In a dog-bites-man story posted this morning, CNBC tells us why Amazon won’t spin off Web Services– synergies.
The head of Amazon Web Services (AWS), Andy Jassy says CEO Jeff Bezos has no plans to spin off AWS because the two businesses complement each other.
“One of our largest customers is Amazon, the retailer. They use all of our services in a very substantial way,” Jassy said.
Forrester analyst Jeffrey Hammond agrees, saying that there are a lot of synergies across Amazon’s various businesses that are only beginning to be realized: AWS provides the back end infrastructure powering Amazon’s Kindles, Prime streaming video and a host of commerce services for the retail giant and its sellers.
“As the roll out new services like Prime Pantry and Fresh they need the capability to instantly scale, why risk having to do it on someone else’s infrastructure?,” says Hammond.
“In the future Amazon may have fleets of delivery drones or millions of Alexa devices directly taking orders from customers. They need infrastructure to enable this.”
And who better to learn from than your parent company?
Jassy says Amazon provides feedback on what AWS could be doing differently: “It’s incredibly useful for us.”
Amazon’s deep pockets have been a boon to the scrappy Web Services division, launched ten years ago.
“Amazon has been very generous about investing whatever capital’s required to grow our business,” said Jassy.
That’s all well and good, but the reason Amazon won’t spin it off is because the Web Services division, among other things, has given a stratospheric valuation to a boring old retailer. What gain would there be to such a spinoff?
Disclosure: The author holds a small position in Amazon