Amazon’s record financials reveal AWS as the $6bn golden egg

Amazon’s record financials reveal AWS as the $6bn golden egg

Retail behemoth and connected technology company Amazon has reported Q2 results that reveal record profits of $2.5 billion and 39 percent year-on-year revenue growth.

Amazon only topped $1 billion quarterly net income at the end of 2017, so its latest results represent a major financial achievement.

Earnings per share of $5.07 overwhelmed consensus analyst predictions of $2.51, despite sales being below market estimates.

As with Microsoft’s and Google’s latest quarterly results, cloud services were the key hotspot within a diversified business. Amazon Web Services (AWS) reported Q2 revenues of $6.1 billion, up 49 percent year on year, versus 89 percent growth for Microsoft Azure. Google’s ‘other revenues’ segment, which includes cloud services, reported an uptick of 37 percent.

With operating profits of $1.64 billion – up 84 percent year on year – AWS is now the company’s most profitable business, driving revenues that are roughly 19 percent of Amazon’s North American retail operation – its biggest – which brought in sales of $32.2 billion for the quarter, up 44 percent year on year.

The picture wasn’t entirely positive, however. Amazon’s international revenues were $14.6 billion against analyst consensus of $15.14 billion, and the company’s retail business is sustaining losses in several territories.

The CFO’s angle

“A big contributor to the quarter, and the last few quarters, obviously has been strong growth in our highest profitability business, AWS, and also advertising,” said Amazon CFO Brian Olsavsky, noting “greater than expected efficiency” from investments in areas such as its automated warehouses.

“The business has accelerated in the last three quarters, and we’re seeing great signs in a number of areas,” he said of AWS.

“We’ve added 800 new services and features so far this year; that’s an accelerated pace from last year, which was a record year. We see customers have migrated more than 80,000 databases using the AWS Database Migration Service.

“And customers are just branching out to a lot of new products from us. There are new areas like machine learning, artificial intelligence, the Internet of Things, server-less computing, and database and analytics.”

So why are customers moving to Amazon, in Olsavsky’s estimation?

“It’s essentially the set functionality and pace of innovation that we’ve demonstrated for multiple years,” he said. “We’ve built a very strong partner and customer ecosystem. And frankly we’ve the most proven reliability of security and performance, and we’ve been at this longer than anyone else.

“Our growth is coming from customers that span from startups to enterprise customers to government agencies. They start small and then they continue to build and shift their businesses to us, and many of them have gone all-in on AWS, and have had a chance to lower their cost structures as a result.

“I’d count Amazon in that category, because on the consumer side of the business, we increasingly see infrastructure savings due to the conversion to AWS resources.”

Internet of Business says

Last week, Amazon denied reports that it is planning to manufacture and sell its own network switches – a move that would have pitched the company against hardware makers such as Cisco, Juniper Networks, Arista, HPE, Avaya, Netgear, and Dell.

But 2018 has certainly been a year in which Amazon has diversified on an unprecedented scale.

For example, Amazon is reportedly planning an Alexa-powered smart television set and an expanded TV service, with an eye on providers such as Netflix and the BBC’s iPlayer.

Earlier this month, the Telegraph reported that the Chinese-manufactured (by Huawei and others) smart set is being tested by the Digital TV Group (DTG) in the UK, the organisation that maintains local technical standards for digital broadcasting.

In April, Internet of Business reported that Amazon had teased the launch of the Fire Cube Alexa-powered set-top box, suggesting that Alexa will be core to most, if not all, of its hardware in the near future.

Earlier this year, Amazon announced that US upgrades of Alexa would allow more natural conversations with its smart devices, without repetition of the ‘Alexa’ trigger word. It also debuted its Alexa-powered smart camera, the Echo Look, which connects fashion-conscious consumers with human style-advisors.

In recent months, Amazon has further diversified into deliveries, content creation, premium subscription services, frictionless high street shopping, and more, and is eyeing banking and insurance. In May, Internet of Business reported that Amazon is building a healthcare team within its Alexa division.

Also on the roadmap are Amazon’s long-rumoured Alexa-powered ‘Vesta’ domestic robots, which are thought to include onboard cameras and sensors that can detect smoke, carbon monoxide, excess heat, and loud noises, and so could act as home security devices.

It seems inevitable that any such robots would also link to Amazon content, retail, and connected-home services. Concept models are thought to be being tested in employees’ homes this year, for potential release in 2019.

But Amazon’s many successes have not come without controversy.

Last week, we reported that Amazon warehouse workers are striking in Germany, Spain, and Poland over poor labour terms and working conditions in the company’s warehouses. Germany is Amazon’s second largest market outside the US.

The protests took place as Amazon CEO Jeff Bezos became the richest man in history, with a reported personal fortune of $150 billion. A number of newspapers have contrasted Bezos’ wealth with the poor working conditions of some Amazon employees and the company’s successful attempts over the years to prevent workers from unionising.

Amazon has also been criticised for sales of its real-time facial recognition system to US police forces, which civil liberties groups believe will increase tensions with ethnic minorities, given widely reported biases in the training data of some systems. Campaigners believe the use of these technologies carries the high risk of people being misidentified as a result.

Either way, Amazon’s mission is now becoming clearer: an all-embracing subscription service that extends from consumers’ homes and hallways to their workplaces, and every point in between, managing their health, lifestyle, education, training, finances, and more – along with their Web presences, of course.

But in any such business, questions increasingly need to be answered about data ownership, transparency, transfer, and trust – and the invisible commercial relationships that exist behind every service, special offer, and skill. 

Not for nothing did Amazon and Google both oppose California’s new data protection laws. Microsoft is the only one of the big three cloud infrastructure providers to convincingly express support for GDPR-style regulation in the US.

In the future, Microsoft’s and IBM’s greater focus on customers’ data privacy may pay dividends, as trust becomes the key competitive differentiator in enterprise cloud services. Other large vendors, such as Apple, Salesforce.com, and Box also see privacy support as essential.

Just as social networks have stumped the lawmakers and regulators who are tasked with managing and auditing our democratic processes, so Amazon’s mixed cloud and retail business may prove too complex for antitrust/competition regulators to unravel – especially as Amazon can claim that it is merely offering a platform on which others can sell their goods.

But there’s another risk for any such business: over extension and lack of focus. Most enterprises can explain, succinctly, who or what their customers are. In Amazon’s case, the answer to that question is becoming ever broader and increasingly opaque: everyone from police forces, patients, all types of consumer, and pre-schoolers, to CTOs and CDOs.

Can any company be all things to all people – a one-stop shop for everything anywhere? It’s not impossible, but answering the question ‘What customer pain points do your products and services remove?’ becomes much harder – and the response less convincing – if the answer is, “All of them, if it makes us money”.

Chris Middleton
Chris Middleton is former editor of Internet of Business, and now a key contributor to the title. He specialises in robotics, AI, the IoT, blockchain, and technology strategy. He is also former editor of Computing, Computer Business Review, and Professional Outsourcing, among others, and is a contributing editor to Diginomica, Computing, and Hack & Craft News. Over the years, he has also written for Computer Weekly, The Guardian, The Times, PC World, I-CIO, V3, The Inquirer, and Blockchain News, among many others. He is an acknowledged robotics expert who has appeared on BBC TV and radio, ITN, and Talk Radio, and is probably the only tech journalist in the UK to own a number of humanoid robots, which he hires out to events, exhibitions, universities, and schools. Chris has also chaired conferences on robotics, AI, IoT investment, digital marketing, blockchain, and space technologies, and has spoken at numerous other events.