How Does Amazon Make Money?

December 26, 2017

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3 min read

Amazon (AMZN) makes a lot of money. But how? Do they make their money on books, or on merchant sales, or on TV shows? Where does the money come from, and what does the breakdown look like? You might look at Amazon and wonder how a company that is largely a platform for other people to sell stuff actually makes any money. This infographic from sellbrite lays it all out, including the various revenue streams and the constant eye on growth.

Just The Words

The following content is text taken from the above infographic and provided to you in an easy copy and paste format. Please feel free to use it in any writing that references this article.

Amazon’s Worth

Amazon Market Value
- $427 billion
Traditional Retailer Market Values
- Sears: $1.2 billion
- JC Penney: $1.8 billion
- Kohl’s: $6.8 billion
- Nordstrom: $7.4 billion
- Macy’s: $8.9 billion
- Best Buy: $14.9 billion
- Target: $29.4 billion
- Wal-Mart: $221.1 billion
  - Combined: $291.5 billion
In 2016, Amazon accounted for 43% of all online retail sales in the U.S.

Rapid Growth

Amazon accounts for 34% of U.S. e-commerce
E-commerce domination will grow
- 2016: 34%
- 2017: 37%
- 2018: 41%
- 2019: 45%
- 2020: 47%
- 2021: 50%

Why is Amazon so successful?

Constantly innovating and adapting
- Started in 1994 as an online bookseller
- Since expanded to become cloud computing giant, tablet and smart home device manufacturer, ebook publisher, movie studio, and more

Amazon’s 2017 video production budget is $4.5 billion?that’s over 2X HBO’s budget

Focused on customers
- Ranked #1 on 2017 American Customer Satisfaction Index
- Ranked #1 on 2017 Corporate Reputation Harris Poll

Amazon knows its customers: about 35% of Amazon’s revenue comes from ““Frequently Bought Together” and “Customers Who Bought This Item Also Bought” features

Focused on growth instead of profits
- CEO Jeff Bezos looks to the future, not the present
- Operating income 2016: $4.2 billion
  - That’s only 4% of total sales!

Failure is an option: Amazon Fire Phone fizzled out in 2014?instead of giving up, Amazon has since launched Amazon Echo and other successful tech

Follow the Money
- Sales
  - 2016: $136 billion
  - 2015: $107 billion
  - 2014: $89 billion
- Operating Expenses
  - 2016: $131.8 billion
  - 2015: $104.8 billion
  - 2014: $88.8 billion
- Operating income
  - 2016: $4.2 billion
  - 2015: $2.2 billion
  - 2014: $178 million

Net Sales by Revenue Stream
- Retail products (67%)
  - 2016: $91.4 billion
  - 2015: $76.9 billion
- Retail third-party sellers (17%)
  - 2016: $23 billion
  - 2015: $16.1 billion
- Amazon Web Services (AWS) (9%)
  - 2016: $12.2 billion
  - 2015: $7.9 billion
- Amazon Prime and other retail subscriptions (5%)
  - 2016: $6.4 billion
  - 2015: $4.5 billion
- Other (includes ad services and co-branded credit card agreements) (2%)
  - 2016: $3 billion
  - 2015: $1.7 billion
In 2016, unredeemed Amazon gift cards alone made $2.4 billion.

Amazon employees are pushed to their limits for the company’s success: “You can work long, hard, or smart, but at Amazon.com you can’t choose two out of three” – Jeff Bezos

How Can You Get a Cut?
- 40% of product sales on Amazon Marketplace come from third-party sellers
  - In 2016, Amazon made $23 billion in sales from third-party sellers
- How much do sellers make?
  - Annual sales
    - 49%: Less than $100,000
    - 36%: $100,000-$1 million
    - 13%: $1 million-$10 million
    - 2%: More than $10 million
      - Of that, less than 0.6% sell more than $50 million
  - Primary products sold by third-party sellers
    - 18% Home and Kitchen
    - 11% Toys and Games
    - 9% Books
    - 8% Health
    - 8% Beauty
    - 7% Electronics
    - 7% Clothing
    - 6% Sports and Outdoors
Amazon revered and feared
- Sellers concerned about punishment/competition from Amazon
  - Top concerns
    - 61% Amazon taking away my seller privileges
    - 44% Amazon selling my items
    - 43% Negative customer feedback
  - What do sellers owe Amazon?
    - Professional sellers (sell more than 40 items per month): $39.99/month + 10-15% of transaction
    - Individual sellers (sell fewer than 40 items per month): $0.99/sale
  - 79% of sellers use Fulfillment by Amazon (FBA) services
    - Amazon stores, packages, and ships your products for you