In this article we are going to list the 10 industries which form the basis of how Amazon makes money. Click to skip ahead and jump to the top 5 ways Amazon makes money. Look, unless you've been living under a rock or live in an extremely remote area of the world with little to no access to global news, you know what Amazon (NASDAQ:AMZN) is. I live in a country where Amazon has never had operations and even now, there seems to be no likelihood whatsoever that Amazon will make an appearance, but I still know a lot about the company, because that's just how big it is.
Amazon was founded back in 1994, around 26 years ago in his own garage. Contrary to popular belief, this does not mean that Jeff Bezos had a rags to riches story that everyone seems to love, especially in the United States. After all, the Land of the Free and the American Dream all seem to aim towards the fact that if you work hard in the United States, no matter where you're from (whether you're born there or you migrate to the country), if you work hard and climb the corporate ladder and keep your head down, you will achieve success. This is also perhaps why this is ascribed to some of the richest people in the US and the world as well, including Bill Gates from Microsoft (NASDAQ:MSFT) while failing to forget that he was from a rich background with well-connected parents affording him opportunities that other people would normally fail to get. Of course, this doesn't mean that their achievements are not worth anything and that they should be belittled; not matter how privileged a background you are from, earning tens of billions of dollars is no mean feat. After all, I'm from a middle class family, and I'm still writing articles on them rather than competing with them.
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Jeff Bezos was a vice president at a Wall Street firm when he left everything to start Amazon. The initial idea behind the company was to use it to sell books. Bezos actually envisioned Amazon, based on the biggest river in the world, would become the biggest bookseller in the entire world. And even from the start, Bezos knew the importance of building a brand, something which many businesses even now fail to get. The company was initially established to capitalize on the growth of the internet in the 90s and Bezos actually made a list of products which could be easily sold online, which included software, videos, books and computer hardware. With a determined man like Bezos behind the company, Amazon started earning revenue of $20,000 per week, and with sales in all 50 states, before going public in 1997.
As time went by, Amazon grew and grew, which is especially true for the last decade. Amazon started to branch out more and more into other industries, and established a significant presence. It is now one of the largest retailers in the entire world, and the most amazing thing is, nearly every other major retailer in the world has a significant physical presence as well as an online presence; Amazon has become a massive giant even though it only has an online presence and no physical stores at all. The funny thing, despite Amazon being incredibly popular in the United States as well as beyond, it was still not profitable until just a few years ago. This may seem unbelievable especially for a company which had consistently been earning tens of billions of dollars every single year, but that was clearly not Amazon's end game. While most companies aim to be profitable and provide constant and high returns to shareholders, Amazon's plan was a bit different. Amazon wanted to gain a market share in every industry they entered and the best way to do that, especially when not providing a premium product (after all, there are tons of websites which sell stuff) was to offer dirt cheap prices. Amazon didn't mind cutting prices to the point that it was effectively making a loss and this strategy has proven successful since. Now, Amazon is earning billions of dollars in profit and yet, doesn't have to pay a single cent in tax because of its carried forward losses, making it the biggest company not to pay taxes.
Even despite the aforementioned successes, which has earned it the moniker of The Big Five, which consists of the purportedly five most powerful companies in the United States. The company has continued to diversify its operations and engages in many different industries, which we'll discuss later on. This is why it was in prime position to survive the dot com bubble collapse in the 90s which bankrupted many other internet companies and their investors. And this is why, despite 2020 being one of the worst years in history for business as the Covid-19 pandemic hit and countries across the globe went into recession, Amazon boasted record profits, increase in share price and actually hiring hundreds of thousands of employees, and is now the second largest private employer in the United States, second only to Walmart.
Of course, you can't become a giant without ruffling a few feathers and Amazon has been engaged in its fair share of controversies. The company has a significant environmental impact which has attracted criticism, while it has also been called upon for not paying tax, and actually gaining tax refunds which themselves are worth millions of dollars. Meanwhile, Vermont Senator Bernie Sanders repeatedly criticized, admittedly validly, for poor working conditions for the hundreds of thousands of employees of the company, and the low minimum wage paid by the company as well. In October 2018, the company announced it would increase its minimum wage for all employees to at least $15 an hour, which was welcomed by many, including Sanders.
To become a company which is one of the biggest companies in the world, with a market cap of $1.56 trillion, revenue of $296.3, assets of $221.2 and profits of $10.6, you need to be at the top of your game, no matter which industry you're based in. And this is a delicate balancing act for the tech giant, which has its hand in many industries. So how does Amazon make money and which industries is it mostly based in? Well, read on to find out, starting with number 10:
10. Amazon Publishing
While many of you may now be aware of it, Amazon doesn't just sell already published books on its website; it also has its very own publishing company called Amazon Publishing, which was established in 2009 and is currently headquartered in Illinois. The publishing company consists of 15 imprints, and also e-books which are published through a subsidiary of Amazon Publishing, Kindle Direct Publishing.
However, while Amazon may have achieved a lot of success in many different industries and is one of the biggest companies on Earth, the same success didn't translate to the publishing industry, despite having been present in the industry for at least 11 years. In fact, it has attained criticism for consistently underperforming, with most of the books selling way below what was expected. They have even purchased books for hundreds of thousands of dollars and even a million dollars at auctions, only for subsequent sales to bitterly disappoint. One of the reasons provided for this failure is the fact that many of the book sellers simply refuse to sell Amazon's books since they are direct competitors. Another reason given is that Amazon relies on automation and algorithms, which doesn't translate well to selecting books while people will like.
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Amazon Pharmacy is one of the newest launches by Amazon, which only came into existence on November 17, 2020, and has turned the healthcare industry upside down. Some of the major competitors of Amazon include CVS Health (NYSE:CVS) and Walgreen (NASDAQ:WBA), both of whose shares suffered on Amazon's announcement of entering the industry. The company provides subscriptions to people who have subscribed to Amazon Prime with free delivery and within two days of placing the order. While its too soon to tell the impact Amazon will make, if history tells us anything, it could be huge.
8. Whole Foods
Whole Foods is a supermarket chain extremely popular in the US which basically sells healthy products which are free from preservatives or any other artificial products. With 500 stores in the US and 7 in the UK, the company had achieved a strong customer base, which kept increasing as health consciousness has increased as well. Amazon acquired Whole Foods in 2017, at a time when it was closing stores and struggling with customers. This allowed Amazon to increase its physical footprint.
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Audible was one of the first audiobook services, and is an online audiobook and podcast store. The service was established in 1995 and was bought by Amazon in 2008 for $300 million. There are more than 200,000 audio programs available. This includes all sorts of books from various genres, radio shows, speeches, podcasts, interviews, comedy and a lot more as well as audio versions of periodicals. It is said to be the largest employer of actors within New York City.
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6. Amazon Logistics
When you have millions of customers and a huge demand for products across the globe, you need a large fleet. Amazon has at least 60 cargo planes which are more than what most major airlines own, and at least 60,000 trucks with another 100,000 on order. If Amazon entered the logistics industry separately and not just to provide products from its own website, it could easilt rival FedEx (NYSE:FSX) and UPS (NYSE:UPS).
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Disclosure: No position. How Amazon makes money is originally published at Insider Monkey.