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Edition: U.S. Article Comments (0) Follow Reuters Facebook Twitter RSS YouTube Read New Mexico sheriff faces possible jail term over eBay sales 21 Jul 2011 Bomb rocks government offices in Oslo, two said dead | 11:50am EDT Explosion rocks central Oslo, Norway PM's office 9:47am EDT Customers angry, staff defiant at China's fake Apple Store 11:07am EDT Casey Anthony gets job offers, taxpayers get legal bill 21 Jul 2011 Discussed 198 Senate group offers $3.75 trillion deficit cuts 141 New plan offers hope for progress in debt talks 78 Debt showdown moving into crunch time Watched Korea's newest singing sensation Thu, Jul 21 2011 Pakistan Taliban releases video of mass execution Mon, Jul 18 2011 Frustration mounts in Chile over tsunami reconstruction Thu, Jul 21 2011 Amazon's next billion-dollar business eyed Tweet Share this Email Print Related News Schlumberger quarterly results jump, shares rise 11:33am EDT GE tops Wall Street estimates on overseas demand 11:09am EDT UPDATE 4-Caterpillar profit misses, shares fall 11:04am EDT Verizon fails to gain iPhone market share vs AT&T 10:27am EDT McDonald's low-price focus drives profit beat 10:16am EDT Analysis & Opinion Tech wrap: Amazon plans Android tablet Tech wrap: Apple hits new app download milestone Related Topics Technology » Media » Workers scan goods at the Amazon warehouse in Leipzig, December 3, 2008. Credit: Reuters/Fabrizio Bensch By Alistair Barr SAN FRANCISCO | Fri Jul 22, 2011 11:02am EDT SAN FRANCISCO (Reuters) - Amazon.com Inc's cloud computing unit may be its next billion-dollar business and analysts will be watching for clues on how fast this secretive unit is growing when the Internet retailer reports results next week. Amazon Web Services started small in 2006 by selling computing power and data storage to emerging technology companies, blogs and websites. Now the unit, known as AWS, counts NASA, the U.S. Department of State, Siemens, Pfizer and Nasdaq as customers. "AWS has the potential to be very large," RJ Hottovy, an equity analyst at Morningstar told Reuters on Thursday. "Any indication that growth rates are progressing will be well received by the market." Amazon doesn't disclose AWS results. However, a spokeswoman said the business has hundreds of thousands of customers in more than 190 countries. Analysts and investors get a sense of how fast AWS is growing by looking at how many pieces of data, or objects, are stored by the unit's S3 service, which sells storage on off-site servers, which is known as the cloud. At the end of the second quarter, S3 held more than 449 billion objects, up 71 percent from the end of last year, according to the official AWS blog. Amazon EC2 is the other main part of AWS which supplies computing power from the cloud. This service was used by 3,674 of the top 500,000 websites in January, up almost 50 percent year over year, according to a survey by cloud computing expert Guy Rosen. That put Amazon just ahead of Rackspace Hosting as the largest cloud provider, he noted. "I'm amazed by how fast it's growing and it's clearly accelerating," said Bernard Golden, chief executive of cloud consulting firm HyperStratus. "Companies are building whole businesses around AWS." Despite such growth, AWS remains a small part of Amazon. On Tuesday, the world's largest retailer is expected to report second-quarter earnings of 35 cents per share on revenue of $9.373 billion, according to Thomson Reuters I/B/E/S. AWS generated about $500 million in revenue for last year, according to estimates by Morningstar's Hottovy and analysts at J.P. Morgan, UBS and Citigroup. Citigroup Internet analysts, led by Mark Mahaney, attended an AWS conference in San Francisco in June, where Amazon's Chief Technology Officer Werner Vogels spoke and customers including Adobe, Autodesk and NASA turned up. "While still very small for Amazon (likely about $750 million revenue run rate), given the size of the market opportunity and Amazon's strong competitive positioning, we believe that this could soon be a $1 billion revenue segment," Mahaney wrote in a note to investors this week. Doug Anmuth, an analyst at J.P. Morgan, believes AWS revenue will reach $2.6 billion by 2015 as companies outsource more of their data center needs. AWS can win more customers because it charges fees based on how much its services are used, so there are no upfront costs to deter adoption, Anmuth also said this month. "Most competitors want to sell white-glove treatment and lock you in for long contracts," said Brian Fitzgerald, an analyst at UBS. "Amazon was unique in that they came to the market and made it very easy to dial up or down the computing power based on customer need," he said on Thursday. He expects AWS by next year to become Amazon's next billion dollar business. Amazon has been spending a lot of money to improve AWS's ability to offer more computing power and data storage. Analysts see the business as a microcosm of Amazon as a whole. In the first quarter of 2011, Amazon's revenue surged, but profits missed Wall Street estimates. That was partly because of heavy spending on fulfillment centers to support Amazon's main online retail business. But a lot of the spending was also on servers and datacenters to support AWS expansion. Analysts expect a similar pattern in the second quarter. "We expect top-line momentum to continue, but the second quarter could be the low point for profit margins," Morningstar's Hottovy said. Amazon's operating margin was 4.1 percent last year, but Hottovy expects that to fall close to 3 percent for 2011 as a whole. Still, Hottovy says AWS profit margins could rise in coming years as more customers are added. Citigroup's Mahaney said AWS gross margins may be up to four times higher than Amazon's overall margins. "We'll be listening on the earnings call for any details on new traction for this segment," the analyst wrote in a recent note to investors. (Reporting by Alistair Barr; editing by Carol Bishopric) (This story was corrected to In delete the word "extra" when referring to computing power in paragraphs 2 and 7) Technology Media Related Quotes and News Company Price Related News Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above. Social Stream (What's this?) © Copyright 2011 Thomson Reuters Editorial Editions: Africa Arabic Argentina Brazil Canada China France Germany India Italy Japan Latin America Mexico Russia Spain United Kingdom United States Reuters Contact Us Advertise With Us Help Journalism Handbook Archive Site Index Video Index Reader Feedback Mobile Newsletters RSS Podcasts Widgets Your View Analyst Research Thomson Reuters Copyright Disclaimer Privacy Professional Products Professional Products Support Financial Products About Thomson Reuters Careers Online Products Acquisitions Monthly Buyouts Venture Capital Journal International Financing Review Project Finance International PEhub.com PE Week FindLaw Super Lawyers Attorney Rating Service Reuters on Facebook Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests. NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.

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