Bezos long ago figured out that the best tax strategy in modern America for a public company is to operate without profit. The company operates with a relatively (to the revenue) small loss, maintaining positive cash flow by issuing and selling additional stock. Selling new stock is (remarkably) tax free. The dilution is negligible since the stock is valued by the revenue (not profit so much). Everybody benefits: executives are now compensated mainly by the RSUs and options, and the corporate profit is only a tax drag that does not really affect this compensation.
They do some kinda misleading accounting for AWS. They don't count the capital leases as expenses in "operating income" for AWS, it get's counted at the entire company level. So, because they don't have to expense any depreciation/(expense for capital expenditure in some form) at the AWS level, the "operating profit" at AWS is artificially high and would be negative if it was properly showing the economics of that business.
This isn't to suggest amazon as a whole is doing anything wrong, they are following accounting standards, but that is one place where the standards for capital leases are misleading if you don't read the fine print.
Not really. Amazon as a whole is dial-a-yield depending on the rate of profit reinvested to grow existing/new capabilities. If Bezos wanted, he could halt expansion and return more profit in the short-term, but that would delay long-term revenue (and hence profit) generation plans (however long he's able to find other business expansion directions which avoid the perils of overexpansion and also avoid plateauing for too long).
Also, some companies like Netflix and Zynga, which are AWS'es main customers, are fine to pay AWS a premium to have most of their infrastructure better managed and on-demand. Whereas most sizable businesses deploy something like OpenStack for baseline load on real, bare metal gear they buy and use AWS for traditional uses: PoCs, disaster recovery and peaking capacity. Startups tend to use AWS at first because it's easy, popular and low-risk, but it's not a panacea because it tends to get very expensive, very quickly. (It is however, clearly, a great business in itself, which probably should be spun-off.)
Disclaimer: I was with a premier enterprise AWS external consultancy shop early on that had significant access to capabilities and expanded limitation perks beyond other shops. Interestingly, they've built limitation increase requests available to most everyone now, which were manual before and depended on how much clout a customer or vendor garnered.
It really feels like they design the thing to make that happen.
I got stung for over $100 just as a casual user, because I never guessed that I had to click through all the (slow loading) regions to see the instances and volumes and snapshots I might have burning money.
Yeah, because that's a logical reason they make billions and not because large companies like Netflix (not to mention pretty much every tech startup these days) use them so heavily.
Off Topic, Previously I was always put off by Amazon's design. You can click on anything Amazon related, AWS included and see some fugly UI and layout.
And i got to check AWS again and i am pleasantly surprised things have improved dramatically!
Summary: Many design elements work for Amazon.com mainly because of its status as the world's largest and most established e-commerce site. Normal sites should not copy Amazon's design.
Ugh, I don't know if it's just me, but browsing for anything on Amazon.com really irks me. First, the page loads, then a bunch of other stuff loads in the background. The problem is that you try scrolling after the page loads, but the web site is so demanding on the browser that it frequently breaks scrolling. Plus, the tab title flickers the entire time this is going on.
It's clearly a symptom of a large number of people working on stuff that all ends up on the same page.
As an aside, I worked in a directorate, and the director of said directorate (who worked at amazon before us) told a story every so often of meetings he would be invited to, where the amazon UI team would agonize over specific pixel placements of text and images on the amazon website.
The amusing part to me (this was years ago) was internally I was always thinking "their website is, at the very least, non-intuitive and overwhelming" when he told such stories.
Yeah the site is slowly migrating to a new design but it so huge and run by some many teams that it takes them time to get it all into shape and by then a new style is being brought out.
Side note: numbers between Microsoft and Amazon are not directly comparable because Microsoft includes SaaS solutions such as Office 365 in their cloud revenue. So it is not Azure versus AWS.
Can someone explain how Amazon is different (in investor mindset, not legality) from a Ponzi scheme? It seems like retail companies (and even some startups) exist solely by churning investors with new money. Everyone invests based on expected profit at the end of the rainbow, and a lot of money is made selling to the next set of investors who want to carry on rainbow-chasing.
