“How Big is Amazon’s Cloud Computing Business?”

Everyone seems to think that Amazon’s web services business (a.k.a. EC2, S3, and the rest of AWS) is very big and getting bigger, but Amazon stubbornly refuses to break out the AWS contribution to Amazon’s earnings. A recent blog post on GigaOm is the first that I have seen that includes some real data — both for Amazon and for the total accessible cloud services market — to estimate the size of the AWS business today and the size of the market going forward. First, here’s the link:

http://gigaom.com/2010/08/02/amazon-web-services-revenues/

The data comes from a UBS Investment Research paper, and it estimates that AWS is a $500M business in 2010. It further estimates that AWS will grow to $750M in 2011 — 50% year over year growth — reaching $2.5B, with a B, by 2014. Amazon as a whole does roughly $25B in revenue, growing in the 30%-40% range over the past year, so the numbers for AWS, while still small, are a high-growth component of Amazon’s overall business. Add in the fact the the UBS paper reports the gross margin of AWS at around 50%, vs. around 23% for Amazon as a whole, and one might draw the conclusion that the profit contribution of AWS will be a growing and very significant piece of Amazon’s pie in the years to come.

The question I have is this: Why aren’t more internet companies doing the same thing? Amazon’s results are a clear and undeniable validation of their AWS business strategy. That strategy, in a generic sense, was to build a very efficient cloud infrastructure for their own retail applications, and sell the excess capacity to the general public. They have proved that there is demand for the excess capacity and the service APIs that they provide for that capacity. And their list of customers has slowly transformed from penny-pinching startups and early adopters to a who’s who list of the largest, richest Fortune 500 companies in every business domain. And don’t forget that AWS has data centers around the world, and there is every reason to think that the demand for AWS from foreign companies will mirror growth in the US.

I can think of a bunch of older, larger internet companies that should definitely be trying to duplicate Amazon’s success. Some of them have already tried, albeit with a slightly different level of offering (e.g. Google’s App Engine, Microsoft’s Azure). But the barrier to entry, such as it is, requires only a large number of machines and the will to build the necessary cloud infrastructure systems. I’m sure someone will call BS on this statement and tell me that some serious skill is also required, and I would agree with that. But we live in a time when skill moves around a lot, and no company has a monopoly on talent. So why isn’t everybody trying to copy AWS?