How Big is Amazon’s Cloud Computing Business? Find Out

It goes without saying that with its array of web services, Amazon (s AMZN) has transformed the computing landscape and nurtured what is generically known as the cloud computing industry. By turning expensive storage and computing hardware into a billable service, it has opened up new vistas for entrepreneurs and made corporations rethink how they build and use their computing and storage resources. The question often people ask: How much money is Amazon making from these web services? I’ve heard some wild estimates.

Today, UBS Investment Research analysts Brian Pitz and Brian Fitzgerald released a report which projects revenue numbers against Amazon’s web services. The duo estimate that in 2010, AWS will generate about $500 million in revenues and will grow this number to $750 million by 2011. By 2014, it would bring in close to $2.54 billion in revenues.


UBS analysts believe that the total market for AWS-type services will be between $5-to-$6 billion in 2010 and will eventually grow to $15-to-$20 billion in 2014. How they arrive at these numbers:

* IDC says the total global cloud market in 2010 will be $22 billion and $55 billion in 2014.
* IDC says the total servers and storage account for $5 billion-to-$6 billion in 2010 and $15-to-$20 billion in 2015.

Of the twelve AWS product lines, only two (EC2 and S3) compete in this subcategory. AWS essentially ‘rents out’ IT infrastructure to companies that seek to outsource IT needs such as Application Hosting, Web Hosting, High Performance Computing, Storage, E-Commerce, and more. Amazon was one of the first entrants (3Q06), and is a top player in the rapidly growing market. (UBS Research Report)

Amazon Web Services: Revenue Model (Click to enlarge)

They argue that while so far the AWS revenue has been small and immaterial when compared to the overall Amazon revenues (roughly $25 billion), that will change soon and AWS will contribute about 10 cents a share in earnings during 2010, and grow it to 22 cents in 2011. The UBS analysts value the AWS business at between $3.4 billion to $3.8 billion. According to their estimates, AWS business had a net income of $58.2 million in 2010 and will make $100.7 million in 2011. By 2014, that number will jump to $393 million, or 83 cents a share. The analysts estimate that gross margins of the web business will be around 50 percent versus Amazon’s gross margins of around 22 to 23 percent.

These are astounding numbers and, if accurate, will prove that Amazon was smart to bet early and bet big on the cloud computing opportunity. Perhaps one thing I should note (and caution) — so far, Amazon has not publicly broken down its revenues along various product categories.

Related Research from GigaOM Pro (subscription required): The Evolution of the Private Cloud