If Amazon were to stop and start making a profit, wouldn't they immediately be undercut by the next generation of quasi-ponzi companies who are now willing to sacrifice short term profits?
I'm trying to understand why large companies use AWS for their primary infrastructure. Both AWS and Azure are obscenely expensive when compared to buying servers and colocating them somewhere. The cloud model works well for bootstrapped startups, but anyone with the resources to buy and manage their own servers is crazy if they use AWS or Azure as their primary server platform.
I feel like this is a myth that just won't go away.
If you run your 24/7 steady state load using on-demand hourly charged instances, and don't factor in the cost of managing your own hardware and data centres then yes, EC2 is hideously expensive.
If you plan your spend (much like you would in buying your own hardware and DC space) it really isn't - reserved instances considerably reduce prices, and come with bulk discounts when you buy enough of them.
It's been a while, but when costing out our migration to EC2 it came out cheaper than any other VM provider, and was in the same ballpark as leasing our own hardware.
Cloud providers bring you not just localized infrastructure, but distributed infrastructure, with clear mechanisms for scaling as needed, plus support, etc. With AWS, you have a predictable cost, predictable up-time, and ability to scale at peak, and your costs are spread over time, rather than all up front.
With your own servers you have to build out to handle peak load (and run mostly dormant during non-peak hours), across multiple locations, to achieve the same availability.
I'm not sure the costs for the convenience of AWS are so obscene in such a case. They may still be higher, I honestly don't know, but the convenience benefit is huge. They key bit is that AWS' costs are largely -known-, whereas the costs of DIYing aren't.
Per Netflix's blog post about why they use AWS for serving everything except video content - "We could have chosen to build out new data centers, build our own redundancy and failover, data synchronization systems, etc. Or, we could opt to write a check to someone else to do that instead."
Oftentimes for enterprise, having all your infrastructure in place, done right the first time, with someone else eating any costs associated with the unexpected, and ready to start building your application on, is worth the cost. For enterprise, paying a known amount to avoid risk is oftentimes worth it.
>anyone with the resources to buy and manage their own servers
Eh, I think the bar is a lot higher than that, especially if you have to meet external compliance standards with yearly audits, or have to have good disaster recovery with multiple datacenters. Those kind of things get very expensive if you are under a certain scale.
> I'm trying to understand why large companies use AWS for their primary infrastructure.
Because they are corrupt? Could be? Large companies are basically centrally controlled economies, and we know how that turns out..
It seems to me that large companies live in a special bubble where they are willing to pay extra for everything. On the other hand, they also charge extra, so externally, it will mostly cancel out.
The winners of this scheme are probably the people involved in running (either directly or as shareholders) these large companies, because their salaries (and other bonuses) are artificially inflated compared to the rest of the society. The losers are probably the government and the taxpayer (i.e. the public), these can be easily made to pay extra but it's difficult for them to charge extra.
The drop in operating profit from Q1 to Q2 2014 of about 50% (~$100m) made me look into some of their acquisitions being made for AWS.
Might be able to get more clarity into what they are paying for these undisclosed acquisitions prices, assuming their cost for constructing data farms stays relatively constant.
Operating profits take a charge for depreciation of capital assets over the (tax) economic life of the asset. So, AWS is charged between 1/36 and 1/60th of the value of the server per month for 36 or 60 months. (Exact schedule of depreciation is facts and circumstances dependent.)
But it's not like they're making a profit just because the servers are "free".
Source: I ran tech ops for an e-commerce company you've likely heard of for ~half a decade.
That doesn't make sense. AWS allows Amazon (the retail store) to go very deep into the red and the entire company could still be afloat. There's no reason to distance yourself from the most profitable part of your company.
Don't forget that AWS came out of Amazon's need for infrastructure. Amazon is dogfooding with AWS, and that's one of the reasons AWS remains in the lead when it comes to cloud compute platforms. They keep launching new, useful services, that come out of real business use cases.
