In its quest for cloud computing dominance, Amazon.com (NASDAQ:AMZN) is doing something no other company in the industry has done: opening physical spaces. This week, Amazon Web Services unveiled its second Pop-up Loft, this one in Manhattan.
The space, which follows the first Pop-up Loft in San Francisco opened last year, is designed to promote AWS by offering free sessions and tutorials that allow current and potential customers to meet with architects, as well as experience hands-on lab exercises known as bootcamps. Though the space is called a pop-up, there is no set end date, and the one in San Francisco opened temporarily a year ago, before reopening for what now seems to be an indefinite period of time.
Developers and others interested in learning about AWS are welcome to use the space, which is stylishly appointed and has the adult playground feel associated with Silicon Valley with a mix of work spaces and variety of comfortable seating from couches to beanbags, a ping pong table, as well as free coffee, candy, cereal, ice cream, and even beer.
The strategy is a rare example of the e-commerce giant making efforts to greet the public directly in a brick-and-mortar space. As Apple has shown with its own chain of retail stores, which bucked conventional wisdom at the time of its introduction and now leads all of retail in sales per square foot, physical spaces can be very powerful, not just for driving sales but also for branding. Amazon's decision to move forward with the Pop-up Lofts seems to reflect not only the success of the first space but also how high of priority AWS has become.
The power of AWS
Founded in 2006, AWS provides web IT services, also known as cloud computing, to hundreds of thousands of businesses in 190 countries around the world. Its benefits include a low cost, as economies of scale have allowed it to lower prices 15 times in the last four years, the flexibility of cloud infrastructure, and multiple layers of operational and physical security.
For the first time ever, Amazon broke out its results from AWS in the first quarter of this year and the stock soared as a result, jumping 14%. Analysts had a sense of the size of AWS prior to the announcement but what surprised them was its profitability, which was especially remarkable since the company has run at breakeven levels for the past few years and is known for offering rock-bottom prices.
CEO Jeff Bezos proudly touted AWS as a "$5 billion business" whose growth is accelerating. Year-over-year, sales in the division grew 49%, and its operating margin stands at 17%, delivering $265 million in operating profit in the quarter. In other words, that segment is set to bring in more than $1 billion in operating income, and is by far Amazon's most profitable segment on a margin basis.
Bezos has also said that AWS could become the biggest component of the company one day, which is not impossible considering its growth rate and the potential of cloud computing.
Introducing the Treasure Truck
The Pop-Up Lofts aren't the only a way that Amazon is beefing up its real-world presence. The company is now running something it calls a Treasure Truck around Seattle, which will sell one highly desirable item a day. Thus far, the truck has sold products like paddleboards, knife sets, and steaks, all at steep discounts from the retail price. Like the Pop-up Loft, the Treasure Truck is meant as partly a promotional vehicle as the company hopes customers will look up the truck's location on the Amazon app, order the available product and pick it up from the truck later that day.
Like the Pop-up Loft, which offers free goodies to visitors, the Treasure Truck is another way to build goodwill with the customer and drive sales in the real world.
Expect to see more of these inventive promotions in a city near you as Amazon seems intent on stepping up its physical engagement with customers. For AWS, there seems little doubt as to its success, and the lofts are just one of many ways that separates itself from the competition across its businesses.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.