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by dredmorbius
3562 days ago
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Interesting observation, though it raises the obvious responses: 1. What's constraining AWS's growth capacity? Isn't it simply a matter of stamping out AZs and DCs? 2. Why would Amazone create a pricing structure which encourages new entrants into the field? Contrast local retail in which defunct firms continue to sit on, and extend, real-estate leases, strictly to prevent other companies from growing into the market they've abandoned. See Dominicks / Anderson grocery stores in the Chicago area, in which seventy-two stores are being leased, at a cost of ~$1m/year, each, to prevent competitors from occupying the space: http://www.chicagotribune.com/business/ct-vacant-dominicks-s... (This works in part because rent is only a small part of the operational cost of a grocery store: electric power, labour, maintenance, and of course, groceries, are required if you're actually utilising the space.) |
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Because the primary entrant threats were not going to be dissuaded by low price competition. Specifically Microsoft and Google. Both are hyper cash and income rich and under no circumstances did they want to cede the cloud computing universe to Amazon. Fundamentally it's the exact same reason AWS stopped trying to compete so intensely on price cuts quite a while back now.
Put another way, if you're going up against Google, Microsoft, IBM, Oracle - speaking hypothetically it's better to own 1/3 of the market and print significant operating income, than to own 1/2 of the market and barely make money. That operating income is responsible for roughly doubling the value of Amazon's share price (the stock took off like a rocket after it became clear AWS was going to be a cash-cow).