Amazon Q4 2016 - AWS solid while Echo roars

Back in April, Amazon CFO Brian Olsavsky predicted the AWS business would breach $10 billion revenues in 2016, and it did it at a canter.

Growth in the data centre business may be slowing year-on-year, but I wouldn’t feel too sorry for the team as it did pocket just over $12.2 billion over the course of 2016, with Q4 accounting for 47% year-on-year growth. While these figures will be the envy of everyone else in the cloud world, the team is already laying the foundation of its next blockbuster venture.

“As we mentioned in our press release, the unit sales of Echoes grew nine times, 9x, year-over-year during the holiday period,” said Olsavsky during the earnings call. “So, great customer adoption. We’re really glad to see that and that creates a great base of Echo and Alexa fans out there.”

For some, the Echo is a quirky personal assistant which allows millennials to withdraw further from what many would consider normal life, but for others, it is Amazon’s first move in next battle ground in the digital era. The smart home revolution has started, and like the battle for social media, those who control the gateway to the consumer’s day-to-day life will reap the fortunes of the connected economy.

Echo is just a device, but the real power is in the Alexa artificial intelligence offering. If data is the new oil, then Alexa is a monumental drill. Google is also in on this fight, but Amazon claims Alexa-enabled devices were the top-selling products across all categories on Amazon.com this holiday season; it might well have stolen a yard in this lucrative segment. Those who control the gateway to the consumer’s life, will also control the revenues which can be sought.

Some may be sceptical over the opportunities which can be sought of the back of the smart home, but they will be the same people who were sceptical about social media. Facebook reported its quarterly figures as well this week; $8.81 billion in revenue across Q4, $19.81 average revenue per user in the US and Canada across the year. If the success monetizing data and user engagement from social media can be replicated in the smart home environment, Amazon could be onto a winner here.

Alexa is also proving to be quite an engaging platform as well. The team has added 4,000 skills to Alexa over the quarter, and the opensource activities are thriving. Amazon initially opensourced Alexa back in 2015, and the Alexa-voice service is now available in numerous products around the world, expanding the reach of Amazon’s data net.

“Tens of thousands of developers are building new skills for Alexa,” said Olsavsky. “So, the skills addition should continue. And just as importantly, tens of thousands of developers are also using the Alexa Voice Service to help integrate Alexa into their products, which then creates a great network effect.”

Aside from the Echo devices, the team has also integrated Alexa into the Amazon tablets and Fire TV devices. Alexa is looking like its more than the team capitalizing on the artificial intelligence craze, it could be developing into the foundation of the next major play.

So AWS is starting to slow, but don’t worry too much, Amazon has got plenty in the locker to selfishly claim the digitally enabled fortunes.