AWS continues to fuel profits at parent company

Amazon has released the results for the first half of 2018, with cloud business unit AWS accounting for just over 61% of the total operating income.

Sales across the group stood at $103.9 billion, while AWS accounted for $11.5 billion, with an impressive $6.1 billion coming in the second quarter, beating market expectations. Net income was reported at $4.1 billion for the half, and $2.5 billion for the quarter. This is now the third consecutive quarter the business has reported more than $1+ billion in net income, perhaps a welcome surprise for investors who have become accustomed to minimal profits and losses every three months.

“We’re very happy with the results we’re seeing, and the backlog that we see, and the new contracts and new customers and the expansion of existing customer business that we see,” said Amazon CFO Brian Olsavsky. “Again, the business has accelerated the last three quarters, and we’re seeing great signs in a number of areas.”

While the success of AWS is unparalleled in the industry, there is still room for growth. Despite the cloud being old news, there are still a huge number of customers and workloads to migrate to the cloud, and new services to offer to these customers. AWS has already launched 800 new services and features so far this year, including the Database Migration Service which has been utilised 80,000 times over the six months, and there is scope for more. The cloud might seem like an old idea now, but with areas such as machine learning, AI, IoT, serverless computing and databases and analytics beginning to breach normality, the potential to make more cash is abundant.

As you can see from the market share graphic below, AWS is in a league of its own when it comes to the cloud services market. Google and Microsoft might be growing their own business at a faster rate, but these steps forward cannot bridge the sheer volume and breadth of customers in the AWS market share. Unfortunately for challengers outside the top four, it is looking increasingly unlikely the gulf will be bridged.

“Amazon Web Services and its three main challengers all turned in some exceptional growth numbers in the quarter,” said John Dinsdale of Synergy Research Group.

“Collectively those four firms alone accounted for well over three quarters of the sequential growth in cloud service revenues. In a large and strategically vital market that is growing at exceptional rates, they are throwing the gauntlet down to their smaller competitors by continuing to invest enormous amounts in their data centre infrastructure and operations. Their increased market share is clear evidence that their strategies are working.”

Looking at where money is being spent in the industry, public IaaS and PaaS services account for the bulk of the market, with these two segments growing by 53% over the last quarter. Total spend, IaaS, PaaS and hosted private cloud services, exceeding $16 billion for the quarter.