Amazon keeps its crown as king of cloud as sales pop

Anita Balakrishnan
Updated
Amazon keeps its crown as king of cloud as sales pop

Amazon (NASDAQ: AMZN) clobbered Wall Street's earnings estimates with its killer retail business this quarter, but it also asserted its dominance in the cloud, posting better-than-expected Amazon Web Services sales.

The company posted $2.89 billion in AWS net sales in the second quarter, slightly topping the $2.83 billion expected by a StreetAccount consensus estimate. That's a growth of 58 percent year-over-year, the company said.

While it's not the 102 percent growth that Microsoft (NASDAQ: MSFT) saw from its product, Azure, Amazon spent the quarter hard at work scoring some key clients including Salesforce.com (NYSE: CRM). Salesforce selected Amazon as its preferred public cloud infrastructure provider, the company said, a partnership that's key in helping Amazon keep its lofty place over companies that have a long history of business services.

It comes as smaller competitors, like Oracle (NYSE: ORCL), have had fighting words for Amazon. Oracle agreed to buy NetSuite for about $9.3 billion in cash on Thursday. That's less than two months after Oracle founder Larry Ellison argued he could do "much better job" than Amazon running Oracle databases.

GE oil and gas was another AWS client touted in the report, even as Microsoft announced with fanfare a partnership with GE earlier this month. Other AWS clients highlighted by Amazon were Kellogg's, Brooks Brothers, Lionsgate, and Macmillan Publishers India.

Independent analyst company Canalys estimated Thursday that AWS accounts for 30.4 percent of total cloud infrastructure services spending. AWS, combined with Azure, Google Cloud and IBM, own 60.5 percent combined of the rapidly-growing $9.5 billion market, Canalys said.

"We've been in this business longer than anyone," one Amazon executive said on an investor conference call. "That said, there is plenty of room for multiple winners in this business."

Amazon posted 29.9 percent operating margins as a percent of net sales on its cloud business, before stock-based compensation and other. Margins are a closely-watched barometer for the service, as it moves away from commodity-like raw computing power toward more sophisticated software-as-a-service (SaaS) offerings, said Crawford Del Prete, chief research officer at IDC.

"They are attracting more and more companies that are developing SaaS offerings to be built on AWS," Del Prete said. "AWS has been around for a relatively long time. What they need to be able to show is that they're expanding margins in AWS — and that means they are either signing up a lot more profitable customers or the customers they have are getting more profitable."



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