|AMZN operating margins|
Amazon’s $52.9 billion of revenue in the second quarter of the year came in a tad below what Wall Street analysts expected — and that doesn’t matter whatsoever.Below the fold, I discuss one of the implications of these amazing margins.
That’s because the massive online retailer once again posted its largest quarterly profit in history — $2.5 billion for the quarter — on the back of two businesses that were afterthoughts just a few years ago: Amazon Web Services, its cloud computing unit, as well as its fast-growing advertising business.
AWS revenue growth accelerated in the second quarter, rising 49 percent year over year.A business growing nearly 50%/yr with 25%+ margins is in an amazingly strong position.
The advocates of decentralized storage naively imagine that they can compete with the S3 part of the AWS juggernaut. Their product doesn't perform as well, isn't integrated with a cloud computing environment, is more expensive to implement and operate, and lacks economies of scale.
What if we imagine all these disadvantages are magically eliminated? Del Rey and Molla point out that:
An Amazon that is posting growing profits from its non-core business means an Amazon that can continue to keep prices low and invest in ever-speedier delivery times to widen its defensive moat in its main retail business.The margins on AWS, averaging 24.75% over the last twelve quarters, are what enables Amazon to run the US retail business averaging under 3% margin and the international business averaging -3.7% margin over the same period.
AWS is the source of the investments that drive Amazon's takeover of retailing. So Amazon's "slow AI" would view a threat to disrupt AWS, or even just the S3 part, as an existential threat, and respond accordingly. It has over $30B in cash to fuel the response, and the infrastructure to out-compete a storage network's nodes, driving the price down to make it uneconomic for anyone else to run a node.
This is why I say that It Isn't About The Technology. Competing with the FAANG is primarily a business problem, not a technology problem. Discussing the technology without knowing the business strategy it is intended to support is a chimera bombinating in a vacuum (Hat tip to Rudyard Kipling).