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Amazon's cloud hid inside retail
A giant market
Before AWS, the market was routers, memory, storage, and companies like Dell and EMC, each selling a piece. AWS did it all. The estimate was that it directly addressed 600 billion dollars of IT systems and would probably be 50 percent deflationary, which put it at 1 or 2 percent penetrated.
Not deflationary
Over time, cloud turned out not to be deflationary at all. Anybody asked now says that building it yourself costs about the same, which means the market was much bigger than first calculated.
Coke without a Pepsi
In 2013, at the Robin Hood investors conference, an investor pitched Amazon for AWS and told the room that the bulls had no idea what they were sitting on. There was Coke and no Pepsi. A Pepsi did show up, but it was big enough to last. Amazon had a seven-year lead, then became an ecosystem and a platform, and then reached 10 times the size of everybody else, so nobody could invest enough in R&D to catch it.
How did AWS start selling computing?
Amazon launched its storage service S3 in March 2006 and its EC2 compute service in August of that year. Customers could rent servers by the hour with a credit card instead of buying hardware. Start-ups were the first major users, since they could skip the up-front cost of data centers. Netflix, Dropbox, and Airbnb later built their businesses on it.
Why did cloud not cut total IT spending?
Sharing hardware looked like it would save money, but cheaper and easier computing led companies to use far more of it. The economist William Stanley Jevons saw the same pattern in 1865, when he found that more efficient steam engines increased coal consumption instead of reducing it. Computing has repeated this pattern across several generations of hardware.
When did Amazon first report AWS separately?
Amazon first broke out AWS as its own segment in its first-quarter 2015 results. Before that, its profits were buried inside the larger North America and International retail figures. The numbers showed AWS was profitable, with operating income of about $265 million on sales of about $1.57 billion. Investors reacted by pushing the stock up sharply.
What is the Robin Hood investors conference?
The Robin Hood Investors Conference is an annual event in New York City held by the Robin Hood Foundation, a charity that fights poverty in the city. Prominent hedge fund managers present their investment ideas on stage. Ticket sales and donations from the event go to the foundation. The format makes each pitch a public statement about a stock.
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