As Apple and Amazon compete for a greater share of consumer dollars and attention, they also have a particularly intimate business relationship: Apple is spending more than $30 million a month on Amazon's cloud, according to people familiar with the arrangement.
Apple's cloud expenditure reflects the company's determination to deliver online services like iCloud quickly and reliably, even if it must depend on a rival to do so.
As Apple's top product, the iPhone, approaches market saturation, the company has begun pointing more to online services as a key contributor. Recently, the company stopped disclosing unit sales for iPhones and other hardware products and started disclosing the profit margin for its services business, which includes the iOS App Store, AppleCare, Apple Pay and iCloud. Apple also introduced new subscription services for video and magazines last month.
People use more than 1 billion Apple devices each month, and accordingly, Apple has considerable computing and storage requirements. The company is investing heavily to build its own infrastructure: In January 2018, Apple announced plans to spend $10 billion on data centers in the U.S. within five years. In December, Apple said it would spend $4.5 billion of that amount through 2019. The company also depends on smaller third-party cloud providers. But it also relies on the big cloud providers, including Amazon Web Services and Alphabet subsidiary Google. Microsoft has also provided cloud tools to Apple in the past.
The company has said in the past that it uses AWS for iCloud storage but has not disclosed whether any other Apple services use AWS or other third-party clouds.
A growing AWS footprint
In a February job posting, Apple said it was looking for someone who could "lead and architect our growing AWS footprint."
Indeed, that expenditure is on track to expand.
At the end of March, Apple's spending was on track to average more than $30 million per month in the first quarter of 2019. That would be more than 10 percent higher than a year earlier, according to two people familiar with the spending.
If Apple's AWS use stays at those levels for the rest of 2019, its annual spending would exceed $360 million. Apple spent approximately $350 million in 2018, one of these people said.
The expenditures are likely to continue for the foreseeable future. In the past few months, Apple signed an agreement that includes a commitment to spend at least $1.5 billion on AWS over the course of five years, a source said. In the most recent fiscal year, Apple had $30.94 billion in operating expenses.
AWS is a major part of Amazon's business. In 2018, AWS delivered $25.66 billion in revenue, or 11 percent of Amazon's total annual revenue, and nearly 59 percent of Amazon's operating income. Even though Apple is one of the top AWS customers, its payments make up a tiny slice of Amazon's overall revenue.
At these rates, AWS would be picking up more revenue from Apple than from several other companies, including Adobe, Capital One, Intuit, Lyft and Pinterest, based on public filings and a report in The Information.
For the sake of comparison, Lyft has agreed to pay AWS at least $300 million for cloud services through the end of 2021, while Pinterest said it has committed to spending at least $750 million on AWS in a six-year period that ends in mid-2023. That works out to an average of $100 million per year for Lyft and $125 million per year for Pinterest. Snap has committed to spending $1.1 billion on AWS through the end of 2022, at least $150 million of that in 2019.
Amazon has an increasing amount of money that customers have committed for the use of services in the future, primarily tied to AWS. At the end of 2018, there was $19.3 billion worth of commitments for contracts with original terms that last longer than a year, Amazon said in a filing.
Apple declined to comment. Amazon did not respond to a request for comment.
Correction: This article has been updated to correct the timing of Apple's planned infrastructure investments.
WATCH: Apple TV+ is a natural evolution for the company, analyst says
