software services atop its raw compute, network, and storage infrastructure as it does arguing about pricing with suppliers and driving up utilization across its vast server fleets.
For the full 2018 year, AWS had sales of $25.66 billion, up 47 percent, and operating income of $7.3 billion, up 68.5 percent. The revenue and profit growth accelerated in 2018 compared to the growth from 2016 to 2017, so you can’t think that a gradual and consistent downward trend is inevitable. New services behave accordingly, exploding in usage and cash, old ones are like printing presses, cranking out the steady streams of money. AWS is a mix of hundreds of services of various vintages and tens of thousands of possible SKUs – and with hourly utility pricing and an off switch, too. If we had to guess – and we do because Amazon doesn’t provide any detail on what services generate any particular revenue or growth – we suspect that in 2018, compute in its various forms drove 20 percent of AWS revenues, storage another 20 percent, networking 25 percent, and the remaining 35 percent came from higher level platform and software services such as databases and data analytics stacks. Our model, which admittedly is based on wild guesses about the distribution of compute, storage, networking, and software revenues at AWS, looks like this:......MUCH MORE
