How should Amazon Web Services price its services to Zappos?

Amazon.com has some of the biggest data centers in the world, where it runs cloud-based hosting services.  Amazon Web Services, Inc. (AWS), is the division of Amazon.com that provides compute, storage, and database services to a wide variety of companies, including GE, Netflix, Pfizer, Pinterest, and others.

Amazon’s divisions also use its cloud-based hosting services. Amazon has several divisions; one of these divisions is Zappos, an online shoe and clothing shop.   Assume Zappos uses AWS’s cloud-based hosting services.

Other cloud-based hosting services exist, including Terremark, Savvis, and Dimension Data.

Questions

1. What possible pricing methods could Amazon use to set the transfer price for AWS’s cloud-based hosting service to Zappos?
2. Why might Zappos’ management argue for a discounted transfer price?
3. Why might the management of AWS argue for a transfer price at the market price?
4. What advantages could Zappos experience from using Amazon’s AWS services?  What advantages could Zappos conceivably experience by using a different cloud-based hosting service?
5. Should Zappos be allowed to use a cloud-based hosting service other than AWS? Why or why not?

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions. The YouTube video link below is a narration of the blog post article (no discussion questions are included in the YouTube video; those can be assigned separately.)

• Student handout (pdf) (contains entire blog posting + discussion questions)
• PowerPoint file (brief article overview + discussion questions)
• YouTube video (narrated article in shareable YouTube link – COMING SOON)

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