Amazon spends a lot on R&D. Don’t call it that!

Along with the news that founder and long-time Chief Executive Officer Jeff Bezos “will transition to the role of Executive Chair in the third quarter of 2021,” Amazon.com Inc’s fourth-quarter earnings release included the remarkable if not exactly surprising disclosure that the company had spent $42.7 billion on “technology and content” in 2020, up 19% from the year before and up 242% from just five years earlier.
Technology and content is the line item in the company’s consolidated statement of operations that encompasses research and development, and Amazon’s spending on it is generally reported in the media and elsewhere as R&D. It’s not the same, however, as what other companies report as R&D. In the 10-K annual report Amazon filed with the Securities and Exchange Commission, the company defined technology and content as: payroll and related expenses for employees involved in the research and development of new and existing products and services, development, design, and maintenance of our stores, curation and display of products and services made available in our online stores, and infrastructure costs. Infrastructure costs include servers, networking equipment, and data centre related depreciation and amortisation, rent, utilities, and other expenses necessary to support AWS and other Amazon businesses.
AWS is Amazon Web Services, the company’s market-leading cloud services provider, the head of which, Andrew Jassy, is slated to succeed Bezos as company CEO. AWS operating expenses, Amazon discloses elsewhere in the report, are “primarily classified” as technology and content. The other three baskets into which the company puts operating expenses are “fulfillment,” which is where AWS payment processing and related transaction costs go, “marketing” and “general and administrative.”
AWS, which grew out of internal technology efforts to support Amazon’s online retail business, had operating income of $13.5 billion (59% of the company total) on net sales of $45.4 billion in 2020. That implies $32 billion in operating expenses, some of which were what other companies would call R&D and some of which weren’t, and most of which were included in
the $42.7 billion technology and content total.
This has the interesting result of taking Amazon’s estimated R&D spending from unparalleled to neck and neck with Google parent Alphabet Inc in the race for global No. 1. The phrase “publicly traded” is included in the above chart headline as a nod to Huawei Investment and Holding Co, the wireless-equipment giant. Huawei’s shares are not traded on any exchange but it does issue audited annual reports, and the most recent said it had spent about $19 billion on R&D in 2019.
Another company that arguably belongs on the chart is Samsung Electronics Co, which as of the end of September still edged out
Facebook Inc for fifth place. Samsung’s fourth-quarter R&D numbers aren’t out yet, but the companies’ relative spending trajectories indicate that Facebook has probably passed it since.

—Bloomberg