Re:The Amazon Premium
by adventured on Thursday December 19, 2019 @06:31PM
(#21840370)
> their operating margin[0] of ~25% seems relatively small in comparison to what one might expect?
Your setup premise is too constrained, you only provide two possible answers. One, they reinvest a lot; two, they're much less efficient than someone (who?) expects.
The third one is that you're wrong about how much margin is in the business to begin with. The smaller operators are barely surviving at break-even or worse. Companies like Linode and DigitalOcean are not printing large profit margins. DigitalOcean has been a money losing operation (growing via hundreds of millions of dollars in venture capital and debt, plausibly self-sustaining some day when they decide to pull back on spending expansion vs growth... maybe). So the premium that Amazon is charging is precisely what is responsible for them comparatively printing money with a ~25% operating margin. It's not the other way around, such that their margin should be up at 50% if they were run properly as a business. It's something close to remarkable that they have a 25% operating profit margin (and are consistently so profitable), it's the envy of the entire cloud industry.
Your setup premise is too constrained, you only provide two possible answers. One, they reinvest a lot; two, they're much less efficient than someone (who?) expects.
The third one is that you're wrong about how much margin is in the business to begin with. The smaller operators are barely surviving at break-even or worse. Companies like Linode and DigitalOcean are not printing large profit margins. DigitalOcean has been a money losing operation (growing via hundreds of millions of dollars in venture capital and debt, plausibly self-sustaining some day when they decide to pull back on spending expansion vs growth... maybe). So the premium that Amazon is charging is precisely what is responsible for them comparatively printing money with a ~25% operating margin. It's not the other way around, such that their margin should be up at 50% if they were run properly as a business. It's something close to remarkable that they have a 25% operating profit margin (and are consistently so profitable), it's the envy of the entire cloud industry.