Amazon Releases AWS Margins – And They Really Are High

Now we all know. Amazon’s AWS margins are high—much higher in fact than its other businesses.

I knew this. Back in July 2013, ProfitBricks was the first cloud service provider to expose the high margins of the IaaS business. We dropped our pricing to be less than ½ of what Amazon AWS charges for EC2, knowing that margins like that were not going to be healthy for the growth of the cloud.

Back in 2013, I publicly shared how ProfitBricks’—and by extension, the industry—calculates its margins. Before the drop, our gross margins were over 90%—and so were Amazon’s. This prompted several requests for clarification from qualified reporters, bloggers and analysts. After speaking with several, most of them came to the same conclusion that I did—that the “price war” that had been written about was not real. Even today this remains true. In fact, my post, titled “The Fake Cloud Price War,” remains one of our post popular posts to this day.

Simply put, when you design a cloud computing platform, from the beginning you must balance your priorities:

  • Customer experience – Cloud infrastructure must be fast, reliable and be secure. As the mass market begins their move to the cloud this is the baseline for the replacement of physical on-premise infrastructure that’s been trapped in server closets and data centers for two decades or longer.
  • Partner margins – The majority of server CPUs, RAM and storage is still located out in 8.6 million data centers. The “Great Cloud Migration” is only just getting started and there are tens of thousands of MSPs and VARs that are just now looking for a cloud service provider that will help them have good margins on the infrastructure they move to the cloud.
  • Smart financial models – Enough operating income and potential profits that the business will sustain itself. We’re in year 5 of a 20 year cycle, and while Moore’s law and the “Software Defined XXX” (of everything) will continue to contribute to high margins, the IaaS business has a very healthy outlook.

But how do you achieve this? Clouds

Great architecture. The early approaches to cloud actually work against a cloud service provider like Amazon in the long run; their systems are not architected from the ground-up to support the demands of modern cloud operations. Millions of customers are trapped by this today, all suffering from performance inconsistency, while the service providers themselves face higher costs to address these issues. ProfitBricks was designed by a team of experts that have built highly profitable internet infrastructure businesses. Our high performance cloud offerings and long-term ability to remain a cloud computing leader is secure.

Solid business practices. ProfitBricks is focused on one thing – design, develop and offer the best possible cloud infrastructure service that will enable the mass market to move the cloud painlessly. We call it painless cloud computing, and IT teams everywhere are realizing that they don’t need to adapt applications to the cloud, learn entirely new ways to configure and manage their IT infrastructure or get a PhD in finance to figure out what the cloud will cost. AWS on the other hand is built on old architecture, is hard to use—often requiring consultants—and their pricing is unbelievably complex. And there is no “price war” and no “race to the bottom” proofpoint: there was no price decreases for EC2’s most popular instances in over 12 months.

We’re seeing today’s mass market of IT buyers look for a better solution to meet their cloud objectives – and ProfitBricks matches those needs well.