This Wired story has some very interesting comments on Amazon’s Web Services (AWS) business. The first point was news to me:

“And the idea that AWS is mostly about wringing extra bucks (especially off-season) out of Amazon’s data centers? “We’ve far exceeded the excess capacity of our internal system,” Amazon’s Jassy says. “That ship sailed 18 months ago.”


“I’d be surprised if no one else does this,” Bezos says, pausing for effect. “It’s a really good idea!” And there may be an ace up his sleeve. Any economist will tell you that a commodity business — storing and processing data, for instance — is a mug’s game, with prices that plunge inevitably toward the cost of production (in the case of bits, pretty close to zero). That’s music to Bezos’ ears. “Commodity businesses don’t scare us,” he says. “We’re experts at them. We’ve never had 35 or 40 percent margins like most tech companies.””

Wall Street’s best guesses for AWS’s 2007 revenue don’t even reach $100 million.

I scoured Amazon’s 2007 annual report to see if there was any additional data on the size of the AWS business. No luck. About all I could find is that Amazon’s expenses for “Technology and content”, which is where AWS expenses would be counted, were up to $715M ($818M if you include the cost of stock compensation to employees in the “technology & content” group). If the AWS business has grown beyond using the excess capacity of Amazon’s internal systems, it wouldn’t surprise me if 5-10% of that figure was associated with AWS. And based on the comment from Bezos, I’d probably uplift the expense estimate on AWS by < 25% to represent gross profit. All told, we’d be around [717M x ((5% + 10%)/2) x 125% =] $67M in revenue by my back of the envelope estimate. Not bad for 2007 (if my math is close to reality)…would love to know how big 2008 is considering that all the cool kids are using AWS.