A golden goose: Amazon’s hidden billion-dollar tech platform which makes more profit than its retail “cousin”

When someone mentions Amazon, a few things might immediately spring to mind. The iconic orange labelling, Jeff Bezos’ polished dome, alleged worker exploitation, or, most likely, it’s widespread and dominating online retail presence.

But behind the scenes of all this (bar Bezos’ dome) is a product just as widespread, and more profitable than Amazon’s retail arm, and one some of the world’s largest companies rely on to do business.

The simply named Amazon Web Services, or AWS as it’s more commonly known, is that product, providing cloud computing, hosting, storage, networking, security and development, among thousands of other services.

Launched as an Amazon spin-off in 2006, the platform has now grown to the point where it’s more profitable than Amazon’s North American retail unit, reporting $US7.3 billion ($10.4 billion) in operating income over 2018.

Paul Migliorini is the managing director of AWS Australia, which launched in 2012 with a headquarters and data centre in Sydney. Since then, the local team has grown to well over 1,000 employees, boasting a number of high-profile customers, such as PwC and NAB.

Despite this, the local arm hasn’t seen the same level of profitability as its global counterpart, with financial records filed with the corporate regulator revealing the company’s Australian division posted a $15 million loss in the 2018 financial year.

While Migliorini refuses to comment on local financials, the country manager is dismissive of the idea AWS is an under-represented or overlooked part of Amazon’s offering in Australia, pointing to the company’s exponential global growth.

“The business globally is a $31 billion run rate business, growing 41% year-on-year. For us, that’s more than just the results themselves, it’s a reflection we’re building the right things customers want and we’re hoping we can continue to do that,” he tells StartupSmart.

“We don’t see anything slowing down, in fact, we see an exponential increase in activity, not limited to any part of the business world. We have users from large, established enterprises, a number of startups, government departments — pick a sector. It’s really deeply pervasive.”

Amazon’s retail arm just another customer

Amazon’s retail arm was launched in Australia with great fanfare at the end of 2017, and despite some significant teething issues and continued loss-making, has begun to establish itself in the market, ranking highly on 2018’s list of most-visited online retailers.

While you’d think the launch of Amazon’s most well-known and consumer-level product would help bolster AWS Australia’s operations, Migliorini views Amazon’s retail arm as just another customer and gives its “cousin” no special treatment.

“We’re really pleased to see our retail cousin launch here, they’re doing some great work, but obviously we run as completely separate organisations,” he says.

“Amazon.com is just one customer of many for us. We think they’re a great customer in the same way we think other customers are great.”

The company has also put in a lot of work to build tech skills locally, running an Innovation Summit for the past five years and pouring resources into a number of education and training programs, with the goal of training more than 60,000 in digital skills over 2019.

Migliorini says he’d like to think this “big ticket” focus is altruistic and says it’s a byproduct of the company thinking long term about the best ways to help its customers.

“If we’re thinking long term about helping customers, the single biggest thing we can be doing today is investing deeply in skills and supporting everyone to do the same,” he says.

He also doesn’t mind Amazon leading the charge on this, dismissing the idea the government should be pitching in and helping upskill workers with digital-specific skills. However, he says the company will work with “anyone we conceivably can” to achieve its goal — even potential competitors.

AA Bill still a concern

A slew of poor policy decisions by the Coalition government, supported by Labor, has worried the tech sector in recent times, with founders, investors and industry voices all calling for more consideration on legislation which could put local startups out of business.

One such piece of law is the AA Bill, passed through parliament late last year on one of the last sitting days. Despite Labor’s promise to review the bill, local companies are concerned it will stymie local development by requiring local companies to provide law enforcement with back-door access to encrypted and private systems.

The bill could also require Australians working for large international companies to cooperate with law enforcement requests, which could lead to those employees making internal changes to systems without notifying the company they work for, leading to tech giant Mozilla naming Australian employees as “insider threats”.

With AWS hosting a large amount of client data, the company raised significant concerns about the bill, saying it had “extraordinary powers of unprecedented scope” as part of a joint submission in September.

However, Migliorini was cagey on the company’s concerns and ongoing consultation with the government on the bill, saying the company was “hoping to construct a dialogue” about the AA Bill.

“We think despite what’s happening now, customers can be infinitely more secure on our platforms,” he says.

“But that also requires customers to invest in skills so they can build in the secure environments around those platforms, and we think that’s relevant to any jurisdiction, including Australia.”

SmartCompany attended the AWS Innovation Summit as a guest of Amazon.

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