Amazon, the world’s largest online mail order company, is currently struggling with challenges in its core business, supply chain difficulties, a weak consumer climate, inflation: the pressure on margins is great. But there is still the Amazon Web Services (AWS) business area, which is still too often overlooked, but which now makes a decisive contribution to the overall picture of Amazon. AWS is a provider of IT services in the cloud. And only AWS generated an operating profit in the third quarter of 2022 in the Amazon group.
Business is doing really well: Services revenue grew 90 percent from 2019 to 2021 to $228 billion. Recently, even service revenue has overtaken product revenue at Amazon, and this notable trend deserves attention: Service revenue includes AWS, advertising, subscriptions (such as Prime), and third-party services. Basically, this includes everything that does not belong to the online and physical shops.
Service sales are more attractive than product sales from a merchant’s perspective because they are more profitable. The AWS segment, for example, has an operating margin of 30 percent, while Amazon’s classic retail segments, i.e. the North America and International areas, together had an operating margin of 3 and 1.5 percent in the boom years of 2020 and 2021, respectively. And with a market share of around a third, Amazon is now the market leader in the cloud business, ahead of Microsoft and Google’s parent company Alphabet. That is why the Dutchman Werner Vogels, Chief Technology Officer (CTO) and Vice President of Amazon, is a sought-after contact. He is one of those who have decisively shaped AWS, which was founded in 2006, in recent years. He became Chief Technology Officer in January 2005 and Vice President in March of that year.
“Also sports to data streams”
Ever since the first product called “Amazon Simple Storage Service” (Amazon S3) was offered, AWS has been a way for customers to have their IT tasks done more efficiently, more cost-effectively and more securely: decentralized, in an Amazon data center, that is in the cloud and not from the customer’s own hardware, which with luck only pays for itself after many years. Since then, AWS has grown beyond pure storage offerings on the basis of customer wishes, which Amazon managers always mention as the decisive element for the company’s strategy and actions, said Vogels during the World Economic Forum in Davos in an interview with the FAZ Meanwhile AWS is able to offer its customers, which in Germany also include BMW, BASF and many more, more than 200 different services in the cloud. This also includes machine learning, for example, but also offers that enable companies to create a better experience for their employees when it comes to mobile working.
Vogels not only has a name in the industry as a pioneer of AWS, at the turn of the year he traditionally looks into the crystal ball from his point of view of exciting technology trends. Today, humanity has more access to data from wearables, medical devices, environmental sensors, video recordings and other connected devices than ever before. “Combined with cloud technologies, we get a first glimpse of where this powerful mix of information and applications can take us,” he says. The next wave of inventors are developing solutions to reforest the planet, nurture our youth and redesign the supply chain from warehouse to delivery.
As access to advanced technology becomes more ubiquitous, we are in for a flood of innovation. This is how cloud technologies would redefine sport as we know it: “Like music and video, sports become streams of data that we can analyze. The insights that emerge from this over the coming years will transform the entire esports industry and redefine how every game is played – and experienced -.”
In addition, simulated worlds would reshape the way we experiment: “Simulations, digital twins, these technologies have been slowly maturing for years, but the impact on everyday life has so far been limited. That will change quickly, and later this year the cloud will make these technologies more accessible,” says Vogels.
Third, there will be a boost in innovation in intelligent energy. “Energy-storing surface materials, decentralized grids, intelligent consumption technologies, we will see rapid development on a global scale before the end of this year, which will improve the way in which we generate, store and consume energy,” Vogels is convinced. Fourth, the introduction of technologies such as “computer vision” (digital image analysis) and deep learning will reduce supply chain problems: “Driverless fleets, autonomous warehouse management and simulations are just some of the optimizations that will lead to a new era of intelligent logistics.”
Finally, the use of specially manufactured chips developed for the application of the respective user (“custom silicon”) will increase rapidly. As a result, the pace of innovation will accelerate and at the same time energy consumption will reduce costs. Vogels is convinced that “this is great progress in the sustainability of what we do”. And that applies not only to new laptops from Apple that work with such chips, but also to Amazon’s data centers, which in turn use other specially developed semiconductors.