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Amazon CTO: Cloud could overtake retail
If you think you knew Amazon (NASDAQ: AMZN), things are about to change.
Amazon has built its business and reputation by becoming an e-commerce giant, but one of the company's top execs says that, in time, it will be all about the cloud and its division Amazon Web Services (AWS).
'This is a huge opportunity and as such Jeff Bezos, our CEO and founder, has said several times that he believes the opportunity is so big that maybe AWS, over time, may become bigger than the retail company," said Werner Vogels, Amazon chief technology officer told CNBC in an exclusive interview.
Amazon Thursday broke out the figures for AWS for the first time ever, and Wall Street liked what it saw. The division generated $5.16 billion in revenue last year and $1.56 billion in sales in the first quarter of 2015, up 49% from last year.
And this is just the start: investment analysis company Morningstar expects AWS could become a $15-20 billion business in the next three years, which would make it a substantial revenue stream for the e-commerce player. So big that the company may even spin it off one day, says internet analyst, James Cakmak of Monness Crespi Hardy.
Amazon's stock, after have a rough ride in 2014, is in rebound mode this year with shares up more than 20 percent. If Amazon continues to show investors that its North American retail division is doing well and that its investment in cloud is paying off, "the stock could get Netflixed," says Mark Mahaney, the analyst at RBC Capital.
Nonetheless, there are clouds on the horizon for AWS. A big one is competition.
Google (NASDAQ: GOOGL) and Microsoft (NASDAQ: MSFT) are seen as the biggest threats. Analysts also see Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Rackspace and Terradata as a competitive threat to Amazon's success in cloud computing.
And there are many more start-ups and venture-backed firms that are making such big strides in cloud innovation, that analysts say could soon also steal a piece of the pie.
Further competition could result in Amazon and other players having to cut their prices. The fear is that over time, the cloud could become commoditized.
But Vogels doesn't agree, referencing AWS's differentiated product line.
"There's a difference between pricing, low pricing and commodity. If you look at sort of the wide range of services that we have available on AWS, if you look at the cloud in 2010, its almost the bottom layer of what Amazon is now.
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"Sort of the basic servers, compute, storage, data bases and that's where most of the other cloud providers are at this moment. But we now have 45 different services whether it's around analytics, whether it's around mobile development, whether it's about innovative new virtual desktops or people services."
The other big threat is security. Twitch, a video streaming site Amazon acquired in 2014 was hacked earlier this year. If more and more companies use Amazon Web Services to develop software programs and store their data, the greater the need for a technology that is not susceptible to a cyberattack.
But Vogels is convinced his team at AWS is prioritizing safety and security though the use of innovation.
"[We're] building a whole range of new security tools that are unique in the industry and that nobody has ever seen before."
"If you want to have total control over who has access to your data, you have to store it on AWS because that's the best way to protect it," Vogels told CNBC.
Clarification: This article has been updated since first published to reflect that Vogels did not specify a time frame in his reply to a question on when cloud services could overtake e-commerce.
- By CNBC's Seema Mody
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