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

Amazon Web Services

Since Amazon 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, IBM Rackspace, et al — are rational entities, why would they be chasing a money-losing business?

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