As a longtime Amazon seller and ecommerce expert, Amazon is more than just an online retailer to me—it‘s an intricate, constantly evolving marketplace and technology ecosystem. When I launched my first product on Amazon over a decade ago, I knew little about how this ecommerce giant actually operated or the impact it would have on consumers and businesses worldwide.
After years of managing successful Amazon stores, learning the ins and outs of its third-party marketplace, and staying on top of its new programs and innovations, I‘ve developed a deep understanding of what makes Amazon tick. Here‘s my insider perspective on the history, business model, and strategic priorities that explain What Is Amazon and how it became one of the most influential companies in the world.
The Rise of Earth‘s Most Customer-Centric Company
Amazon famously started out of Jeff Bezos‘ garage in 1994 as an online bookseller. But within 3 years, the company expanded beyond books into new categories like music, video, and electronics.
As Bezos explained to shareholders in 1997, he envisioned Amazon as "Earth‘s most customer-centric company"—a platform that harnessed the power of the internet to offer customers convenience, selection, and low prices.
Amazon‘s growth trajectory reflected this customer-first approach:
As you can see above, Amazon saw meteoric growth in its early years as a public company. Revenue doubled year-over-year leading up to the dotcom crash, with 100%+ increases from 1997 to 2000.
Despite the early 2000s recession damping Amazon‘s growth, expansion quickly accelerated again after 2003. Fast forward to 2022, and Amazon‘s global net sales hit a staggering $514 billion.
Driving this growth was a relentless focus on understanding customers‘ needs and habits to make their shopping experience as seamless as possible. With innovations like 1-Click ordering, customer reviews, recommendation algorithms, Prime membership, and acquisition of companies like Audible and Zappos, Amazon delivered extreme convenience to become customers‘ first stop for nearly any product.
Amazon‘s logistics capabilities also expanded tremendously over the past decade. With a global fleet of cargo planes, over 100 distribution centers, thousands of delivery vans and the ability to get over 10 million products to any buyer within 1-2 days, Amazon has built perhaps the most impressive supply chain on Earth.
How Amazon‘s Flywheel Keeps Spinning
So how does Amazon actually make money? Their diversified business model includes:
Online retail – Direct sales of products to consumers
Third-party seller services – Commission fees from third party transactions
Amazon Web Services – Cloud computing services for companies
Advertising – Selling ad space on Amazon‘s sites
Subscription services – Fees from Amazon Prime, Audible, Kindle Unlimited, etc.
Brick-and-mortar – Revenue from Whole Foods, Amazon Go, Amazon Bookstores
Amazon operates many complex, interlinked businesses under one umbrella. But at the heart is the core retail flywheel that kickstarted Amazon‘s success:
This flywheel revolves around adding selection to attract more customers, which allows Amazon to then improve the customer experience. This leads to more traffic, which lets Amazon lower costs through economies of scale, undercut competitors on pricing, and widen its selection…feeding the flywheel.
Prime accelerated this cycle by increasing customer loyalty. Third-party sellers expanded selection massively while AWS gave Amazon the infrastructure to scale. Each new segment reinforces the others.
Why Sellers Have Flocked to Amazon
A core part of Amazon‘s retail flywheel is its third-party marketplace. Amazon opened this platform to outside sellers in 2000. I can share from firsthand experience that this marketplace is extremely attractive for several reasons:
Built-in demand – Millions of customers already shop on Amazon daily
Fulfillment – FBA handles shipping, returns, storage for sellers
Visibility – Product listings appear high in Amazon‘s search results
Traffic – Amazon drives huge amounts of consistent traffic
Trust – Customers trust Amazon‘s brand recognition and return policies
Data & analytics – Sellers get data to optimize listings and boost sales
In 2021, an estimated 1.8 million small and medium businesses made $200 billion in sales on Amazon‘s platforms in the U.S. alone. Third-party sales grew at double Amazon‘s first-party sales:
For entrepreneurs and small businesses, Amazon provides instant access to hundreds of millions of customers. Although Amazon takes a cut of revenue and can be a competitor, the platform enables smaller sellers to scale quickly.
Amazon Web Services: The Profit Machine
Most consumers don‘t realize that retail isn‘t Amazon‘s biggest money maker. That distinction belongs to Amazon Web Services (AWS), the company‘s cloud computing division.
AWS launched in 2006 to provide businesses with on-demand access to computing power, database storage, and other cloud-based tools. It pioneered the cloud infrastructure model that tech giants rely on today.
Some stats illustrate AWS‘s massive scale and impact:
- 33% market share in cloud infrastructure services (source)
- Over 200 services for computing, storage, databases, analytics, etc (source)
- Powers popular apps like Netflix, Uber, Airbnb, and Slack
- Generated $62 billion revenue in 2021, 15% of Amazon‘s total (source)
- 76% of Amazon‘s operating income (source)
AWS is a pivotal part of Amazon‘s strategy. The cloud platform supports Amazon‘s own ecommerce infrastructure and innovations. Meanwhile, the high profit margins from AWS enable Amazon to offer customers the lowest retail prices.
