How Amazon Makes Money?
There might be several giant tech corporations in the U.S. tech market. However, Amazon is different. Perhaps by revenue Amazon is the largest internet company in the world! But have you ever wondered how this Seattle based American multinational tech company earns its money? Well, time to think deeply about it.
Founded by Jeff Bezos in July 1994 the company was set up in Seattle for its technical prosperity. The company went public in 1997 and started selling videos and music in 1998. Soon after, the company started selling books online globally by acquiring online booksellers in Germany and the United Kingdom. It was only later when the company started selling electronics, video games, software, games, home improvement and several other items.
Shortly afterward, Amazon Web Services (AWS) started in 2002 providing developers and marketers data on internet traffic patterns, website popularity and statistics. With Elastic Compute Cloud (EC2) in 2006, the company grew further and was now able to rent data storage through the internet. It was 2012 which saw the addition of Kiva Systems with Whole Foods Market being purchased and added to its chain of businesses in 2017.
Key Pointers on Amazon Revenue 2019
• As of 5th December 2019, the market cap was $867.4 billion.
• The net income tripled year-over-year (YOY) in fiscal year (FY) 2018 from just $3 billion in 2017 to $10.1 billion in 2018.
• Net sales were $232.9 billion in 2018 which was up almost 31% YOY.
Profit Generation in Recent Years
Ever since amazon entered the industry scenario it has been experiencing phenomenal success. The operating incomes are being sourced in by Amazon web Services, revenue sources and Amazon Prime subscriptions. Now if a company wants a perfect revenue generation model to start a successful business, they need to understand that such things do not exist. Every business needs to understand that making money is the trick to thrive in the industry let aside surviving.
In 2018, Amazon witnessed record profits with $10.1 billion as net income, whereas the earlier year secured only $3 billion. Statistics reveal that 2016 was the year where there were hardly any profits made by the company. Clearly, 2018 can be marked as the turning point in Amazon’s journey graph. It is currently the most dominating e-commerce company with it’s a cloud computing division showing top utmost performance. Additionally, Amazon Web Services has contributed a major share in the operating income ever since 2016. Advertising efforts and third-party sellers are also pouring in their profit contributions.
How The Company Really Makes Money?
The company not just is a shopping giant and e-commerce site but also a device maker, cloud provider whose main target is to make more money from the industry with existing businesses and also welcoming new industries and methods.
Amazon indeed concentrates on its online store for revenue. In 2019 Q2, it secured a handsome $31.1 billion in net revenue. However, many might be surprised to hear that it is the company’s least growing segment (only 14 percent up). The third-party seller services fetched $12 billion which was more by 23 percent from the previous year. These came from shipping charges, fulfillment fees, commissions, and other services that are directly or indirectly related to its online shipping arena. Therefore, even if there isn’t any direct sales growth, the vast empire of Amazon’s revenue may still continue to prosper. The quickest growing sector of Amazon is its cloud services, Web services, subscriptions from Amazon Music, Amazon Prime, and Prime Video. Last year the membership charges got hiked from $99 to $119 annually. A report reveals that revenue from subscription services increases almost 37 percent year over year to a gross amount of $4.7 billion.
The Web Service revenues of Amazon leaped to $8.4 billion (37 percent increase) with Amazon’s cloud hosting and storage services ( which itself acquired 33 percent, almost double from Microsoft Azure, its closest competitor) as per estimates based on reports from Synergy Research Group for Q2 2019. The “other” category witnessed 37 percent growth with advertising business along with Facebook and Google. The details about device sales numbers have not been released by Amazon. It includes the revenue collected under the overall revenue generated from its e-reader, Kindle, Alexa-enabled Echo device, etc. sales.
A good share of the income comes from its live game streaming platform Twitch, Audible (the Audiobook Company), film website IMDb, and many more retail, e-commerce, software and other services. Ring, a smart home security provider, is also a part of Amazon serving customers from both local governments and police forces across the country.
But as we all know everything comes with a price and we must say Amazon’s investment plans are really paying off. Yes, it is true that before earning its profits it spends billions of dollars every single year by financing new and original web series and films and several licensed contents (through Prime Video and Amazon Studios). As more and more audiences are engaging in watching online web series and movies, Amazon is giving a tough competition to Netflix, Hulu, Apple TV and several other such platforms.
The Amazon business to enter an antitrust probe by the U.S. Federal Trade Commission (FTC) was AWS. Even the retail segments had to undergo heightened regulatory scrutiny. This is because FTC wants to ensure that Amazon is not unfair by favoring software companies over cloud services.
Another recent initiative of Amazon is to expand its arms into selling advertising. It groups sales figures with several other service sales figures (which they did not disclose) in its annual report which makes it difficult to compare further. In spite of that, clearly Amazon has been the fastest growing business ever.