Amazon’s ‘Risky’ Web Services ‘Distraction’ Finally Pays Off


From my blog:

When I wrote what was likely the first major magazine story about’s Web services business way back in November 2006, most people thought it was yet another crazy idea from CEO Jeff Bezos.

Heck, even most of my colleagues at the magazine thought I was crazy to bother writing about it. Understandably, many didn’t understand what I was talking about–selling access to Amazon’s huge cloud computing infrastructure for its own operations to outside companies–let alone believe that Amazon Web Services was sufficiently important to merit a cover story. “I have yet to see how these investments are producing any profit,” one analyst griped about the engineering and capital expenses involved. “They’re probably more of a distraction than anything else.”

Today, Amazon revealed just how big that “distraction” is. In its just-reported first-quarter earnings report, Amazon said AWS revenues have hit $5 billion on an annual basis. In the first quarter, revenues rose 49% from a year ago, to $1.57 billion.

Even more surprising, perhaps, it’s making money: $265 million in operating income, up from the $245 million it earned in the first three months of 2014.

That may not be seen as a positive by some investors. In the odd calculus of Wall Street, the more money AWS is losing, the better. That’s because, as Macquarie Securities analyst Ben Schachter wrote in a recent note to clients, it would indicate that Amazon’s main retailing business is more profitable.

Still, Amazon’s shares rose more than 15% in the next morning’s trading. That’s partly because, well, ultimately any profits are good profits.

And the growth of AWS, which now boasts more than 1 million active customers ranging from General Electric to every startup you’ve ever heard of, means it’s now a significant contributor to Amazon’s market value. Schachter values it at $75 billion, nearly half as much as the rest of Amazon’s business at $145 billion. …

Read the rest of the story.