Wen |Juny
Editor| Vicky Xiao
What is Amazon?
When asked this question, many people may blurt out: "E-commerce." ”
Indeed, as a shopping platform that most people use in their daily lives, in everyone's impression, Amazon is the originator of e-commerce and the world's largest e-commerce platform. But now, for Amazon, which has been established for 28 years and has a market value of up to 1.6 trillion yuan, just giving it a label of "king of e-commerce" has become one-sided and thin.
Looking at Amazon's financial report in the last quarter, you may find that non-e-commerce businesses such as AWS, advertising plus third-party seller services and subscription services have exceeded more than 50% of Amazon's total revenue, and the proportion of these parts is continuing to expand. That is to say, it is no longer accurate to use the e-commerce platform to describe Amazon, and Amazon has essentially achieved a gorgeous turn of multi-habitat development. Behind its trillion-dollar market capitalization are a number of business lines that are booming.
Starting from the goal of "being the world's largest bookstore", Amazon today has gathered a shining title. In addition to being the world's largest online retailer, it is also the world's largest cloud service provider, a 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, things like, "Why did Amazon make a cloud service first?" "Why is Amazon's smart home doing better than Apple's?" "Why did Amazon get the Oscars before Netflix?" Problems have appeared repeatedly, everyone is curious, obviously it is a company that started out online retail, why is Amazon now able to come out on top in various fields?
For the trillion-plus Amazon, the elephant turn is not an easy task. This time, we also tried to explore how Amazon expanded all the way and gradually built up the huge technology empire it has today.
Thinking of Danger in Times: 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 super action and foresight.
At that time, when it shifted from a simple Internet bookseller to a full-product retailer, the big retail brothers such as Walmart had no time to react, and Amazon quickly conquered the territory of various categories of e-commerce on the Internet. In 2007, when Amazon's retail sales had reached $14.8 billion, Walmart began to build its own e-commerce platform.
And Amazon is not only left behind walmart, but also Google and Microsoft. According to Statisa statistics, from 2017 to now, Amazon AWS's share of the cloud service market has been stable at more than 30%, no matter how hard Microsoft and Google try to catch up, they have always maintained their first-mover advantage, which is the most advanced and cost-effective cloud service platform in the world.
Global cloud infrastructure service provider market share from Q4 2017 to Q3 2021
As early as the initial creation of Amazon, Bezos said that it was necessary to improve the efficiency of Amazon's platform operation from the perspective of infrastructure, and in order to support Amazon's increasingly large e-commerce business, as well as to handle concurrent user visits and transactions during peak periods, Amazon spent many years deploying a large number of IT computing and storage resources.
In fact, this kind of large-scale deployment of infrastructure was not new at the time, Google, Microsoft and many other companies are doing it, but these resources are generally used for their own use, and Google, which is making a lot of money in the advertising business, and Microsoft, which is sitting on the Internet throne, did not think of converting it into a product. But for Amazon, which had a retail margin of only about 2 percent at the time and was on the brink of loss for many years, it needed a product with a higher profit margin to ease the company's operational pressure.
After a period of operation, Amazon found that its IT resources are actually idle during off-peak sales hours, so why not develop them into products and open them to third parties? So, in 2002, Amazon released its own API for the first time, introducing a free integration of Amazon's website functions into their own websites.
Then, Amazon spent more than 3 years solving the problems caused by large-scale API opening, and constantly polished tools to improve work efficiency and run systematically. Finally, in 2006, AWS launched its first cloud offerings, including simple storage service S3 and elastic cloud computing service EC2, enabling enterprises to personalize amazon's infrastructure to develop their own applications. At this time, AWS officially entered the stage of history, and it was not until two years later that Microsoft and Google understood the big game that Amazon was playing, but it was too late.
Since 2006, AWS has continued to launch various cloud services, gradually forming a complete cloud service system that can provide dozens of products and have multiple regional data centers. In 2021, Amazon AWS's total revenue for the whole year was $62.202 billion, and its annual operating profit was $18.532 billion, accounting for more than 55% of Amazon's overall profit of $33.4 billion. The rapid and steady growth of AWS has become the main driving force for Further Development and Expansion of Amazon.
Later, when talking about the development of AWS, Bezos once concluded, "The biggest opportunity in the technology field must be platform-driven, and when you build a modern and 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 THE PROTOTYPE OF AWS is the "force of the times" under the development of Amazon to promote e-commerce, but the success of AWS is the reward brought by Amazon's dare to be the first person to eat crabs and act quickly. 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 new "secret weapon" – advertising
If the e-commerce business with trillions of transactions is regarded as a giant wheel, what is driving it forward now, in addition to the powerful engine of AWS, the advertising business has also begun to play an increasingly important role, becoming an important influencing factor affecting the rise and fall of Amazon's stock price.
