Amazon’s low-cost cloud is hugely profitable (says rival cloud company)


Credit: Flickr/Will Merydith

Since Amazon(s amzn) won’t talk about the profitability of its cloud services business, others are free to speculate, right?

Executives at rival companies have long said Amazon Web Services is not just profitable but hugely so, a statement that seems to fly in the face of Amazon’s self proclaimed low-cost provider status. But those rivals always spoke off the record. Now one AWS competitor has gone very public about his best-guess about the profitability of AWS.

In a blog post called the fake cloud price war , ProfitBricks co-founder Andreas Gauger extrapolated AWS profitability based on his own company’s cost model.

He writes:

“I calculate ProfitBricks pricing on a regular basis and it’s based on our actual cost and capex including the fact that the cost of hardware is still declining over time just as Mr. Moore predicted it way back in 1965. And sad as it is we are a little smaller than Amazon so I am pretty sure that the prices we pay for hardware, datacenter space or energy are higher than Amazon and the other big players. So here is the deal: if I were to sell our product at the same prices as Amazon or Rackspace does I would have gross margins far higher than the quoted 60% to 80%.”

ProfitBricks is interesting for a few reasons: First, it pitches scale-up compute instances — it offers up to 62-cores per server —  and Infiniband connectivity. Second: While it’s not comparable in size to AWS, its founders sold another company, 1&1 Hosting, for a cool $3 billion, so they have resources to put into this effort. Third: It’s based in Berlin so it may be ideally situated to take advantage of post-PRISM anxiety of E.U. based companies weighing a move to cloud.

At any rate, given that Amazon itself is rather opaque about the size and profitability of AWS — which it counts as part of the “other” sales category that logged $844 million for the most-recent quarter, we might as well make our own guesses. And, frankly, assuming all these other vendors — ProfitBricks, HP(s hpq), IBM(s ibm) Rackspace(s rax), et al — are rational entities, why would they be chasing a money-losing business?


Chronic Blunt

Seriously, what are you talking about Travis and Resprt? Sure, Profitbricks is a nobody, but their CMO is out there talking s–t about Amazon, and backing it up, which is a story in my book. Maybe not the important story, but a story nonethless.


So… is GigaOM going to continue with these unnecessary articles designed to promote Profitbricks? It’s almost every day at this point in time. Profitbricks is a small player. They aren’t a big deal to be constantly writing articles that mention Profitbricks whenever “cloud” is being discussed.


I am sure millions of other cloud providers say equally (if not more) interesting this every now and then. However, it seems media picks its favorites and writes about them with a blind devotion. As Travis said ProfitBricks is a nobody (at least now) and once they become something, let’s talk about them. The good old saying goes that for being humble you must have something to not be humble about. Similarly, to say something against a market leader, you must have at least some standing in the market. Like a weak person cannot pardon, an also ran should not talk about the market leader.

Barb Darrow

I don’t know about other reporters, but the reason I covered this was that this whole perception that AWS is a loss-leader at Amazon remains pervasive and i think it’s erroneous….

In my view low-cost does not equal low-margin which is really what this post was about.

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