By: Gigaom
How big is Amazon Web Services? Bigger than a billion
If you parse Amazon's first quarter earnings, you could be forgiven for thinking that Amazon Web Services (AWS) is now a $2 billion-a-year business. Revenue from Amazon's "other" category was $500 million for the quarter, although "other" does include revenue from other things.

If you parse Amazon’s first quarter earnings, you could be forgiven for thinking that Amazon Web Services is now a $2 billion-a-year business.

That’s because Amazon’s revenue from the “other” category for the quarter ending March 31, 2012 was $500 million, up from $311 million for the year-ago period. If you assume “other” is AWS only, that’s a $2 billion-a-year run rate for 2012.

Now, before we go crazy, the “other” category includes, as an Amazon spokeswoman put it “non-retail activities, such as AWS, miscellaneous marketing and promotional activities, other seller sites, and our co-branded credit card agreements.” Still, even if AWS is 75 percent of that figure, that’s a $1.5 billion run rate for the year. Not too shabby.

Last October, GigaOM’s Derrick Harris, using numbers from UBS, estimated that AWS was becoming a better-than-a-billion business and it looks like he was spot on. More recently, Morgan Stanley analysts put AWS at a $1.19 billion run rate for 2011.

Big revenue doesn’t mean big profit

Revenue is one thing, profitability is another and no one outside Amazon knows just how profitable these services — margin thin services– are. AWS continually cuts pricing on its EC2 and RDS and other services in the face of growing competition from other IaaS players and there will be more competition coming online as more of the OpenStack camp go live.

Most see AWS as a way for Amazon to sell off compute and storage capacity it doesn’t need as a way to recoup expenses. And yet it keeps adding higher value-added offerings like the DynamoDB database service, which it claims is its fastest-growing service ever. And it’s doing things like launching an official partner program which means Amazon is looking more and more like a traditional IT provider, along the lines of Microsoft or IBM.

Whatever that profit situation is, it looks like Amazon is bound and determined to keep building, using and selling off that compute and storage capacity. Last week it announced the Amazon Marketplace a way to parlay both the company’s retail and IT expertise to sell third-party technology services along with its own.

Feature photo courtesy of Flickr user akakumo

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