IT pros see the silver lining in dismal Amazon earnings

Amazon reported that revenue in its 'other' category, which includes AWS, dropped last quarter, and said new hires and price cuts contributed to the decline. While Wall Street attacks, AWS customers see these events as a good sign.

Losses revealed in Amazon's quarterly earnings report last week set off a firestorm of speculation that competitive...

pressures have exposed a chink in Amazon's cloud armor. But IT pros say Amazon's losses are their gain.

The company's earnings don't break out numbers on Amazon Web Services (AWS), but CFO Tom Szkutak said on last week's earnings call that AWS is the largest part of the "North America -- other" category, which saw growth slow to 38% year over year from 60% in the first quarter.

Sequentially, the "other" category's sales declined just slightly for the first time, from $1.2 billion to $1.17 billion, despite Szkutak saying AWS usage is up over 90%.

Wall Street's response was quick and scathing. Amazon's stock lost 6% in after-hours trading; Wall Street analysts penned notes to clients with dire warnings about the stock's value.

But the lack of profitability can be viewed as a positive for AWS users, as the losses relate to ongoing capital investment in the company's cloud infrastructure and support.  Szkutak also pointed out that AWS had dropped prices this year between 28% and 51%, and said thousands of employees had been added to AWS in the quarter.

IT pros who use AWS say the news is somewhat concerning, but vow to remain with Amazon's cloud. "It is definitely on our radar," said Daniel Heacock, senior business systems analyst for Etix, an online ticketing service headquartered in Raleigh, North Carolina, which uses the Amazon RedShift data warehouse for business analytics.

At the end of the day, though, we are still betting on Bezos.
Daniel Heacocksenior business systems analyst, Etix

"Amazon has definitely started the price war, but it is not clear yet who will end up on the winning side ... at the end of the day, though, we are still betting on Bezos."

The lack of profitability might affect a company's decision to use proprietary cloud services such as Redshift, while more generic services such as the Elastic Compute Cloud offer less risk for vendor lock-in and dependence on the viability of Amazon, Heacock said.  

Heacock said he liked seeing Amazon invest heavily in AWS. "Stock value has fluctuated, but their revenue growth has mostly been steady," he said. "As they grow more and more, that will only mean a larger user base, more feedback and services becoming more refined."

No one doubts  Amazon can compete in the cloud computing market long-term, even as competitive pressures mount, according to John Treadway, senior vice president at Cloud Technology Partners, a cloud consulting firm located in Boston.

"It's a tough market and it's only going to get tougher … but whether Amazon remains the leader or not, they're going to be doing a very big, healthy business," Treadway said.

Meanwhile, Microsoft Azure and IBM Softlayer clouds have grown faster than AWS this year, reporting 164% and 86% revenue growth rates, respectively.

Still, it's natural for competitors to take share in an evolving market, Treadway said.

"It's good for Amazon to have strong competition -- it grows the market for everybody and validates their approach," Treadway said.

About the author:
Beth Pariseau is senior news writer for SearchAWS. Write to her at bpariseau@techtarget.com or follow @PariseauTT on Twitter.

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Do you have concerns about Amazon's earnings last quarter?
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Nope - I think the investments being made in AWS and the inroads being made in the enterprise have an effect on the overall earnings, so I'm inclined to take a wait-and-see approach (not that I have any money on the line). 
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I'm not worried yet but with companies, like Microsoft and Google, making a run at the cloud market, it could turn into an issue for Amazon down the road. 
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