Bits and Splits -

AWS reports fourth quarter revenue growth of 45% as public cloud demand continues apace

Amazon's cloud arm appears to be pulling away, in performance terms, from its parent's company's e-tail business, having generated more operating income during 2018 than its North American retail operations

Amazon Web Services (AWS) generated more profit for its parent company over the course of the 2018 financial year than the North American branch of its retail business, its fourth quarter results revealed.

Amazon’s cloud arm emerged as a bigger source of profit for the firm than its biggest retail market, North America, over the course of the past 12 months. AWS posted full-year operating income of $7.29bn, while its North American retail business generated slightly less at $7.267bn.

While it appears that there may not be much to separate the performance of the two in profit terms, it is worth noting that AWS generated this through $25.65bn in sales, compared with the $141.3bn its North American retail operations generated.

Operating income for its North American retail business was up 156.15% on 2018 overall, with Amazon founder and CEO Jeff Bezos crediting the growing demand for the firm’s Echo Dot voice-controlled computing devices, which run its Alexa virtual personal assistant technology.  

“Echo Dot was the best-selling item across all products on Amazon globally, and customers purchased millions more devices from the Echo family compared to last year,” he said.

And it is not just in the consumer world where Alexa is proving popular, with Bezos going on to outline the improvements it has made to the service over the course of 2018.

“The number of research scientists working on Alexa has more than doubled in the past year, and the results of the team’s hard work are clear,” he said.

“In 2018, we improved Alexa’s ability to understand requests and answer questions by more than 20% through advances in machine learning. We added billions of facts, making Alexa more knowledgeable than ever, and developers doubled the number of Alexa skills to over 80,000. Customers also spoke to Alexa tens of billions more times in 2018 compared to 2017.

“We’re energized by and grateful for the response, and you can count on us to keep working hard to bring even more invention to customers,” he added.

On the cloud side, previous quarters have seen AWS’s annual revenue growth rate take investors and analysts by surprise, particularly as the firm has continued to grow in size and value, with its third quarter results in October 2018 seeing the firm declared a $27bn revenue run rate business.

As per the law of big numbers, the revenue growth rate of fast-growing companies tends to drop off as their revenue base swells. While AWS’s has dropped from a high of 78% in 2015 to 42% during the third quarter of 2017, more recent quarters have seen it rebound to 46-49%.

AWS’s fourth quarter performance marked a continuation of this trend, with revenue up 45% on last year to $7.43bn, while the full-year take on its performance seeing the firm post sales of $25.65bn, which constitutes a 47% year-on-year rise compared to its 2017 figures.

But these results also come at a testing time for Amazon, whose business practices are coming under increasing scrutiny from regulators in the EU and US, as well as the UK government.

The company’s shareholders also recently called for a ban on sales of its cloud-based image and video analysis service, Rekognition, to US law enforcement agencies over concerns it could be used to carry out racial profiling or unnecessary levels of surveillance.

While the company’s cloud business continues to go from strength to strength, with new customer wins in almost every conceivable vertical market, the firm’s hold on the retail market has been fiercely challenged off late by its public cloud competitors – Microsoft and Google.

As recently detailed by Computer Weekly, the firm’s close working relationship with – which, as well as being its parent company, is also its biggest customer – appears to be causing some retailers cause for concern.

This is particularly as continues to diversify and expand beyond its online-only roots to bricks-and-mortar stores, through the firm’s acquisition of grocery chain Whole Foods, the launch of its Amazon Go self-service stores in the US and its forays into healthcare.

For some retailers, these activities are being interpreted as a sign that Amazon is looking to encroach on their territory, giving them pause when it comes to choosing a public cloud provider.

That aside, 2018 saw the firm increase its base of cloud customers – with new signings, including Santander, Korean Air and Amgen – and continue to build out its datacentre footprint across the globe.

At the same time, the firm has been working to increase the efficiency of its infrastructure, revealed its chief financial officer, Brian Olsavsky, on a conference call with analysts – transcribed by financial blogging site, Seeking Alpha.

“We have invested into our AWS business to support infrastructure and global expansion, [and] that number grew 10% last year, when it had grown 69% in 2017,” he said.

“In a lot of ways, 2018 was about banking the efficiencies of investments in people, warehouses, infrastructure that we had put in place in 2016 and 2017.

“So while we’ll continue to concurrently drive growth and customer offering, we certainly do take costs seriously and we will continue to work on operational efficiencies.”

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