Breaking Down How Amazon Makes Money
‘Tis the season for shopping.
For many of us, that means buying things online – and if you are like most internet denizens, you’ll be picking up at least one item this holiday season through the the world’s largest e-commerce giant, Amazon.
The company’s sales numbers are growing at a staggering pace. Last year, Amazon had $136 billion in sales, and the company is projected to finish at the $177 billion mark this year.
What are the exact sources of Amazon’s revenue, and how does it all break down?
How Amazon Makes Money
Today’s infographic comes to us from Sellbrite, and it dives into the company’s success, and how Amazon makes money:
To the chagrin of many investors, Amazon has traditionally spent a lot to make a little.
In 2016, for example, the company brought in $136 billion in net sales, but it spent $131.8 billion on operating expenses. That gave the company an operating income of $4.2 billion.
However, that high-growth strategy seems to be paying off.
During the same period, e-commerce revenue jumped 25%, AWS revenue increased 55%, and net income skyrocketed 302%. The growth has continued through 2017 and it’s why Jeff Bezos is now the richest person in the world.
A Closer Look
Here’s how Amazon makes money, according to the company’s last annual report for 2016:
|Revenue Stream||Net Sales (2016)||% of Total Revenue|
|Retail 3rd party sellers||$23.0B||16.9%|
|Amazon Web Services (AWS)||$12.2B||9.0%|
|Subscriptions (Amazon Prime, etc.)||$6.4B||4.7%|
|Other (ads, co-branded credit cards)||$3.0B||2.2%|
Which areas of Amazon’s business are growing the fastest – and where is the company investing in the future?
Here are just a few directions in which the Jeff Bezos Empire is expanding:
In 2017, the size of Amazon’s advertising business (forecasted at $1.65 billion) has already surpassed those belonging to Twitter ($1.21 billion) and Snapchat ($642 million). Of course, Amazon is still a longshot from impacting the Google and Facebook ad oligopoly, but the two leaders would be wise to take the emerging threat seriously.
Why would Amazon ads work well? The company has a vast database of user info to allow for effective targeting, as well as high margins.
In 2017, Amazon is spending $4.5 billion on creating original content. It has fewer dollars allocated to content than Netflix, but it’s still more than double what HBO spends each year. By the way, Amazon Prime Video is now live in an impressive 200 countries.
With 65% of U.S. households having access to Amazon Prime subscriptions, a focus on international sales is the biggest lever that Amazon can pull for future growth. The company is eyeing obvious countries, but less obvious ones as well. In India for example, Amazon’s marketplace is the fastest-growing in the country.
Amazon is also leveraging its strong logistics platform to provide goods for small businesses, rather than just consumers.
Shipping and Logistics
Fulfillment by Amazon (FBA) is already a booming business that allows small businesses to tap into the scale of Amazon. Investing in shipping also betters the customer experience – a key objective for Amazon. However, it’s still possible that the company could take shipping and logistics a step further: domination in the $200 billion parcel shipping market would be a strategic and attainable prize.
With many other ways for the e-commerce giant to grow, it’ll be interesting to breakdown how Amazon makes money in 2018.
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