When people think of Amazon, they think of e-commerce, of books, maybe of music and video streaming. What most people don’t think of is the hidden business that fuels (and finances) many of Amazon’s more prominent activities. Amazon Web Services (AWS), the company’s cloud infrastructure business catering to other companies, has quickly grown from a smaller side business to a billion-dollar success and the main driver of Amazon’s sparse profit. In Q4 2016, Amazon’s cloud arm generated $3.5 billion in revenue and accounted for more than 70 percent of the company’s $1.3 billion operating profit.
As our chart illustrates, Amazon has established itself as the firm leader in the rapidly growing market for cloud infrastructure services. As more and more companies make their move to the cloud, demand for cloud infrastructure has risen sharply over the past few years and Amazon was one of the first companies to capitalize on that trend. According to estimates by Synergy Research Group, AWS accounts for 40 percent of global revenues in the segment, with its largest competitors Microsoft, Google and IBM taking 23 percent of the market – combined.
According to Amazon’s CFO Brian Olsavsky, AWS caters to a “very balanced group” of customers, from startups to small businesses, large enterprises and the public sector. Among them are global players such as Netflix, Samsung, BMW, Spotify and NASA.