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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.

I found that intriguing and decided to look into it a bit further. The 2003 Amazon annual report shows that, in 2002, Amazon invested $216 million in "technology and content" expenses. Obviously, the cost for a given amount of computing capacity today is far cheaper than it was in 2002. By my estimate, the five generations of Moore's Law that have occurred since 2002 mean that the same amount of computing capacity that cost $216 million then would only cost $6.5 million today.

Of course, the ambiguity of "as much computing capacity" means it's difficult to know precisely what would be included in that number. Is it just 2002 investment, or is it the total investment for multiple years-since, after all, computing capacity installed in 2000 and 2001 would still have been working in 2002, assuming a three-year depreciation cycle?

Nevertheless, if one uses only the 2002 investment figure, and today's Moore's Law-cheapened capacity costs, the total yearly investment to install that capacity each and every day would total $2.37 billion dollars. (If Amazon only counts working days, which I estimate at around 250, the number would be $1.625 billion.)

Here's a table with some estimated current investment levels for AWS, calculating total current investment based on what's included in "as much computing capacity" as 2002:

Total 2002 Computing Investment

Daily Cost, 2013, For 2002 Computing Capacity

Total Cost, 250-day Investment Cycle

Total Cost, 365-day Investment Cycle

$216 million

$6.5 million

$1.63 billion

$2.37 billion

$457 million (2002 and 2001 investments combined)

$14.5 million

$3.62 billion

$5.29 billion

$726 million (2002, 2001, and 2000 investments combined)

$22 million

$5.5 billion

$8.03 billion


Examining the 2012 Amazon annual report (conveniently released two weeks ago) shows total technology and content investment of $4.5 billion.

Obviously, Amazon spends plenty of money on technology for the other parts of its business, so not all of that $4.5 billion would be applied to AWS-although, interestingly enough, it runs all its ecommerce Web servers in AWS. Nevertheless, an investment level of somewhere around $6.5 million per day is consistent with its public pronouncements about how much Amazon is investing in AWS, as well as within the numbers contained in its current financial reports.

Trying to buy and install $6.5 million worth of technology day in and day out sounds exhausting. And the challenge will only get more daunting as the AWS growth rate accelerates.

Amazon Web Services Has Room to Grow-and It Will

As for Amazon subsidizing AWS and accepting subpar returns, that's not immediately obvious from a set of numbers that pencils out at $3.4 billion revenue and $1.6 billion investment. Clearly, there are many other AWS costs, including personnel, travel and marketing, but the scale of the revenue and investment don't shout unfair subsidization.


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