Should AWS spin out from Amazon?

Now that we know how much AWS makes, is it time for a spin-out?

By releasing financial figures for Amazon Web Services last week, Amazon proved that its cloud division is a behemoth. And with no signs of AWS slowing down, it’s raised the question: Should AWS spin out of Amazon.com?

For reference, here are the figures: In the past 12 months AWS posted more than $5 billion in revenue, and has a profit of more than $680 million. Synergy Research group says AWS has more revenue than the next four cloud infrastructure competitors – combined (see chart).

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synergy aws bigger than 4 Synergy Research

Synergy Research estimates that AWS's cloud revenue is larger than its next four cloud infrastructure competitors combined. 

The question of whether AWS should spin out from Amazon is not a new one. As far back as 2013 some Wall Street analysts have called for Amazon to spin out AWS. The question is a frequent discussion point in cloud circles.

There are pros and cons to AWS spinning out of Amazon.

Reasons why some believe it would happen

  • AWS is big enough to be its own company. It already collects $5 billion in revenue, and all signs point to that number only going up. That's certainly big enough to be it’s own business.
  • Spinning out from AWS would allow the company to have its own identity and, if it were to go public, allow it to float its own stocks and raise its own capital for both itself and potentially Amazon too if the company holds a controlling stake.

Reasons it would not happen

  • Amazon gets a huge financial advantage from having AWS under its wings. Amazon.com lost $50 million in the first quarter of this year. AWS made more than a $165 million profit. Imagine how bad Amazon’s total losses would be without AWS. If it ain’t broke don’t fix it.
  • The day after AWS financials were released, Amazon stock rose 15%. Investors seemed to like what they saw from Amazon and AWS.

A third option

There could be some middle ground here between AWS being a segment of Amazon and being its own company. AWS could be a wholly or partially-owned subsidiary of Amazon, and still be its own company. Think of the relationship between EMC and its “federated” partners, VMware and RSA. VMware is a publicly-traded company that EMC owns more than a 75% stake of. Perhaps there could be some arrangement like that between Amazon and AWS.

Don’t expect anything imminent to happen though. It’s taken nine years just to get Amazon.com to reveal the financial figures of AWS. I wouldn’t expect it to make a wholesale change to the structure between the two companies in any rapid fashion.

What do you think: Will AWS spin out from Amazon.com? Should it?

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