Amazon Q3 Cloud Revenue Skyrockets

Amazon Web Services

Amazon lumps its AWS cloud offerings, which include Elastic Compute Cloud (EC2) and Simple Storage Service (S3), into a category called "other," which includes revenue not generated by media, electronics or other general merchandise. According to Amazon, the other category "includes non-retail activities, such as AWS, miscellaneous marketing and promotional agreements, other seller sites, and co-branded credit card agreements."

In the third quarter of 2011, Amazon's other category generated $407 million, a massive jump from the $240 million represented by the other category in the third quarter of 2010. That annual increase represents 70 percent growth. And for the nine months that ended September 30, Amazon's other category raked in $1.077 billion, a jump from the $632 million in that same timeframe last year, also more than 70 percent rise.

While Amazon doesn't detail how much of its other category is made up of cloud, industry watchers and cloud analysts estimate that AWS and Amazon's cloud offerings are making up the bulk of Amazon's other category. According to a UBS report from earlier this year, AWS represents more than 60 percent of Amazon's other category. If UBS's math is correct, AWS has generated roughly $678 million in revenue for Amazon so far this year.

Amazon's third quarter earnings report comes as analysts predict a major coup for Amazon's cloud properties. It has been estimated that Amazon Web Services could be a $1 billion business for the online retailer come next year. Meanwhile, one JPMorgan Chase analyst projected AWS revenue would hit a whopping $2.6 billion by 2015, and UBS estimated that Amazon's cloud revenue would hit $750 million this year and top $2.5 billion in 2014.

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According to Amazon, key new AWS features, like Direct Connect, Identity and Access Management and Virtual Private Clouds spurred Amazon's quarterly cloud growth. The launch of AWS GovCloud, an AWS region designed for U.S. government agencies, coupled with AWS receiving Federal Information Security Management Act (FISMA) Moderate Authorization and Accreditation from the U.S. General Services Administration also pushed Amazon's cloud to a successful quarter.

Amazon's cloud growth is also evident in the major increase in the number of stored objects in Amazon S3, which earlier this month Amazon said reached 566 billion by the third quarter's close, a massive increase on the 449 billion objects stored on S3 at the end of 2011's second quarter.

Despite appearing to grow at a massive clip, Amazon's cloud plays are still just a minute portion of its overall business, representing less than 4 percent of Amazon's total third quarter revenue, which hit $10.88 billion in the third quarter, a 44 percent increase compared to $7.56 billion in the third quarter a year ago.

Amazon's net income slipped, however, dropped 73 percent from $231 million in 2010's third quarter, to $63 million in 2011.

Amazon's third quarter also saw the online retailer make a major splash with a new line of Kindle e-readers, including the Amazon Kindle Fire, Amazon's cloud-focused tablet offering that puts it into head-to-head competition with the Apple iPad and other tablet layers. The Kindle Fire's $199 price tag helped push Amazon to its biggest Kindle quarter to date.

"September 28th was the biggest order day ever for Kindle, even bigger than previous holiday peak days -- we introduced Kindle Fire for $199, Kindle Touch 3G for $149, Kindle Touch for $99, and our all new Kindle for only $79," Amazon CEO and founder Jeff Bezos said in a statement. "In the three weeks since launch, orders for electronic ink Kindles are double the previous launch. And based on what we're seeing with Kindle Fire pre-orders, we're increasing capacity and building millions more than we'd already planned."