News

Prosperous 20 years of Amazon, “mid-life crisis” has not yet arrived

What kind of company is Amazon?

When asked this question, many people may answer out of the blue, “E-commerce.”

Indeed, as the shopping platform that most people use in their daily lives, everyone has the impression that Amazon is the originator of that e-commerce and the largest e-commerce platform in the world. But now, for Amazon, which has been established for 28 years and has a market value of $1.6 trillion, just to give it a “king of e-commerce” label, already seems one-sided and thin.

Last quarter’s Amazon earnings report, you may find that AWS, advertising plus third-party seller services, subscription services and other non-commerce business has exceeded more than 50% of Amazon’s total revenue, and these parts of the proportion is continuing to expand. In other words, now the e-commerce platform to describe Amazon is no longer accurate, Amazon has essentially achieved a magnificent transformation of multi-dimensional development. Behind its trillion-dollar market capitalization, there are multiple business lines that are flourishing.

Starting with the goal of “being the world’s largest bookstore”, Amazon is now full of shiny titles. In addition to being the world’s largest online retailer, it is also the world’s largest cloud service provider, the global leader in the smart home industry, the world’s third largest digital advertising company, and has blossomed in various fields such as cultural entertainment, game development, physical retail, and space exploration.

Over the years, questions such as “Why did Amazon make cloud services first?” “Why is Amazon’s smart home doing better than Apple’s?” “Why did Amazon get the Oscar first than Netflix?” The question repeatedly appears, we are curious, obviously a company that started out as an online retailer, why now Amazon can pull out the top in various fields?

For the trillion-dollar Amazon, it is not an easy task to turn around an elephant. This time, we also try to find out how Amazon has expanded and gradually built up this huge technology empire.

Be prepared for danger: beyond e-commerce, open up the second growth curve of AWS

Looking back at Amazon’s development over the years, every step of its transformation or expansion is full of superb action and foresight.

In 2007, when Amazon’s retail sales had reached $14.8 billion, Walmart began to engage in its own e-commerce platform.

And it’s not just Walmart that’s being left behind by Amazon, it’s also Google and Microsoft. According to Statisa, from 2017 to date, Amazon AWS’s share of the cloud services market has remained stable at more than 30%, no matter how hard Microsoft and Google have fought to catch up, always maintaining their first-mover advantage as the most advanced and cost-effective cloud services platform in the world.

As early as the initial founding of Amazon, Bezos said he wanted to improve the efficiency of Amazon’s platform operations from an infrastructure perspective, and in order to support Amazon’s increasingly large e-commerce business and handle peak online purchases and send user visits and transactions, Amazon has spent years deploying massive IT computing and storage resources.

In fact, this large-scale deployment of infrastructure was not new at the time, Google, Microsoft and many other companies are doing, but these resources are generally for their own use, and are making a lot of money in the advertising business Google and Microsoft sitting firmly on the Internet throne, and did not think about turning it into a product. But for Amazon, which at the time had a retail margin of only about 2% and was perennially hovering on the edge of losses, it needed a product with higher margins to ease the company’s operational pressure.

After a period of operation, Amazon realized that its own IT resources were practically idle during off-peak sales hours, so why not develop them into a product and open it up for third-party use? So, in 2002, Amazon released its own API to the public for the first time, introducing a feature that allowed companies to integrate Amazon.com into their own websites for free.

Then, Amazon spent more than 3 years solving the problems caused by large-scale API opening, and continuously polished the tools to improve efficiency and systematize operation. Finally, in 2006, AWS launched its first cloud products, including S3, a simple storage service, and EC2, an elastic cloud computing service, allowing companies to personalize their own applications using Amazon’s infrastructure. That’s when AWS officially took the stage in history, and it wasn’t until two years later that Microsoft and Google saw the big game Amazon was playing, but it was already too late.

After 2006, AWS continued to launch a variety of cloud services, gradually forming a complete cloud service system capable of providing dozens of products and having multiple regional data centers. 2021, Amazon AWS annual total revenue of $62.202 billion, annual operating profit of $18.532 billion, accounting for more than 55% of Amazon.com’s overall profit of $33.4 billion. AWS’s high-speed, The steady growth of AWS has become a major driving force for Amazon’s further development and expansion.

Later, when talking about the development of AWS, Bezos concluded, “The biggest opportunity in technology must be platform-driven, and when going to build a modern, efficient infrastructure, your dividends come not only from your own growth, but also from the infrastructure itself.”

It can be said that the emergence of AWS prototype is Amazon to promote the development of e-commerce under the “necessity of the time”, but the success of AWS is Amazon dare to be the first to eat crab people, fast action to bring the rewards. Soon, in addition to the title of “the world’s largest e-commerce platform”, Amazon has another crown – the world’s largest cloud computing service provider.

