American Consequences - August 2017


I love a print book as much as anyone, but it’s hard to argue against the future of e-books. And it’s clear that Amazon will own it. Amazon doesn’t report detailed sales for different units, but a few years ago Morgan Stanley estimated that the Kindle “ecosystem” (all the devices and the sales) accounted for 11% of Amazon’s massive revenue. That’s a successful gamble on hardware. Next up is Amazon’s Echo. Lots of companies are betting that the “smart home” will be the future of technology. Amazon jumped into hardware again with the Echo “smart speaker” – a cylindrical device for your home that listens to voice commands and responds by playing music, adjusting the controls around your home, and ordering things from Amazon. It’s an unqualified hit. The device sold 5.2 million units in 2016, and Amazon’s branching out into new products in that vein like the smaller-sized Echo Dot. These are huge successes, but they don’t match the ingenuity of Amazon’s two biggest successes... TWO GAME-CHANGING BUSINESSES... WITH MORE TO COME To handle the flood of sales during peak times, Amazon built a huge computing infrastructure. But for much of the time that power sat idle. A few engineers developed software to allow outsiders to rent out this power for their own purposes starting in 2006.

From Amazon's perspective, AWS practically prints money.

Before long, Amazon poured billions into this cloud-computing business called Amazon Web Services (AWS). We can say this without exaggerating: AWS has changed the way the Internet works. Prior to AWS, a business that needed an IT setup to host websites or databases could spend tens or hundreds of thousands of dollars and work for weeks to get their own servers up and running. With AWS, deploying the same capabilities takes hundreds of dollars and less than a day. That’s why major companies like Netflix, Comcast, and 3M use AWS to host services. From Amazon’s perspective, AWS practically prints money. For years, Amazon hid the AWS results within its broader revenue numbers. But in 2015, it started reporting the service’s revenue numbers. Now, AWS accounts for $12 billion in revenue (or 9%) of Amazon’s total sales. More impressive, it totals $3.1 billion in operating profit, or 74% of Amazon’s total. Now, Google and Microsoft and others are trying to hop in on the cloud-computing game, but Amazon owns 40% of the market and its revenue grew 55% last year. This is the way technology will work for decades... and Amazon owns it. Amazon may have an even bigger success

60 | August 2017

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