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How Amazon Makes Money: Complete Profit Model

| Published on March 25, 2019

E-commerce has evolved as one of the biggest industries in terms of revenue generation but most of these online selling platforms are experiencing huge loss because customers want heavy discounts. Now the question arises, how Amazon became one of the biggest companies in the world even after proving these discounts. Check the points below:

Amazon reportedly has earned a record-breaking amount of $ 10.1 billion in 2018, compared to the value of $ 3 billion the previous year. This sudden hike can be a huge turning point for Amazon as the company until 2016 gained no significant profit.

Amazon

Amazon Web services

Online sales proved less profitable for the company, despite its control over e-commerce. Amazon Web services has been generating the majority of Amazon’s operating income since 2016. The unit accounted for 58% of operating profit in last year’s fourth quarter, during a year when its cloud revenue rose by 47%.

AWS is a platform which allows businesses to store their information and deliver content. Amazon controlled 35% of the cloud market in 2018. In 2018, AWS generated more than $7 billion in operating income.

Selling its own products

In E-commerce, Amazon gets most of its revenue by selling merchandise on its site through first-party and third-party sales, associating with massive brands like Nike Inc. The company is building out its branded business with products such as its Alexa suite.

Whole Foods Business

With the acquisition of organic grocer Whole Foods in 2017, the company is looking to expand its business in retail space. Whole Foods has given it access to hundreds of physical retail stores to build other businesses such as pharmacy and apparel.

In June 2018, Amazon made an investment in drug space with online pharmacy platform PillPack for $753 million. The online grocery business is expected to grow and Amazon is testing with stores around the world with Amazon Go.

Advertising Business

Amazon has been investing in digital advertising from the past few years and roughly has around 10% share of the market, according to eMarketer. With its Amazon Video platform, Amazon competes against entertainment leaders such as Netflix and Walt Disney.

Also Read: Marketing & Business Model: How D-Mart Became Number One In Retail Space

With recent success, Amazon has become the focus of attention for investors to give a second thought regarding future dealings with the company. The company which was previously been valued based on growth over profitability.

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