A newly unveiled “secret weapon” – advertising

If you look at the trillion-dollar e-commerce business as a giant wheel, nowadays, in addition to AWS, which is a powerful engine, the advertising business has also started to play a bigger and bigger role, becoming an important influence on the rise and fall of Amazon’s stock price.

Last quarter, Amazon for the first time in the earnings report will be separated from the “other income” in the advertising business for separate reporting, the first time to disclose the detailed data and growth of Amazon’s advertising business in recent years. At this time, everyone was surprised to find that in 2021, Amazon’s advertising revenue reached $31 billion, and if calculated by the scale of revenue, Amazon has become the world’s third largest digital advertising company after Google and Meta.

Although for Amazon’s overall revenue, the advertising business currently accounts for only 7% of the total business revenue, but it is undoubtedly the fastest growing part of Amazon’s various business areas in addition to AWS, and the growth in the past few quarters was even as high as 88% at one point. At the same time, advertising has become the fourth largest source of revenue for Amazon in addition to e-commerce, AWS and third-party services.

Although $31 billion is still a big difference compared to the two giants Google and Meta, but for other companies that rely on advertising to make a living, it is already a “downgrade”. For example, Snap’s annual revenue for 2021 was $4.12 billion, while Pinterest’s revenue was $2.58 billion.

So, why is Amazon’s advertising business gaining so much momentum? Mainly because Amazon has a natural advantage to develop advertising.

First, it can attract external advertising by providing third-party sellers on the e-commerce platform with bidding ranking advertising business to increase their exposure, second, it can attract external advertising through the huge traffic and high conversion rate of Amazon.com, and third, it can attract various forms of placement in physical stores including Prime Video, Twitch, household products and Whole Foods, and there are numerous scenarios where it can introduce advertising.

A recent report on consumer market trends by research firm Jungle Scout found that 74% of consumers will search for products on Amazon first when they have the intention to spend. Analysis suggests that the rapid growth of the advertising business will also further increase Amazon’s overall revenue, as well as bring Amazon higher overall profitability, and perhaps become Amazon’s third business growth curve.

Smart hardware, subscription services together to open up greater imagination

In addition to the compelling advertising business, Amazon has also performed well in subscription services and hardware in recent years. Although subscription services including Prime membership, e-books, videos, music and other subscription services have slowed down recently after maintaining high growth for several years, the share of subscription services in Amazon’s overall business remains stable, bringing it nearly $10 billion in revenue every year.

It is worth noting that in recent years, Amazon in some of the so-called “slash business” has also achieved success. For example, the film won an Oscar, becoming the first Internet company to win this award, and even bought the old film production company MGM. For example, the game, the original “New World”, “Lost Ark” and other games repeatedly break the number of simultaneous Steam play, although the games developed by mixed reviews, but Amazon can now also be said to be one of the most popular game developers on the market.

In the field of smart hardware, Amazon has also left Apple far behind and is competing with Google. Due to its huge upfront investment in voice assistants and cloud computing, Amazon also has a first-mover advantage in the IoT and cloud markets, forming an integrated structure that includes infrastructure, technology platforms, services and product markets, and has always maintained a leading position in the smart home market.

In the past five years, in the U.S. smart speaker market, the number of Amazon Echo installations accounted for up to 69% of the total number of installations. In recent years, Amazon has also continued to iterate its own hardware products, in addition to Echo, Blink, Ring and other home products have repeatedly become explosive, and recently pioneered experimental products such as Astro smart home robot.

In addition, Amazon is also in space exploration, electric vehicles and other frontier areas in advance. Last year, the space company Blue Origin completed its first manned space flight, and the investment in the electric pickup truck company Rivian was successfully listed, all of which have also opened up greater imagination for Amazon’s future.

Since its official IPO in 1997, Amazon’s revenue has soared from $600 million to $469.8 billion in 2021, growing from an unknown online bookseller to a technology giant with a market capitalization of more than $1.6 trillion and more than 1.6 million employees worldwide. Looking back at its 25 years, the most important secret of Amazon’s success is its strong action and foresight, as it takes every step to better serve its primary business while enriching its wings and expanding into new areas of business.

As Bezos said when he founded Amazon, Amazon is not a retail company, but a technology company. And 28 years later, what Amazon has built is not just an e-commerce platform, but a huge technology empire.

Although Amazon’s “wolf culture” has been controversial in the job market in recent years, the company has performed well enough from the perspective of growth. Today, Amazon is not only delivering products to consumers and services to millions of businesses, but is also creating value for more cutting-edge industries.

In many people’s impression, has been prosperous for 20 years of e-commerce Amazon, has been a behemoth, although rich, but inevitably slow action, however, in fact, it is still at every inflection point, lightly turn around.

error: Content is protected !!