Despite all the catastrophic news and deteriorating economic conditions, Amazon filed another impressive Q4 earnings report last week.
For the past few months, I have been puzzled by some of the analyst estimates and predictions on Cloud Computing. For example, IDC estimates Cloud Computing market to reach $42B by 2012. According to that analysis, 2008 infrastructure as a service is valued at over $2.9B. Since Amazon is a pioneer in Cloud Computing, I decided to take a closer look at their earnings.
To understand Amazon's report, it helps to break down their business as follows:
- Amazon Marketplace – This is Amazon's retail business where they sell their own inventory + other merchants
- Amazon Enterprise Services (AES) – This is Amazon's consulting group that helps other retailers implement their Web channel on Amazon's sophisticated platform (i.e. Target powered by Amazon.com). There are lots of other services in this category including Fulfillment By Amazon (FBA), WebStore, etc
- Amazon Web Services (AWS) - This is where Amazon offers a range of cloud services (infrastructure, payment, analytics, etc)
Amazon's total revenue for 2008 was over $19B with a revenue mix as follows:
- Media – Products in this category are simple and straight forward such as books, DVDs, CDs, digital downloads, software, and video games. This was 58% of total revenue.
- Electronics & Other General Merchandise (EGM) - More complicated products in this category from electronics & computers à shoes & jewelry à Amazon fresh (Grocery)… This was 39% of total revenue.
- Others – AWS + AES + credit card, & advertising. This was 3% of total revenue.
Except for Q1 2008, Amazon has been doing quite well in Others. They have seen double digit growth for most quarters. The big question: what is the revenue contribution by AWS?
Here are some observations/assumptions to guesstimate AWS:
- It has been quite a while since there were any announcements about a major retailer signing up with Amazon. On Amazon's website, there are only 4 customers showcased. So, AES is probably not a major growth contributor.
- Advertising revenue could be a big factor especially as traffic and sales volume increase on Amazon.com.
- Amazon has been reporting exponential growth in S3 objects, number of developers, # images and new partnerships (i.e. Microsoft), etc, so AWS can be major contributor.
So, if we assumed AES & credit card to make up 20% of Others, and AWS & advertising to be each around 40%, that would make Amazon's total 2008 AWS revenue around $210M. (Just based on a set of assumptions!)
In terms of AWS and its revenue contribution to Amazon, many believe that it has the potential to exceed Amazon's retail business in not too distant of a future.
It will be interesting to see how well AWS will do and what its contribution be by 2012, especially as more enterprise vendors like IBM, MSFT, SUN, HP intensify their focus on Cloud Computing...