This is why Amazon won't spin off AWS

An overall view of the Amazon Web Services display at the AWS conference, October 7, 2015.
Harriet Taylor | CNBC

The head of Amazon Web Services (AWS), Andy Jassy says CEO Jeff Bezos has no plans to spin off AWS because the two businesses complement each other.

"One of our largest customers is Amazon, the retailer. They use all of our services in a very substantial way," Jassy said.

Forrester analyst Jeffrey Hammond agrees, saying that there are a lot of synergies across Amazon's various businesses that are only beginning to be realized: AWS provides the back end infrastructure powering Amazon's Kindles, Prime streaming video and a host of commerce services for the retail giant and its sellers.

"As the roll out new services like Prime Pantry and Fresh they need the capability to instantly scale, why risk having to do it on someone else's infrastructure?," says Hammond.

"In the future Amazon may have fleets of delivery drones or millions of Alexa devices directly taking orders from customers. They need infrastructure to enable this."

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Jassy says Amazon provides feedback on what AWS could be doing differently: "It's incredibly useful for us."

Amazon's deep pockets have been a boon to the scrappy Web Services division, launched ten years ago.

"Amazon has been very generous about investing whatever capital's required to grow our business," said Jassy.

Amazon stoked speculation about the possibility of a split when it started breaking out AWS in the company's quarterly results. Last quarter, AWS reported 81 percent growth year over year and 21 percent operating margins.

"For most companies that's reasonably ok. For Amazon, that's huge," says RBC Capital Markets analyst Mark Mahaney.

Jassy says the business has a $7 billion-plus revenue run rate on a trailing 12 month basis and the goal was to give more visibility into the business, which Amazon certainly did.

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"It's funny. Inside our business, we all, of course, knew all the numbers. So we didn't really view it as that big a deal. But it was really big news externally," says Jassy.

The move delivered AWS a big boost:

"It's really, interestingly, helped a lot of our conversations. We already had a lot of momentum in enterprise in the public sector."

Seeing how large the business is and that it's a profitable business, has further given these companies confidence that they should invest long term on its platform, Jassy said.

Many analysts, including Hammond, believe AWS has the potential to become the most profitable part of Amazon's business over time. "The margins for enterprise software are a lot better than in retail. Why sell off the goose capable of laying golden eggs?," says Hammond.