Amazon Profitiability




As counter intuitive as it sounds, 91% of Amazon's revenue comes from product sales, however this accounts for only 44% of their profits. The remaining 9% of revenue comes from AWS, their cloud computing services used by many individuals and, more importantly, companies. AWS accounts for 56% of profits.


Amazon Profit

One of biggest reasons behind this discrepancy between relative profit of AWS and other sales is that Amazon attracts its retail customers through cheap prices. They attain this in a few different ways, including creating their own warehouse and distribution system (which lowers the markup that they would otherwise have to pay a third party shipping company), by collecting and selling user data (which helps offset the low margin they place on many products), and by applying large discounts to the more popular items.

This discount on popular items increases demand for the products on Amazon versus other retailers, and although the marginal profit might be lower, the overall profit is higher due to the much increased sale volume.

Amazon relies on it's huge size for many of the ways it creates a profit with such a low profit margin, since it just wouldn't make sense to develop their own shipping service or discount popular items if they weren't the megalith that they have become.


Sources:

https://www.cnbc.com/2019/02/12/how-amazon-makes-money.html
https://www.businessinsider.com/amazon-web-services-profit-vs-total-amazon-profit-2016-5

Comments

  1. AnonymousMarch 24, 2019 at 8:03 PM

    Great post. It definitely makes sense since it feels like Amazon tries to make you buy something every time you're on their site. Having 'deals', 'similar items you've purchased', 'you might like' tabs to make you want to buy items. Though, Amazon has quickly evolved as your everyday purchases as it now contains music, video streaming, e-books, and much more, it has and continues to find new ways of revenue and attract the people. https://www.businessinsider.com/how-amazon-makes-money-2017-12

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    Replies
    1. AnonymousMarch 29, 2019 at 8:33 AM

      Amazon has definitely expanded its market to cover dozens of other industries that seem completely unrelated to shopping, and the other industries that Amazon has taken on. I think it is important to realize and understand the impact that they have when they decide to join a particular industry--e.g. (as you said) music, videos, books. With shopping, they have made it extremely difficult for local stores to keep their customers, and maintain their business, due to the convenience that Amazon provides. With videos and books this seems similarly translatable, with local shops having a harder time, however with industries that have relied on the internet for a longer time (music...) I wonder how Amazon affected the industry.

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  2. AnonymousApril 25, 2019 at 6:12 PM

    The Amazon business model is very intriguing given their low profit margins. They rely on their ubiquity to bring in profits. By the looks of it, its working and will only continue to succed as they expand their evergrowing empire. The most interesting part of this post for me, was how much profit Amazon Web Services brings in. They run on a pay-as-you-go basis, meaning that there must be a ton of companies around the world using AWS.

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