Why Amazon's operating margins blot an otherwise perfect picture (Part 3 of 4)
Amazon AWS service showing strong growth
Amazon (AMZN) has become one of the leading players in the cloud services market courtesy of its web services product, popularly known as AWS. As the chart below shows, Amazon’s Other business revenues (which mainly consist of revenues from AWS) have consistently increased, from $0.8 billion in Q1 2013 to $1.26 billion in Q1 2014. Amazon recently reduced the prices of its cloud services products EC2 and S3 by as much as 10% to 65% in reaction to the price cut Google (GOOG) announced when it cut the prices of its cloud products in the range of 30% to 85%.
Amazon cut prices of AWS for the 42nd time
During the company’s conference call to discuss Q1 earnings, Amazon’s management mentioned that this is their 42nd price decrease for AWS and that the company will continue to invest in this business, given the big opportunity that lies ahead for the overall cloud service market. Management explained, “The team works very hard to able to afford those lower prices and we’re excited to do that. And so in terms of the timing of when we launched these price decreases, they come at different times and that happened to come in the presentation that we’re giving around that time. So but again we’re excited about the opportunity and we’re continuing invest in that business, given the big opportunity that we have there.”
Tech players are making big investments to leverage cloud services market growth
According to IDC, the cloud services market is expected to grow from $47.4 billion in 2013 to $107.2 billion in 2017, a CAGR (compound annual growth rate) of 23.5%. No wonder tech players are quite excited to invest in this market! Recently, Cisco (CSCO) announced its big plans to invest in the cloud services market. It plans to invest $1 billion on what it calls “Intercloud,” which is a network of clouds together with a set of partners. Another tech giant, Intel (INTC), announced that it was making a “significant” equity investment in Cloudera, which produces the most popular version of the Hadoop software framework for big data analysis. Oracle (ORCL) is also showing signs of acceleration in the cloud services market through a number of cloud application suites for its “Fusion” series, though it’s still a small player in this market.
Browse this series on Market Realist:
- Part 1 - Why Amazon’s operating margins blot an otherwise perfect picture
- Part 2 - Why Amazon’s deal with HBO could help it challenge Netflix
- Part 4 - Why did Amazon increase the price of its Amazon Prime service?
- Amazon AWS