Company / division: AWS
★ Amazon Reports Strong Growth, Much Smaller Margins in Q2 (Jul 27, 2017)
Amazon today announced its earnings for Q1 2017. Revenues grew strongly, but as with Q4 the rate of growth was slower than it had been for most of last year. Operating margins also continue to fall, driven by a slight dip in AWS margins in the last couple of quarters and continued big losses in the International business. The feeling I have is that e-commerce growth is just a little slower than Amazon anticipated – several metrics it normally keeps within very narrow bands have crept out in the past couple of quarters. I take that as a sign that retailers like Walmart are fighting back more effectively, sacrificing margins in pursuit of higher growth, and that this is affecting Amazon’s growth rate (though it still remains far higher than any other retailer’s organic growth, online or otherwise). Following some additional disclosure in its 10-K last quarter, Amazon has now shaken up its reporting segments for the non-AWS business and provides a little more visibility into its subscription and fulfillment businesses. The subscription business – mostly Prime but also other smaller businesses like Audible – generated 5% of revenue. Fulfillment and related businesses generated 18% of revenues, and the growth of that third-party seller business on Amazon, which now accounts for 50% of units sold, continues to be an important driver of higher gross margins along with AWS. From the 10-K, I estimated that Amazon had roughly 70 million Prime subscribers at the end of last year, and though the quarterly numbers are a little harder to pass it looks like it may have seen decent growth this past quarter too. Prime continues to be one of Amazon’s greatest strengths as a driver of stickiness and revenue growth.
Amazon makes it cheaper to host Alexa skills on AWS – ZDNet (Mar 16, 2017)
This is clever tie-in by Amazon of two of its valuable assets: its Alexa skills engine and its AWS cloud infrastructure. It’s offering developers of Alexa voice skills a better deal on hosting through AWS as a way to remove the barriers to developing smarter and more sophisticated skills for its Echo devices (and the small number of third party devices using Alexa). Amazon has touted its number of third party skills repeatedly since launching them as a sign of Echo and Alexa’s capability, but the reality is that many of those skills are very basic, and the model is clumsy to use. If it’s able to attract better skills to the platform, those numbers will start to be more meaningful as signifiers of the platform’s capabilities.
Amazon Explains its Massive S3 Outage (Mar 2, 2017)
Amazon’s S3 service went down in part of the US on Tuesday, something I commented on at the time. But we now have an official explanation, which is that an employee attempting to debug an issue with the billing system for AWS accidentally took down more servers than he/she intended to, which in turn had a knock-on effect on several other services which manage other aspects of the S3 system (including the dashboard which reports whether the service is performing as expected). Restarting several of the servers took far longer than anyone had expected, which meant Amazon’s contingency planning turned out not to be adequate after all. It sounds like it has now put in place some protections to prevent similar things from happening in future, but once again it’s just a reminder of how vulnerable big chunks of the Internet are to an AWS outage, something we discussed in depth on this week’s Beyond Devices Podcast, recorded earlier today shortly after this announcement was made.
Amazon cloud issues send Web publishers scrambling – Axios (Feb 28, 2017)
I might update this or post a follow-up later, since the outage is still underway and there isn’t yet an official explanation. But it’s already clear that this outage is having very widespread impacts, not just on a couple of big tech companies but on a variety of news sites and other businesses too. This is a great illustration of the enormous power a single player can have when it takes a dominant market share position, and conversely the danger customers put themselves in by failing to secure adequate redundancy. One of the changes between Snap’s original S-1 and its S-1/A filing was the inclusion of a deal with Amazon (ironically) to provide redundancy for its Google Cloud services, and I think it’s very unlikely the timing was a coincidence: I suspect the investors Snap talked to first were wary of its massive dependence on a single cloud provider. But of course that kind of redundancy can cost an awful lot, especially at scale – Snap’s contractual commitment to Amazon five years out is almost the same as its commitment to Google in the same year, which is not to say it will actually end up spending the same, but it’s indicative of the problem here. Of course, the Snapchat app hasn’t gone down today while many other services and sites have – if it had single-sourced based on Amazon, perhaps it would have done, which would have been disastrous the week of its IPO.