- Amazon Web Services now dominates the technology and media markets.
- The cloud should do $8 billion in profitable business this year and double that next year.
- The impact of Amazon's dominance is only starting to be felt.
In 1999, Time Magazine chose Amazon (NASDAQ:AMZN) founder Jeff Bezos as its “Person of the Year,” for his work in dominating e-commerce. In 2015, he should probably get it again, for dominating the cloud and, through the cloud, the worlds of technology and media.
Amazon Web Services is the business, and technology, story of 2015. It has caused the value of the company to double in just 10 months, and even at that it’s dirt cheap.
AWS earned $521 million in operating income during the third quarter, on revenue of $2.085 billion, more profit than Amazon earned as a whole, and double the revenue brought in by the cloud during the same quarter a year earlier. The cloud should do almost $8 billion in revenue this year, and could double that next year, probably with increasing margins.
But that’s not the big story. The big story came at the company’s “Structure” event this fall, where General Electric (NYSE:GE) said it will go “all-in” with AWS and close 30 of 34 data centers as it moves forward with its “Internet of Things” strategy.
GE had previously funded Vmware (NYSE:VMW) Pivotol Software group, and had been thought to be building its own cloud to connect energy and health systems. It has been advertising its technology ambitions heavily, and those ambitions have finally gotten its stock out of first gear.
But just as with the CIA, which a few years ago decided to have Amazon build a cloud for it rather than work with IBM (NYSE:IBM), GE has seen that resistance to AWS is futile. Thanks to the Supreme Court non-decision that allows Application Program Interfaces, or APIs, which are the directions for connecting to software, to be protected by copyright, the AWS cloud is entirely proprietary and nobody cares.
As open source guru Tim O’Reilly noted recently, “there’s ideological open and there’s pragmatic open.” Cheap, accessible Amazon represents pragmatic open, and that may well be open enough.
Replacing IBM as the center of technology is just half of it.
Netflix (NASDAQ:NFLX) runs its services almost entirely on Amazon, even while it seeks to compete with it in the new forum of media competition, Internet streaming. Netflix has released an own open source tool, Spinnaker, that could let it move workloads to Alphabet Inc-C (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT), but for now it admits to remaining dependent on its competitor to deliver its services
Amazon is just now starting to turn the screws on competitors’ dependence, removing Apple TV and Google Chromecast listings from its store. Netflix is seen as the biggest threat to cable, Amazon’s cloud runs Netflix, and Amazon is ready to play hardball.
While critics sneered and called Amazon worthless, throughout the first half of this decade, the company was putting $1 billion/quarter of capital into building AWS. That is only now starting to pay off. Amazon’s cloud is now the central technology platform of our time. It is becoming the central media platform of our time. Amazon valuations have already put Walmart (NYSE:WMT) in its rear view mirror – Amazon is now worth 50% more than a retailer selling $500 billion of merchandise each year.
Despite its sudden rise, Amazon remains dirt cheap.