It is propping up the rest of their business (which is doing very well but like others have said has very low or negligible margins).
If anything, they could leverage their cloud tech further in the consumer space by developing uses for it beyond just video streaming (could be other uses but this is the main one I am aware of). I think we've seen that with Echo and a next-gen version could easily do more as an assistant, an all encompassing one for any digital support needs. Perhaps also stream games a la PS Now.
That kind of spinoff only happens when activist investors demand it. I think Jeff Bezos and his true believers still hold a significant portion of the stock.
[+] [-] fnayr|10 years ago|reply
[+] [-] cft|10 years ago|reply
[+] [-] molecule|10 years ago|reply
http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-n...
[+] [-] boomshucka|10 years ago|reply
This isn't to suggest amazon as a whole is doing anything wrong, they are following accounting standards, but that is one place where the standards for capital leases are misleading if you don't read the fine print.
[+] [-] bmir-alum-007|10 years ago|reply
Also, some companies like Netflix and Zynga, which are AWS'es main customers, are fine to pay AWS a premium to have most of their infrastructure better managed and on-demand. Whereas most sizable businesses deploy something like OpenStack for baseline load on real, bare metal gear they buy and use AWS for traditional uses: PoCs, disaster recovery and peaking capacity. Startups tend to use AWS at first because it's easy, popular and low-risk, but it's not a panacea because it tends to get very expensive, very quickly. (It is however, clearly, a great business in itself, which probably should be spun-off.)
Disclaimer: I was with a premier enterprise AWS external consultancy shop early on that had significant access to capabilities and expanded limitation perks beyond other shops. Interestingly, they've built limitation increase requests available to most everyone now, which were manual before and depended on how much clout a customer or vendor garnered.
[+] [-] artursapek|10 years ago|reply
[+] [-] afarrell|10 years ago|reply
[+] [-] syllogism|10 years ago|reply
I got stung for over $100 just as a casual user, because I never guessed that I had to click through all the (slow loading) regions to see the instances and volumes and snapshots I might have burning money.
The web interface is a total clusterfuck.
[+] [-] jsjohnst|10 years ago|reply
[+] [-] tootie|10 years ago|reply
[+] [-] bduerst|10 years ago|reply
[+] [-] ksec|10 years ago|reply
And i got to check AWS again and i am pleasantly surprised things have improved dramatically!
[+] [-] mbesto|10 years ago|reply
http://www.nngroup.com/articles/amazon-no-e-commerce-role-mo...
[+] [-] bentcorner|10 years ago|reply
It's clearly a symptom of a large number of people working on stuff that all ends up on the same page.
[+] [-] irishcoffee|10 years ago|reply
The amusing part to me (this was years ago) was internally I was always thinking "their website is, at the very least, non-intuitive and overwhelming" when he told such stories.
I guess they found better UX people. =pp
edit: typo
[+] [-] nkassis|10 years ago|reply
[+] [-] danbucholtz|10 years ago|reply
[+] [-] sker|10 years ago|reply
Anyone has numbers for Google?
[+] [-] foobar2020|10 years ago|reply
Side note: numbers between Microsoft and Amazon are not directly comparable because Microsoft includes SaaS solutions such as Office 365 in their cloud revenue. So it is not Azure versus AWS.
[+] [-] sudhirj|10 years ago|reply
If Amazon were to stop and start making a profit, wouldn't they immediately be undercut by the next generation of quasi-ponzi companies who are now willing to sacrifice short term profits?
[+] [-] smackfu|10 years ago|reply
https://ycharts.com/companies/AMZN/shares_outstanding
[+] [-] sudhirj|10 years ago|reply
[+] [-] downandout|10 years ago|reply
[+] [-] jon-wood|10 years ago|reply
If you run your 24/7 steady state load using on-demand hourly charged instances, and don't factor in the cost of managing your own hardware and data centres then yes, EC2 is hideously expensive.
If you plan your spend (much like you would in buying your own hardware and DC space) it really isn't - reserved instances considerably reduce prices, and come with bulk discounts when you buy enough of them.