Prime Power: Amazon‘s Loyalty Program
A core reason for Amazon‘s retail dominance is its Prime membership program. Prime launched in 2005 to provide customers with free two-day shipping. Since then, Prime evolved into much more than fast shipping. The most notable benefits today include:
- Free 1 or 2-day delivery on millions of items
- Unlimited streaming of movies, TV shows, and music
- Free books and magazines with Prime Reading
- Unlimited photo storage with Prime Photos
- Exclusive discounts and early access to deals
- Free release-date delivery for games/books/movies
Customers pay $139 per year or $14.99 per month for Prime in the U.S. Revenue from over 200 million Prime memberships globally is a major boost to Amazon‘s bottom line.
But more importantly, Prime builds extreme loyalty. Surveys show Prime members convert more often and spend much more money on Amazon:
Source: [Business Insider](https://www.businessinsider.com/amazon-prime-member-statistics)
By incentivizing customers to pay upfront, Amazon knows it will get a greater share of their wallet long-term. Prime brillantly locks in recurring revenue while creating habits for shopping on Amazon.
Fulfilled by Amazon: The Logistics Machine
A huge reason for Amazon‘s shipping speed and customer loyalty is its Fulfilled by Amazon (FBA) program. With FBA, sellers send their inventory to Amazon‘s warehouses and Amazon handles storage, packing, shipping, returns, and customer service.
FBA was a game-changer when it launched in 2006. Suddenly, small sellers could provide Amazon Prime shipping without developing their own warehousing and fulfillment operations.
In 2021, FBA accounted for over 60% of Amazon‘s first-party and third-party physical gross merchandise sales. Here are some of the major benefits it provides sellers and customers:
- No warehouse space needed
- Reduced labor costs
- Faster delivery times
- Expanded selection for Prime
- High customer service standards
- Storage across Amazon‘s fulfillment network
- Free 1 or 2-day Prime shipping
- Easy returns to Amazon sites
- Reliable customer service
- Consistent delivery speed
- Larger selection of FBA products
FBA allows Amazon to control fulfillment end-to-end, ensuring efficiency and customer satisfaction. Meanwhile, opening FBA to third-party sellers massively increased selection available to Prime members. This symbiotic relationship strengthens the flywheel.
How Sellers Can Thrive on Amazon‘s Marketplace
As an experienced Amazon seller, I‘ve learned some key strategies for success when selling on Amazon:
Choose the right products – Pick categories with strong demand but not too much competition. Analyze best selling items and customer reviews.
Optimize listings – Create compelling titles, descriptions and images. Highlight key product features and benefits.
Consider FBA – Weigh the costs vs inventory management benefits of Fulfilled by Amazon.
Promote listings – Use Amazon PPC ads and coupons to boost product visibility.
Get reviews – Prompt buyers to leave reviews to build social proof.
Analyze data – Use analytics to identify opportunities to improve conversions.
Build your brand – Create a recognizable brand with consistent branding across listings.
Watch the competition – Monitor competitors‘ pricing, inventory, etc and adjust.
Experiment – Try different promotions and tactics to find what resonates.
Provide epic customer service – Communicate proactively with customers and resolve any issues quickly.
The bottom line when selling on Amazon is you have to be nimble. Amazon is constantly evolving. Move fast, stay data-driven, and always put customers first.
The Controversy Around Amazon‘s Market Power
Despite fueling tremendous entrepreneurial opportunity, Amazon‘s sheer size now raises controversy. Critics, regulators, and politicians have accused Amazon of being a harmful monopoly. Concerns include:
Competitive advantage – Third-party data gives Amazon insight into best selling items it can then produce itself
Counterfeit products – Amazon‘s open marketplace enables some counterfeiters and unsafe products to slip through
Treatment of third-party sellers – Allegations Amazon copies sellers‘ products or favors its own products in search
Labor practices – Reports of poor working conditions in warehouses, opposition to unions (source)
Antitrust violations – Using market position to unfairly dominate industries like book and cloud computing markets (source)
Amazon is now under major regulatory scrutiny in the U.S., EU, and other jurisdictions. However, Bezos and new CEO Andy Jassy continue to invest aggressively in new initiatives.
Where Amazon Is Headed Next
Despite its immense size, Amazon still behaves like a start-up, experimenting in emerging tech areas. Initiatives on the horizon include:
Brick-and-mortar – More Amazon Go stores, expanding Whole Foods locations (source)
Healthcare – Telehealth, prescription delivery, wearables to predict illness (source)
Financial services – Digital currency, payment processing, "buy now pay later" (source)
Entertainment – Strengthening Prime Video, music, and gaming (source)
Artificial Intelligence – Voice computing, visual search, robots (source)
Advertising – Rapidly growing Amazon‘s ad platform and network (source)
Robotics – Delivery robots, cashierless tech, warehouse automation (source)
If the past decade is any indication, Amazon will continue aggressively expanding into whatever sectors it believes can delight customers. The bigger question is if unchecked growth begins to do more harm than good.
The Bottom Line on the Everything Store
In many ways, Amazon has made shopping vastly more convenient for all. But its ambition to be "Earth‘s most customer-centric company" has also disrupted industries and concentrated tremendous power into the hands of one corporation.
Amazon‘s scale and appetite for invention is unlike anything the business world has ever seen. So 30 years after Jeff Bezos incorporated Cadabra Inc (Amazon‘s original name), the company continues trending toward total retail domination.
Whether you love the convenience Amazon provides or see risks in its market dominance, there‘s no denying this tech titan has permanently changed the way the world shops. Although competitors like Walmart and Target have been forced to adapt to keep pace, Amazon‘s flywheel momentum shows no signs of slowing.