It goes without saying that with its array of web services, Amazon has transformed the computing landscape and nurtured what is generically known as the cloud computing industry. By turning expensive storage and computing hardware into a billable service, it has opened up new vistas for entrepreneurs and made corporations rethink how they build and use their computing and storage resources. The question often people ask: how much money is Amazon making from these web services. I have heard some wild estimates.
Today, UBS Investment Research analysts Brian Pitz and Brian Fitzgerald released a report which puts revenue numbers against Amazon’s web services. The duo estimate that in 2010, AWS will generated about $500 million in revenues and will grow this to $750 million by 2011. By 2014, it would bring in close to $2.54 billion in revenues.
UBS analysts believe believe that the total market for AWS type services will be between $5-to-$6 billion in 2010 and will eventually grow to $15-to-$20 billion in 2014. How do they arrive at these numbers?
- IDC says the total global cloud market in 2010 will be $22 billion and $55 billion in 2014.
- IDC says of the total servers and storage account for $5 billion-to-$6 billion in 2010 and $15-to-$20 billion in 2015.
Of the twelve AWS product lines, only two (EC2 and S3) compete in this subcategory. AWS essentially ‘rents out’ IT infrastructure to companies that seek to outsource IT needs such as Application Hosting, Web Hosting, High Performance Computing, Storage, E-Commerce, and more. Amazon was one of the first entrants (3Q06), and is a top player in the rapidly growing market. (UBS Research Report)
They argue that while so far the AWS revenue has been small and immaterial when compared to the overall Amazon revenues (roughly $25 billion), it will change soon and the AWS will contribute about 10 cents a share in earnings during 2010, and grow it to 22 cents in 2011. . The UBS analysts value the AWS business at between $3.4 billion to $3.8 billion. According to their estimates, AWS business had a netw income of $58.2 million in 2010 and will make $100.7 million in 2011. By 2014, that number will jump to $393 million or 83 cents a share. The analysts estimate that gross margins of the web business will be around 50 percent versus Amazon’s gross margins of around 22 percent-to-23 percent.
These are astounding numbers and if accurate will prove that Amazon was smart to bet early and bet big on the cloud computing opportunity. Perhaps, one thing I should add (and caution) — so far Amazon has not broken down its revenues along various product categories.