How AWS And Amazon Prime Will Drive The Company's Future Growth

With the growing demand of cloud services, Amazon (AMZN) is expanding its reach with Amazon Web Service, or AWS. The company recently entered into a deal with ChinaNetCenter to provide AWS cloud service in China. ChinaNetCenter is a leading integrated service provider of Internet data center, or IDC, and content delivery network, or CDN, in China. Amazon's deal with ChinaNetCenter will be beneficial since ChinaNetCenter serves more than 3000 clients in several industries.

This will also provide a solid platform for Amazon to establish its footprint in the Chinese market.
It has already successfully served many Chinese companies outside China, such as Xiami Corp, TCL Corp, and Qihoo 360 Technology. AWS has helped Qihoo 360 reduce its content delivery networking cost by 30%; this will help Amazon to provide cloud services to Qihoo 360 in China. As many Chinese companies have already used AWS, this can help the company expand its cloud services in China as well as attract other companies to its services.

One challenge which Amazon can face in the China market is the customer focus. Amazon's focus has always been large enterprises for it cloud services, however, alarge segment of cloud-computing service sales in Chin come from small, cost-sensitive enterprises. The company will also face stiff competition from Microsoft (MSFT), which has provided cloud service -- Windows Azure -- in China for the last three years and develops cloud services for small enterprises. Since its launch in 2011, Azure has successfully added more than 1,000 corporate users.

Nonetheless, the growing cloud market in China will be beneficial to both Microsoft, as well as Amazon. The Chinese cloud market is growing by 40% annually and is expected to be worth $122 billion to $163 billion in 2015.

Amazon Prime, a big hope

Under Amazon Prime, the company provides prime members (requiring an annual subscription cost of $79) unlimited free two-day shipping on any purchase from the company's website. The company added around 1 million prime members in the third week of December 2013. Amazon Prime now has 20 million prime subscribers compared to 10 million in March 2013. Amazon Prime subscription also received wider acceptance, since it comes with a 30-day free trial, along with its free video-streaming service, in which any Prime member can stream thousands of movies and TV episodes on Amazon's website.

The increasing number of subscriber is good, as prime members shop 50% more often than non-members and account for 56% of Amazon's U.S. sales. With its current 20 million subscribers, Amazon's revenue will be around $1.58 billion annually from its membership fees alone. Although Amazon prime members make up only 40% of all Amazon buyers, these members are expected to spend around$1,340 annually compared to $708 by non-members.

Prime subscription is also appealing for the company, because 93% of prime members renew their membership. This indicates that Amazon Prime will help the company generate even more revenue, as the number of prime members is expected to rise to around 25 million by 2017.


Amazon's AWS initiative in China will help the company grow its revenue in the near future, as the overall Chinese cloud market is growing and the company has already served several Chinese companies. Also, the increasing number of Amazon Prime subscribers will further boost revenue over the long-term. I am bullish about the stock as a long-term investment.
Published on Feb 19, 2014
By Rohit Gupta

Copyrighted 2020. Content published with author's permission.

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