Jeff Bezos spoke about this in some depth at startup school in 2008. He even highlighted a journalist's quote suggesting that Amazon was sneaking web services through the back door and it would soon be larger than Amazon itself. I don't know the numbers offhand, but I wouldn't be surprised if they've already surpassed the storefront side of their business.
I believe estimates are that AWS revenues are somewhere in the lower hundreds of millions. Very far from rivaling their tens of billions retail business.
What about the profits? Shipping, stocking and moving around physical books has got to be more expensive than marking up racks of computers and bandwidth.
Real costs associated with building out a datacenter are significant. I'd be surprised if building and operating a warehouse comes anywhere near the cost of building and operating a datacenter.
You've got things like generators, HVAC, PDUs, electrical engineering, network equipment, non-H2O fire suppression systems (not to mention the cost of the racks, systems and power itself) that make a datacenter a pretty hefty investment.
Even if you amortize the cost, it's amazingly expensive.
They're probably following the same strategy they used in retail: undercut everyone and go for long-term market share domination.
I'd bet they're still significantly in the red every year. Eventually they'll get big enough to start skimming a few points of profit off the top. Margins will always be low because that's a huge part of their strategy.
I keep hearing this but when you compare the same machine you get on Slicehost or linode with the Amazon prices, Amazon ends up being the most expensive.
I use Amazon because of it's convenience and brand name, but I've always seen it as having a decent premium.
Amazon.com is also very often not the absolute cheapest option for products when compared purely on price. It's only if you calculate in reliability/shipping/customer support/convenience that they're the completely unbeatable on average.
Anyone can buy $100k worth of servers and $10k/mo in bandwidth and easily beat AWS pricing. That doesn't make it competitive with AWS though.
AWS is providing world-class network/server infrastructure as a commodity, which is decidedly different from the kinds of infrastructure most hosting companies have.
Doesn't this contradict your previous comment? How exactly do they "undercut everyone and go for long-term market share domination"?
I actually think AWS is profitable and while they might not have recuperated their initial datacenter investments, they do cover the accounting depreciation (which is all that matters).
They undercut everyone offering the same product. Rock-bottom hosting that might stay up and might have customer service available sometimes is not the same product.
Maybe I have a hard time understanding this, but the whole discussion was how Amazon undercuts their competitors and runs the business with a small loss because they are looking at the long-term game.
Saying that Amazon sells you customer service seems entirely unrelated. Yes, the might have better customer service and they might have more things (EBS, Route 53, etc) but they certainly do not undercut their competitors price-wise.
If you run out of storage on Slicehost, though, you have to get a bigger machine, with more RAM and bandwidth. Run out on EC2 and you just add a new EBS store. There are major advantages to the completeness of the group of tools AWS includes.