It's been a while, but when costing out our migration to EC2 it came out cheaper than any other VM provider, and was in the same ballpark as leasing our own hardware.
[+] [-] lostcolony|10 years ago|reply
Cloud providers bring you not just localized infrastructure, but distributed infrastructure, with clear mechanisms for scaling as needed, plus support, etc. With AWS, you have a predictable cost, predictable up-time, and ability to scale at peak, and your costs are spread over time, rather than all up front.
With your own servers you have to build out to handle peak load (and run mostly dormant during non-peak hours), across multiple locations, to achieve the same availability.
I'm not sure the costs for the convenience of AWS are so obscene in such a case. They may still be higher, I honestly don't know, but the convenience benefit is huge. They key bit is that AWS' costs are largely -known-, whereas the costs of DIYing aren't.
Per Netflix's blog post about why they use AWS for serving everything except video content - "We could have chosen to build out new data centers, build our own redundancy and failover, data synchronization systems, etc. Or, we could opt to write a check to someone else to do that instead."
Oftentimes for enterprise, having all your infrastructure in place, done right the first time, with someone else eating any costs associated with the unexpected, and ready to start building your application on, is worth the cost. For enterprise, paying a known amount to avoid risk is oftentimes worth it.
[+] [-] smackfu|10 years ago|reply
Eh, I think the bar is a lot higher than that, especially if you have to meet external compliance standards with yearly audits, or have to have good disaster recovery with multiple datacenters. Those kind of things get very expensive if you are under a certain scale.
[+] [-] chx|10 years ago|reply
[+] [-] asgard1024|10 years ago|reply
Because they are corrupt? Could be? Large companies are basically centrally controlled economies, and we know how that turns out..
It seems to me that large companies live in a special bubble where they are willing to pay extra for everything. On the other hand, they also charge extra, so externally, it will mostly cancel out.
The winners of this scheme are probably the people involved in running (either directly or as shareholders) these large companies, because their salaries (and other bonuses) are artificially inflated compared to the rest of the society. The losers are probably the government and the taxpayer (i.e. the public), these can be easily made to pay extra but it's difficult for them to charge extra.
[+] [-] brwnll|10 years ago|reply
Might be able to get more clarity into what they are paying for these undisclosed acquisitions prices, assuming their cost for constructing data farms stays relatively constant.
- Peritor (Ops, Mar 2013)
- ClusterK (Apr 2014, $20M-$50M)
- Amiato (NoSQL, May 2014)
- 2lemetry (IoT, Mar 2014)
- Annapurna Labs (Jan 2015, ~$370M)
- AppThwack (Mobile testing, Jul 2015)
[+] [-] x0x0|10 years ago|reply
[+] [-] sokoloff|10 years ago|reply
But it's not like they're making a profit just because the servers are "free".
Source: I ran tech ops for an e-commerce company you've likely heard of for ~half a decade.
[+] [-] gargarplex|10 years ago|reply
[+] [-] jasondc|10 years ago|reply
[+] [-] tomphoolery|10 years ago|reply
[+] [-] lostcolony|10 years ago|reply
[+] [-] airza|10 years ago|reply
[+] [-] kryptiskt|10 years ago|reply
[+] [-] tootie|10 years ago|reply
[+] [-] sarwechshar|10 years ago|reply
If anything, they could leverage their cloud tech further in the consumer space by developing uses for it beyond just video streaming (could be other uses but this is the main one I am aware of). I think we've seen that with Echo and a next-gen version could easily do more as an assistant, an all encompassing one for any digital support needs. Perhaps also stream games a la PS Now.
[+] [-] unabridged|10 years ago|reply
[+] [-] x0x0|10 years ago|reply
[+] [-] _pmf_|10 years ago|reply
[+] [-] Fratercula|10 years ago|reply
[+] [-] foobar2020|10 years ago|reply
https://www.srgresearch.com/articles/aws-market-share-reache...
[+] [-] atopuzov|10 years ago|reply
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