While everyone knows Amazon as the online retail behemoth, the true engine driving its profits lurks behind the scenes: Amazon Web Services (AWS). Despite accounting for just 16% of total revenue, AWS generated a staggering 74% of Amazon’s operating income in the first three quarters of 2023. This hidden gem deserves a closer look.
Founded in 2006, AWS offers cloud computing services to businesses, governments, and individuals. From data storage and computing power to machine learning and AI tools, AWS empowers organizations of all sizes to scale their operations and innovate. This has cemented AWS’s position as the world’s leading cloud provider, with market share surpassing Microsoft Azure and Google Cloud Platform combined.
While Amazon’s core e-commerce business continues to dominate the US market, it often runs at razor-thin margins. Logistics, product sourcing, and marketing costs eat into profits. In contrast, AWS boasts higher margins and recurring revenue. Businesses sign up for cloud services and continue paying monthly, creating a predictable income stream for Amazon.
This trend isn’t new. In 2022, AWS single-handedly generated all of Amazon’s operating income. This dependence on AWS highlights the crucial role it plays in the company’s future success. Investors would be wise to pay close attention to AWS’s performance, as it increasingly fuels Amazon’s growth engine.
The rise of AWS also signifies a broader shift in the tech landscape. Cloud computing is rapidly becoming the new infrastructure, enabling businesses to operate more efficiently and adapt to changing needs. Amazon, through its dominant position in AWS, stands to benefit greatly from this ongoing digital transformation.
As Amazon navigates the evolving retail landscape, one thing is clear: AWS is more than just a side hustle. It’s the silent powerhouse propelling the e-commerce giant towards the future, and its continued success will be critical for Amazon to maintain its pole position in the tech world. We all know for a fact that the operating costs of AWS will be much lower than that of Amazon’s e-commerce business due to obvious reasons but now we have data to conclusively say that Amazon would do all it can to expand AWS in order to keep growing.
