Amazon.com, Inc. (NASDAQ: AMZN) finally released the much-awaited numbers for its Amazon Web Service that shows the segment could end up becoming a core business as the industry is expected to grow to $40 billion. The cloud business is growing at a much faster rate than the rest of the company’s core business, an indication that it could account for more than the 7% it currently accounts for, in total revenues.
The growth potential of Amazon Web Service goes unquestioned having grown by 49% in 2014 with the impressive rally expected to continue this year. Last year, the cloud business generated $4.6 billion in total revenue with CEO, Jeff Bezos, affirming that the unit is on course to generate $6.23 billion this year after generating $1.57 billion in the first quarter.
Amazon cloud growth shudders
Though Amazon makes most of its profits from its e-commerce business, further growth in the cloud business should go well with investors who have seen the company invest a great deal in many areas of growth. The growing demand for cloud services should work to Amazon’s advantage having been in the game for more than ten years, before the likes of Microsoft and Google followed suit.
Amazon’s cloud business is already disrupting the industry at large, having eaten into the hardware business of the likes of Hewlett-Packard Company (NYSE:HPQ) and Dell Inc. (NASDAQ:DELL). The trend is not expected to stop anytime soon with research firm Forester affirming that cloud computing could account for nearly 15% of the total spending online as the need for more internet technologies continues to soar.
First mover advantage
The fact that Amazon was the first in the cloud business has allowed it to enjoy an advantage in the fast growing space as other companies continue to play catch up. The only concern at the moment has to do with the shrinking margins of the cloud business, partly because of the ongoing investment in data centers.
Competitive pressure from the likes of Google and Microsoft may also weigh in on the margins going forward. The only way Amazon can stay in front of the curve in the cloud business is by adding new services, to avoid scenarios of competing on the price front something that is never good for business.
Amazon.com posted first quarter revenues of $22.72 billion up by 15% from a year ago, sales having grown by 24% to a high of $13.41 billion. For the second quarter, the e-commerce giant believes it could post revenues of between $20.6 billion and $22.8 billion.