Proof that the world is turning into planet Amazon can be found on page four of the tech giant’s latest earnings release. The Nasdaq exchange, Best Buy, Goldman Sachs (the vampire squid), Fannie Mae (of subprime fame), Pfizer (of vaccine profiteering fame), and United Airlines are just a few of the more high-profile companies ditching the IT control at AWS, the world’s largest provider of public cloud services.
Even Facebook is getting into it. “Meta, the parent company of Facebook, Instagram, and WhatsApp, has chosen AWS as a strategic, long-term cloud provider to accelerate research and development in artificial intelligence,” stammered Brian Olsavsky, Amazon’s chief financial officer, during yesterday’s earnings call. Anyone who swallows the blue pill, choosing to live in Facebook’s metaverse of censored virtual reality content, will inadvertently rely on Amazon’s expertise.
Right now, this conjunction between two of the world’s best-known tech stocks is at odds with their fortunes. Amazon’s profit nearly doubled year-over-year for the final quarter of 2021 to around $14.3 billion, with sales up 9% to $137.4 billion. After falling 7.8% yesterday before markets closed, its stock price soared 14.3% during non-trading hours.
There hasn’t been such a rebound for the social network run by Mark Zuckerberg after profits plummeted 8% (building this metaverse doesn’t come cheap) and user numbers plummeted for the first time. time. The stock had plunged 26.4% by the time traders packed their bags for the day, a drop that represents $232 billion in value. You can guarantee that some investors will wonder if this necrosis is irreversible. Social networks have perished before, although never such a huge one. And others may think now is a good time to buy stocks.
But the public cloud, Amazon’s growth engine, is a much more impregnable fortress. Scale is everything in this business – hence the awful word “hyperscaler” – whereas in social media it can be an inconvenience (teen skateboarders don’t want to hang out in the same online community as crusty old ). Outside of China, only Google and Microsoft are viable competitors. IBM and others’ market shares are shrinking, according to the latest data from Synergy Research Group.
Companies explained that spending money with public cloud providers is more economical than investing in their own private clouds. Whatever they can do, the public cloud oligopoly can probably do better in a world that worships the internet. And the economic pain that many organizations have endured throughout the COVID-19 pandemic has made cost reduction a priority. To hell with security concerns, internet outages or Big Tech hegemony. “Companies are now spending twice as much on cloud services as they spend on their own data centers,” said John Dinsdale, chief analyst at Synergy.
What Olsavsky called “accelerating the enterprise move to the cloud” drove $5 billion more in sales for AWS last quarter than a year earlier, bringing it to about $17.8 billion. . And the net profit of this very profitable company increased by 49%, reaching almost 5.3 billion dollars. The profit margin of 30% is triple the figure for the entire company.
AWS’ backlog is now huge, growing from $66 billion to $80 billion at the end of the third quarter. The Facebook contract is partly responsible, according to Rohit Kulkarni, an analyst at MKM Partners. “We believe the recent Meta-AWS contract contributed to this significant jump, likely representing more than $5 billion of these future obligations, in our view,” he said in a research note.
Any concerns for AWS will likely relate to the challenge issued by Microsoft. Its market share has increased by nine percentage points since the end of 2017, according to Synergy data, reaching 21% in the last quarter. Amazon’s share over this period barely changed between 32% and 33%. Google is also on the attack, although it remains much smaller than its competitors with around 10% of the market.
But many other challengers are still relatively weak. Hurt by US sanctions and desperate to diversify beyond manufacturing telecoms equipment, China’s Huawei has just 1% of the global market. For governments and organizations outside of China who worry about data sovereignty, that’s an even scarier prospect than a US vendor.
And yet, Europe’s response to the public cloud is laughable. In September 2020, the massive Gaia-X project was described by EU President Ursula von der Leyen – a particularly useless politician in an age of mediocrity – as an effort to “build a European cloud”. It barely had an impact. Meanwhile, Deutsche Telekom, one of Europe’s biggest companies, thinks the answer to the data sovereignty conundrum is to use Google under strict supervision. Go figure.
No one is really lucky, because no one on today’s cash-strapped planet has the financial clout that the public cloud demands. For the first time ever, Amazon provided a capital expenditure breakdown, revealing that $24 billion of last year’s $60 billion budget was spent on IT infrastructure or data centers. That was more than Amazon was spending on warehouses or transportation, and that number is expected to grow.
On the very day of the publication of the results, the founder of Amazon created a different type of stir in the Dutch city of Rotterdam. One of the city’s oldest bridges is reportedly being dismantled to make way for a 412ft superyacht – which even has a helicopter landing pad – owned by Jeff Bezos. Residents and local politicians are appalled. Despite all the talk about creating internet value (and the future rebuilding of the bridge), Amazon seems just as destructive to critics as the man who started it. Like founder, like company, perhaps.
— Iain Morris, International Editor, Light Reading