It’s been said before but it bears repeating: If it were not for its cloud-computing business, Amazon.com would have difficulty reaching profitability.
On Thursday, we were reminded how important Amazon Web Services, or A.W.S., has become to the company’s finances. For the first quarter, which ended March 31, Amazon’s total net income was $724 million. The company said the $890 million in operating income from A.W.S. accounted for most of its overall profits.
Can that last?
A.W.S. is far and away the leader in cloud computing services, but Microsoft and Alphabet, the parent of Google, are both investing heavily to close the gap, and both are willing to undercut Amazon on price. Other big tech companies like IBM and Oracle are also aggressively investing to get a piece of the cloud action.
Amazon’s biggest business is still retail, of course. But the razor-thin margins in retailing could never generate the kinds of profits generated by a computing business.
That’s one area where Microsoft and Google have a big advantage: Microsoft’s traditional software business is still one of the most profitable enterprises on the planet, with only a few rivals. One of those rivals is the Google ad business.
Few would be surprised if the two companies cut prices even further to draw away A.W.S. customers.