Here’s Why Amazon Launched A Business Communication Service

Recently Amazon (NASDAQ:AMZN) launched “Chime,” a new video conferencing and business communication service which is built on the top of Amazon Web Services (AWS). The service will allow users to make VoIP calls, send video messages and host or join remote meetings when they subscribe to a free or chargeable plan. Through this launch, Amazon becomes a competitor to Google Hangouts, Skype and an entrant into the space of virtual meeting management in which GoToMeeting and Cisco are the key players. While the video conferencing space is already crowded with several players offering similar services, Amazon believes that users are not satisfied with any of the options currently available. Amazon is looking to offer a product which resolves the current issues of bad audio/video, high cost and difficulty in usage. With an established customer base for its cloud services, by offering a stable and easy to use video conferencing solution, Amazon could be able to better retain and add clients in the cloud segment, driving profitability for the company in the long term.

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AWS is the most profitable division for Amazon and, according to our estimates, accounts for nearly 35% of the company’s valuation. We expect Amazon’s revenues from AWS to grow rapidly from around $16.5 billion in 2017 to nearly $70 billion by the end of our forecast period.

As the demand for web services grows exponentially in the future, Amazon is well-positioned to capture much of this growth due to its reliability, global reach and well-recognized brand. Despite strong competition from Google and Microsoft in the segment, we expect Amazon to maintain its industry-leading position going forward.

We expect AWS’s EBITDA (earnings before interest, tax, depreciation and amortization) margin to grow steadily from around 32% in 2017 to nearly 35% by the end of our forecast period, as the demand for web services increases and the company achieves further economies of scale.

Amazon is looking to grow its web services customers in a market which is growing exponentially, but one in which players such as Microsoft and Google are looking to increase their market shares. A cheaper, more reliable video conferencing solution which offers innovative features would likely be well-received by the market. Amazon’s service already has easy to use apps for Android, iOS, Mac and Windows, synchronizing chats across devices and making it easier to switch devices even in the middle of meetings.

While the business communication market appears to be over-crowded, there is scope for a player which provides a reliable communication service with advanced features and at a reasonable cost. Amazon is looking to fill this gap. which would likely complement its web services division, driving profitability for the company in the long term.

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