Amazon’s Cloud Computing Profit Margins Are Shrinking

Even as cloud computing revenues climb, cloud computing profit margins are shrinking within some companies. A prime example: Amzon’s EBITDA (earnings before interest, taxes, depreciation and amortization) profit margin from web services were just over 4 percent in 2010, down from 6 percent in 2005, according to Forbes.

And the situation isn’t expected to improve. As competition with Google, Microsoft and Rackspace intensifies, Amazon’s cloud computing EBITDA will eventually dip below 4 percent, according to the Forbes blog entry.

Further complicating matters, Microsoft has announced extremely aggressive pricing for Office 365, the forthcoming successor to Business Productivity Online Suite (BPOS).

At first glance, some VARs and managed services providers should fear the shrinking cloud margins. But take a closer look and there are numerous signs of hope. MMY Consulting, a Google Apps Reseller in Indiana, is adding up to 60 new jobs by 2015 in order to keep pace with customers’ cloud computing demands. Also, SADA Systems — another Google Apps Reseller — more than tripled its revenues in 2010, according to preliminary data from the Talkin’ Cloud 50 survey (which runs through March 31, 2011).

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