The tech giant has long made big but calculated bets, but shrinking margins leave less room for experimentation.
Amazon is hardly alone among tech giants tightening their belts because of the global economic crisis. But the latest move stands out in that the global company may be pursuing something unrealistic.
On Thursday morning, the Wall Street Journal reported that Amazon had begun a “cost review” that focuses on unprofitable business units. Among them is the Alexa business, which encompasses Amazon’s groundbreaking voice-recognition technology and the myriad devices that use it. Amazon’s hardware business, which includes Alexa, makes operating losses of about $5 billion a year, the documents show.
And while current speculative ventures also don’t qualify as risks associated with betting on the company, Amazon simply has less money to play with these days. The company’s shrinking retail sales – the result of the twin pressures of a slowing economy and more people preferring to shop with their feet – are combining with an outsized increase in the company’s order fulfillment capacity to put pressure on the company’s already thin margins.
Amazon’s North American retail segment, which accounts for the bulk of the company’s revenue, has been losing money on an operating basis over the past three quarters and is expected to end the year in the red.
Amazon’s AWS cloud services business is also not providing the comfort it used to. Growth in it is slowing, both because of its growing clout (AWS is now second only to Microsoft in annual revenue among software companies) and because of declining overall spending by corporate IT managers who need to watch their own accounts. In the third quarter, AWS’s revenue grew 27% year-over-year, the slowest pace on record, and analysts expect the business to end this year with 30% growth, a 7-point slowdown from a year earlier.