What If Amazon Web Services Were a Standalone Business? It’d Be Big

Amazon.com’s little cloud-computing skunkworks project isn’t so little anymore. In fact, if you pull apart Amazon Web Services (AWS) from its e-commerce parent, the seven-year-old cloud division is worth more than two-thirds of the companies in the Standard & Poor’s 500 Index, including software giant Adobe and food companies H.J. Heinz and Kellogg.

That’s according to a March 5 report from Carlos Kirjner, an analyst at Sanford C. Bernstein. Kirjner estimates that AWS is worth $24 billion, or $52 per Amazon share, on a standalone basis, after generating $1.8 billion in sales last year. Based on Kirjner’s research, AWS accounts for 19 percent of Amazon’s value even though it made up just 2.9 percent of 2012 revenue. Amazon doesn’t break out AWS’s financials, leaving analysts to their own devices. Macquarie Securities wrote in January that sales last year reached $2.1 billion and will climb to $3.8 billion in 2013.

As highlighted in a Bloomberg Businessweek story this week, AWS is staying ahead of competitors such as Google and Microsoft with offerings like Spot Instances that dramatically bring down the price of computing capacity.

“We believe Amazon will continue to cut AWS prices to pass along technology-driven efficiency gains to its customers,” Kirjner wrote.

The business is just getting going. Kirjner predicts that AWS revenue will top $10 billion in 2016 and double that in 2020. Those kinds of projections are spawning an ecosystem, with startups emerging to sell services on top of AWS. One such example is Newvem, an Israeli company that provides analytics to AWS customers, helping them maximize their utilization and manage governance and risk issues involved with operating in the cloud.

Zev Laderman, a former Oracle executive and veteran of tech startups, founded Newvem in 2010 to take advantage of the shift to the cloud. Backed by $4 million from investors including Greylock Partners and Index Ventures, Newvem is now providing data services to companies spending anywhere from $2,000 to $2 million a month on AWS. Eventually, Laderman expects to do the same for customers of Google. And he’ll know when the time is right, because Eric Schmidt, chairman of the search giant, is one of his investors.

“We started with AWS because they’re the king of the block,” Laderman said. “The real vendor that can give Amazon a run for their money is Google.”

 

 

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