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Amazon web services will continue to disrupt enterprises, IT vendors

Bernard Golden | May 2, 2013
Traditional IT vendors may deride Amazon as a mere bookseller, but Amazon Web Service is growing quickly, not to mention inexpensively. If those vendors aren't careful, AWS will soon compete against them in the enterprise cloud computing market--and if current trends hold, the competition may not even be close.

So, to see what S3 numbers might look like, I put together this chart to calculate how much revenue S3 could generating at a 2 trillion object scale:

Average Size of Object

Amazon S3 Revenue

1 KB

$2 million

50 KB

$100 million

100 KB

$200 million

500 KB

$1 billion

1 MB

$2 billion


Obviously, by far the biggest factor in estimating S3 revenues is the size of the average object. Of course, there are a lot of 13 KB JSON files in S3-meaning many S3 objects are quite small. On the other hand, there are plenty of 2 MB PowerPoint files stored in S3 as well. Lots of video files, too, which can be hundreds of megabytes in size. I think, as a rough estimate, 100 KB is a good number to use for the average S3 object size, which implies that S3 provides around $200 million annual revenue today.

I also reviewed some AWS usage stats developed by Cloudyn, one of the new breed of utilization and cost tracking companies that have sprung up to help companies manage public cloud computing use. The data Cloudyn provided covered a one-month period for around 400 companies, made up of a mix of large and small companies.

Somewhat surprisingly, S3 accounted for only 7 percent of the AWS cost for this sample set. If you use the calculated S3 revenue number of $200 million per year, and multiply that $200 million times 15, or the rough inverse of 7 percent, it would make AWS revenues around $3.4 billion, consistent with the Citi estimate. Given the S3 growth rate, that would also make the Bernstein and Baird projections not unreasonable at all.

From the revenue side, it's easy to see why the entire IT industry is lining up against AWS. It's growing like gangbusters, and every dollar it generates takes three or four away from incumbent vendors. This is way worse than a zero-sum game.

But What Does Running AWS Cost?

I've heard some vendors complain that Amazon is subsidizing its AWS service, with an implication that it's not playing fair-that Amazon is accepting unfairly low margins, or even taking large losses, to promote AWS. I don't know about the fair-play bit, but it's an interesting question about how much Amazon might be spending on AWS.

Amazon is notoriously secretive about many details of AWS, but Amazon speakers frequently drop a tantalizing hint: "Every day, Amazon installs as much computing capacity in AWS as it used to run all of Amazon in 2002, when it was a $3.9 billion company."


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