The main reason why Amazon is worth so much right now and for its recent journey into solid profitability is not that it is the world’s most famous e-commerce business.
Its Amazon Web Services, selling remote computing power to businesses, are again the star of Amazon’s earnings report. AWS is at the moment the most valuable startup in tech and Amazon would not be anywhere near as profitable without AWS, because AWS was accounted for about 89% of Amazon’s total operating income for the quarter, with the rest attributable to e-commerce.
Cloud computing is a young business, and AWS appears to easily be the leader in the category, with about 40% of the market, while Microsoft Corp., Alphabet Inc.’s Google and International Business Machines Corp. combine to hold just 23%.
To hold such a dominant position in a growing industry with strong profitability and high revenue growth rates is nearly impossible for young companies, which tend to toss away almost always at least profitability.
Amazon still owns the cloud, but in a rare confluence of events, all three companies reported quarterly results on the same day last Thursday, giving investors an abundance of data on the state of cloud computing and they show that the battle is in its early days and competition is fierce.
Azure, Microsoft’s cloud business is growing almost twice as fast as Amazon’s and it is speeding up, reporting sales jumping 93 percent in the quarter ended March.
With more corporations, government entities and non-profits downsizing their own data centres in favour of the massive infrastructure operations controlled by the tech giants, all three companies are racing to land major contracts and attract developers by building cutting-edge tools.
This space is an oligopoly. “No one else of any meaningful size outside a handful of major players is getting into it because they can’t afford to get into it”, commented said Trip Miller, the founder of Gullane Capital Partners and an investor in Amazon.
