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Amazon Web Services (AWS) could be on course to outstrip its parent company’s retail arm in terms of profitability over the next 12 months, a report by RBC Capital Markets suggests.
In a research note featuring insights from the Canadian investment bank’s recent poll of cloud users and IT professionals, the organisation said both Amazon.com and AWS are approaching a tipping point in adoption terms.
“We believe Amazon has reached inflection points in both of its segments: retail due to Prime flywheels and AWS due to product/pricing and scale,” the research note said.
“We also believe Amazon has reached an inflection point as a company – 2016 is lining up to be the year that AWS profitability starts to surpass retail.”
Indeed, Amazon.com’s third quarter-results, published in October 2015, showed that AWS’s reported operating income is almost on a par now with the amount brought in by the firm’s entire North American online retail business.
Elsewhere in the research note, RBC revealed the results of a recent survey into their buying behaviours of more than 750 IT professionals.
The survey’s findings confirmed AWS’s standing as leader of the cloud sector, having seen its share of the market rise from 34% adopting in 2013 to 39% today.
Not all its competitors have fared so well over this period, with the survey hinting at a marked drop in use of the Google Cloud platform, with the percentage of people using it falling from 40% in 2013 to 32% 2015.
The survey also suggested that similarly downbeat adoption trends have hit VMware and Microsoft, with the former’s share reportedly falling by three percentage points to 33% and the latter’s down two percentage points to 30%.
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- Amazon Web Services (AWS) is well on its way to becoming a $7bn run rate business this year, having banked revenue of $2.1bn in its third quarter.
- The startup community has keenly taken to AWS and its portfolio of IaaS offerings since the company’s inception in 2006, while the enterprise has adopted a more cautious approach to its technology.
While many people associate AWS with commodity infrastructure-as-a-service (IaaS) offerings spanning storage and compute, in recent years the company has been making a concerted effort to climb up the IT stack.
This has seen it, for example, push into the data analytics and warehousing space, and make moves to encroach on Microsoft and Google’s territory in the productivity market with the roll-out of Amazon WorkMail.
According to the research, these bets are paying off for AWS, with the RBC data showing that the company’s attempts to move beyond its IaaS roots are being keenly welcomed by end-users.
“While storage remains the number one AWS service purchased (cited by 63% of survey respondents), 37% selected database services and 35% selected application services, and both of these were cited ahead of compute (33%),” the research note said.
End-users that have been using AWS for three or more years are more likely to purchase services from higher up the IT stack than newcomers to its cloud, the research also showed.
“Among more mature AWS cohorts (those who have been customers for three-plus years), 54% have purchased application services, 35% have purchased security and identity services, 31% have purchased analytics, and 27% have procured enterprise applications,” it added.