Valuing Amazon Web Services (AWS) Post Divestiture

The concept of divesting a key asset like Amazon Web Services (AWS) from the broader Amazon ecosystem has sparked considerable debate in the tech and financial communities. Many believe that separating AWS could lead to significant growth and increased business for AWS, but at what cost to Amazon?

The Business Case for Divestiture

One of the primary arguments for divesting AWS is the potential loss of business due to internal competition. Amazon's other divisions, such as Amazon Retail, compete with potential AWS customers. Consider companies like Apple, Walmart, or Netflix; each is a potential customer for AWS but also funds its own competition in the market. If AWS were to separate from Amazon, it might gain a significant boon in business, as it would not share the potential customer base with Amazon.

Estimating the Value Post-Divestiture

Estimating the exact value of AWS post-divestiture is a complex task, but we can make a reasonable guess based on historical and recent data. If AWS were to be divested, its value could range from 200-300 billion dollars, potentially reaching up to 400 billion. This estimation is based on the belief that AWS would attract more customers who currently buy from Amazon and its other divisions.

Furthermore, even four years ago, when Heroku was acquired by Salesforce for 212 million dollars, Amazon was likely twenty to thirty times larger. Given that Heroku's DynamoDB, a powerful database service, was essentially a user-friendly interface to Amazon's EC2, we can infer that AWS had a market value of around 4 to 6 billion dollars in 2010.

Current Market Value of AWS

Since then, the tech landscape has evolved significantly. As of now, a growing number of major startups and enterprises are built on top of AWS. Assuming an annual growth rate of 10%, the current valuation of AWS could be in the range of 60 to 100 billion dollars, or even more.

The question remains: how much would Amazon be worth without AWS? Historically, Amazon has relied heavily on AWS for profitability and growth. Without AWS, Amazon’s other divisions do not generate significant profits. Therefore, the divestiture of AWS would likely render the rest of Amazon less valuable to shareholders.

Conclusion

While divesting AWS could greatly benefit AWS in terms of business growth and revenue, it would have a significant negative impact on the overall value of Amazon. Estimating the exact figures is challenging, but it is clear that AWS is a pivotal powerhouse within Amazon’s portfolio. Divesting it would not come without substantial consequences.