Many firms eventually pay Amazon tax as they rely on cloud computing unit

January 26
7:30 AM 2016

Venture capitalists (VCs) are bullish on growth prospects on Amazon, a US-based online retailer, as they forecast 20-fold increase in the market capitalization. There's nothing to do with e-Commerce. This is because, majority of the global businesses pay charges, termed as tax, for Amazon Web Services (AWS). The cloud-computing unit of Amazon is making all the difference for the global online retailer. 

Many venture capitalists consider the investment in Amazon will be a great option as the global online retailing major is expected to grow by several folds in next 10 years. Thanks to Amazon Web Services unit, which is booking about $7 billion per annum. 

Yahoo Finance reports that many business firms across the world depend upon Amazon and will eventually pay a fixed fee to Amazon as they rely on AWS to run their services. Venture capitalists such as Chamath Palihapitiya prefer to invest in Amazon, which generated $23 billion revenues in the last quarter alone. Industry observers attribute the success of Amazon to its cloud-computing unit.

Since Chamath Palihapitiya is a venture capitalist, he explores opportunities for making investments. He was also an employee of Facebook during its early stage and Palihapitiya is now worth $1 billion. In case, he has to park entire funds in a one company and keep it for 10 years, then ultimate option for him would be Amazon. 

"I think Amazon is the most interesting company right now and represents the surest path to a $5 trillion (15-20x from current levels) market cap within 50 years," says Palihapitiya. This has nothing to do with e-commerce business volume. "Although e-commerce is their way of dog fooding the real reason: AWS," said Palihapitiya as reported by Business Insider.

Palihapitiya compared AWS to a tax as most of the companies are expected to pay a fixed fee annually as they continue to depend upon Amazon Web Services. Whether one cares about mobile apps, consumer apps, IoT, SaaS or not, they need to depend upon AWS for their online sales across the world.

Amazon posted encouraging numbers for the third quarter of 2015. It announced a surprise profit of $79 million or 17 cents a share, as against a loss of $437 million in the previous corresponding quarter. The cloud computing unit 'Amazon Web Services' has brought cheer to investors as it turned out to be a more profitable segment. Generally, e-Commerce business runs on thin margins. The cloud unit of Amazon is competing with major IT companies such as Microsoft and Google Inc, according to a report by Bloomberg.

Palihapitiya further explains: "ASW is a tax on compute economy. More companies will be using AWS building their own infrastructure. If you believe that over time the software industry is a multi, deca-trillion industry, then ask yourself how valuable a company would be who taxes the majority of that industry."

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