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Summary:

Oppenheimer analyst Tim Horan says Amazon will have to spin off Amazon Web Services to attain the scale it needs.

Amazon Web Services
photo: Flickr/Will Merydith

Amazon never discusses a possible spin-off of its huge web services business, but that doesn’t stop other people from talking about it.

The topic cropped up again Monday after Oppenheimer analyst Tim Horan issued a research note that Amazon Web Services, which probably logs north of $2 billion a year (a figure that Amazon also does not discuss), would be better off as a separate publicly traded company and that the parent company is likely to make that move. Investor’s Business Daily has more here.

A spinoff is “inevitable” if Amazon wants to scale the business, he wrote. AWS is hugely popular among developers at startups and has gained traction in big companies. But it also faces increasing competition as other vendors scale up their public cloud offerings and woo enterprises that are wary of deploying in shared public cloud infrastructure with private-cloud expertise, as well.

Horan uses one of those competitors, Rackspace, as a point of comparison: “Rackspace has a much smaller presence in public cloud at about $300 million of revenue in 2012, and $1.3 billion overall. If we assign a 6x sales multiple to AWS, consistent with Rackspace, this would imply AWS would be worth $101 billion in 2018 … “

Rackspace will announce its fourth-quarter earnings Tuesday afternoon. It brought in $336 million in revenue during the third quarter of 2012.

Tech analysts for some time have said that Amazon would be better off spinning out AWS as a separately traded entity, much the way EMC handles VMware.

I have put in requests for comment to Amazon, which typically does not comment on this topic, and will update this story as needed.

  1. Reblogged this on Kairix And Everything Innovative and commented:
    Amazon may still on the edge. But lets see when will they discuss or reveal to the world their web service business.

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  2. I developed cloud storage technology and mobile delivery technology on AWS. Amazon approached me for a potential acquisition. In the end, they “cloned” what I had built on their platform and violated their NDA. When I protested they threatened sanctions if I pursued any legal action. How’s that for sticking it to your customer?

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  3. Anonymous Person Monday, February 11, 2013

    Maybe it should be considered the other way around – AWS is spinning off its low-margin e-commerce and logistics arm.

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