Product Management interview question [Guesstimate]: Estimate AWS’s total annual revenue.

unsplash[dot]com

AWS means Amazon Web Services which is a cloud computing platform which provides services like Databases, Website hosting, etc. It is the biggest player in the cloud computing market. AWS’s main competitors are Google Cloud Platform, and Microsoft Azure.

AWS has more than 1,000,000 customers, of which Small and Mid-size companies make the majority, 10% of the customers are Enterprise customers.

AWS has more than 100 services available from IoT, Robotics, Machine learning to Databases, which charge customers on various criterias such as amount of storage they consume. AWS doesn’t have a tiered pricing, where there are basic, business and enterprise plans. They charge customers depending on how much resources they use.

AWS Website hosting can be broadly categorised into 3 categories -

1. Basic environment (Website hosting): $100-$200 per month
2. Intermediate environment (High performance website hosting): $250-$600 per month
3. Advanced environment (Highly scalable and available) — $600-$2500 per month

AWS has 10% Enterprise customers where they pay around 2500 USD per month as they want the most scalable web hosting solutions with huge storage capacities -

100000 * 2500 = 250000000

Out of the rest 90% (900000) of non-enterprise customers, even the medium-sized companies need high speed scalable systems. They might not need too much storage or latency so they opt for l0wer bracket of the highly scalable web hosting solutions. So for these around 35% of customers -

350000 * 600 = 210000000

Out of the rest approximately 55% (550000) of other customers, around 35% customers from small companies need high performance websites for their business. So for these 35% of customers -

350000 * 400 = 140000000

The rest 20% customers are lowest tier customers with an average monthly cost of $150 on AWS. So -

200000 * 150 = 30000000

So the total monthly revenue for website hosting is 630000000 = 630 Million

So, total annual revenue is 630000000 * 12 = 7560000000 = 7.6 Billion USD per annum

Now, only the website hosting generates a revenue of 7.6 Billion USD per annum for AWS.

Website hosting is one of the least expensive services that AWS offers. Apart from Website hosting AWS offers services for IoT, AI, Robotics, Databases etc.

Average cost of these services for different size of organisations are as follows -

There are many services from AWS that cost as much as $10000 USD per month, but not every company uses these services on such a scale. I have grouped companies who use such complex computations into 3 groups -

1. Small-sized companies that use less computational resources, and those cost them around $2000 USD per month.
2. Medium-sized companies that use some computational resources, but not as much as the industry giants, nor do they have millions of customers, so those cost them around $5000 USD per month.
3. Enterprises that use huge computational resources, and have millions of customers, so those cost them around $15000 USD per month.

For Small-sized companies -

350000 * 2000 = 700000000 USD per month

For Medium-sized companies -

550000 * 5000 = 2750000000 USD per month

For Enterprises -

100000 * 15000 = 1500000000 USD per month

Which totals to 4950000000 USD per month

So the total revenue generated by these services is 59400000000 USD per annum = 59 Billion USD per annum.

So the total revenue generated by AWS from hosting as well as computational services is 59 Billion + 7.6 Billion = 66.6 Billion USD per annum ≈ 67 Billion USD per annum.

So the annual revenue of AWS calculated from this approach is around 67 Billion USD.

Alternate approach is calculating the market share of AWS -

The global Cloud Computing market in 2020 was 219 Billion USD. Let’s consider this 220 Billion USD for simpler calculations. The biggest players in this space are -

1. Amazon
2. Microsoft
3. Google
4. Alibaba
5. IBM Cloud
6. Salesforce
7. Tencent
8. Oracle.

Amazon (AWS) captures around 33% of this market.

So 33% of 220 Billion = 72.6 Billion USD

So the annual revenue of AWS calculated from this approach is around 73 Billion USD.

I believe that the first approach is more accurate and takes the precise distribution of AWS’s customers and the average amount paid by them.

The second approach is more depended on the project size of Cloud Computing market and AWS’s share in it, which is why it doesn’t seem more reliable.