Last quarter, Amazon separated its advertising business from "other revenue" for the first time in its earnings report, revealing detailed data and growth for amazon's advertising business in recent years for the first time. At this time, everyone was surprised to find that in 2021, Amazon's advertising revenue reached 31 billion US dollars, and if calculated by revenue scale, Amazon has become the third largest digital advertising company in the world after Google and Meta.
While advertising accounts for only 7 percent of Amazon's overall revenue, it's undoubtedly the fastest-growing segment of Amazon's businesses other than AWS, with growth as high as 88 percent at one point in the past few quarters. At the same time, advertising has become Amazon's fourth largest source of revenue after e-commerce, AWS and third-party services.
Image from Amazon earnings
Although $31 billion is still a big difference compared to the two giants of Google and Meta, it is already a "dimensionality reduction blow" for other companies that rely on advertising for a living. Snap's full-year 2021 revenue, for example, was $4.12 billion, while Pinterest's revenue was $2.58 billion.
So why is the momentum of Amazon's advertising business so fierce? Mainly because Amazon has a natural advantage in developing advertising.
First, it can attract external advertising through the huge traffic and high conversion rate of Amazon's website, and third, it can attract various forms of advertising in physical stores including Prime Video, Twitch, home products, and Whole Foods.
A recent report by research firm Jungle Scout on consumer market trends found that 74% of consumers search for products on Amazon first when they are willing to spend. The analysis believes that the rapid growth of the advertising business will also further improve Amazon's overall revenue, but also bring Amazon a higher overall profit margin, and may also become Amazon's third business growth curve.
Intelligent hardware and subscription services work together,
Open up more room for imagination
In addition to its high-profile advertising business, Amazon has also performed well in recent years in subscription services and hardware. Although subscription services including Prime membership, e-books, videos, music and other subscription services have slowed down recently after maintaining rapid growth for several years, the proportion of subscription services in Amazon's overall business is still stable, bringing it nearly 10 billion US dollars in revenue every year.
It is worth noting that in recent years, Amazon has also achieved good results in some so-called "slash businesses". For example, making a movie won an Oscar, became the first Internet company to win this award, and even bought the old film production company MGM with a big hand. For example, games such as "New World" and "Lost Ark" have repeatedly broken the number of people playing Steam at the same time, although the games developed have mixed reviews, but Amazon can now 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 competed with Google. Due to the huge upfront investment in the field of voice assistants and cloud computing, Amazon also occupies a first-mover advantage in the Internet of Things and cloud markets, forming an integrated structure including infrastructure, technology platforms, services and product markets, and has always maintained a leading position in the smart home market.
In the past five years, the number of amazon echo installs in the U.S. smart speaker market has accounted for 69% of the total number of installs. In recent years, Amazon has also continued to iterate its own hardware products, in addition to echo, Blink, Ring and other home products have become popular, and recently took the lead in launching experimental products such as Astro smart home robots.
In addition, Amazon is also laying out in frontier areas such as space exploration and electric vehicles. Last year, space company Blue Origin completed its first manned spaceflight, and the investment in electric pickup truck company Rivian also successfully listed, which also opened up more imagination space for Amazon's future.
Since its official listing in 1997, Amazon's revenue has soared from $600 million to $469.8 billion in 2021, growing from an anonymous online bookseller to a tech giant with a market capitalization of more than $1.6 trillion and more than 1.6 million employees worldwide. Looking back at the 25 years it has gone through, you will find that the most important secret of Amazon's success is its strong action and forward-looking power, and every step it takes can better serve its main business while enriching its wings and extending new business areas.
As Bezos said when he founded Amazon, Amazon is not a retail business, but a technology company. And 28 years later, Amazon has built not only an e-commerce platform, but a huge technology empire.
Although Amazon's "wolf culture" has been controversial in the job market in recent years, from the perspective of the company's development, Amazon's performance is indeed good enough. Today's Amazon is not only delivering products to consumers, providing services for thousands of enterprises, but also creating value for more cutting-edge industries.
In the impression of many people, the e-commerce Amazon, which has been prosperous for 20 years, is already a giant, although it is rich, but it is inevitably slow to act, however, in fact, it is still at every inflection point, turning lightly.