Amazon is known as the “everything store.” But now more than ever, Amazon isn’t just about selling everything. It’s an everything business.
During its annual conference for Amazon Web Services users last week, the company introduced a range of cloud computing business services that layer on top of its cloud computing infrastructure. Not content to challenge entrenched enterprise players like IBM, Oracle, and Microsoft, Amazon signaled it would compete against newer data upstarts too, including data visualization companies Tableau and ChartCube.
Now more than ever, Amazon isn’t just about selling everything. It’s an everything business.
At the same time, Amazon was launching Handmade, an Etsy-like online marketplace for artisanal goods. Even as all of this was unfolding, Bloombergreported that Amazon is in the preliminary stages of launching an online live TV service to complement its popular Instant Video offerings, and it likely will run on its Fire TV hardware. And late last month, the company launched Flex, an Uber-like platform where on-demand workers could pick up shifts delivering packages.
The funny part is that these seemingly disparate businesses still represent but a fraction of the full range of the company’s ambitions. So just what the hell is Amazon up to?
The thing is, Amazon has always dabbled in many corners of the tech industry as it’s pursued its well-worn mantra of “growth before profits.” And that means the company is more than the world’s largest retailer. It’s also an Internet of Things company. A device maker. A payments company. The list goes on. Some bets, like its massive cloud computing service, Amazon Web Services, have proven hugely successful. Others, like the Fire phone, have …. not.
But throughout its history, Amazon has differed from its competitors in one distinct way. At key moments in its evolution, it has realized that innovations that have served it well internally likely would have a market externally as well. That realization has helped drive some of Amazon’s greatest successes.
“Along the way of building the world’s largest online retailer, Amazon has discovered some areas where it’s had to build some very unique things,” says ChannelAdvisor executive chairman Scot Wingo, an analyst who tracks Amazon closely. “As it has done that, it’s made the unusual decision to open up these innovations to third parties, whereas in the old, offline-world, you guarded those assets as proprietary and strategic advantages.”
In offering those advantages to others, Amazon has created a virtuous circle of success for itself and its business customers. In becoming the everything business, Amazon has become everything to many businesses, as well.
All Hail the Cloud
That certainly is true of Amazon’s cloud services. Theeffort started in August, 2006, when Amazon introduced the Elastic Compute Cloud (EC2). It gave users virtually unlimited computing power on the heels of a complementary offering called S3, which provides virtually unlimited data storage. Together these services formed the core of what’s known as Amazon Web Services.
As my colleague Cade Metz wrote in 2012, Amazon’s reasons for making its cloud public when it did is a bit of a mystery. (“The story of EC2 is like Rashomon,” he wrote.) But it wasn’t long before the company realized the potential of its vast cloud computing capabilities—and moved to monetize it.
Just six years after it launched, the company’s cloud computing infrastructure was estimated to run as much as 1 percent of the entire Internet. In April, the company broke out the financial details of AWS for the first time—revealing it was a massive $4.6 billion business.
Competitors—especially Microsoft and Google—are catching up. And though $7.3 billion is a huge number, it’s but a fraction of the nearly $200 billion Forrester sees as up for grabs for cloud services by 2020.
But Amazon’s cloud is still formidable. “[Its cloud services] grew close to 100 percent or more since last year,” says Jeffrey Hammond, principal analyst at Forrester. “All they need is another double and they are closing in on $15 billion—I think they will get there easily in the next 2 years, and $20 billion is not far beyond that.”
The strength of Amazon’s cloud business also helps it in other, less immediately monetizable ways. It gives Amazon a big stake in mobile, for instance. Though its Fire phone was a bust, Hammond points out that mobile developers who build iOS and Android apps still frequently use AWS for the backend connectivity and storage for their app data. “In that area, Amazon is increasingly competitive as a mobile infrastructure service,” he says.
Along with its digital infrastructure, one of Amazon’s less visible triumphs is its physical infrastructure, the fulfillment centers that power much of the company’s third-party marketplace. Says Wingo, “I would argue that if they split out their third-party marketplace, it would be another blockbuster.”
You may not realize that much of what is sold on Amazon is not sold by Amazon but by retailers who use Amazon as a storefront. Often, through a program called Fulfillment by Amazon, these merchants store their inventory in Amazon warehouses and rely on Amazon to ship their goods, often via Amazon Prime.
‘I would argue that if Amazon split out its third-party marketplace, it would be another blockbuster.’SCOT WINGO, CHANNELADVISOR EXECUTIVE CHAIRMAN
It’s another service that’s generating billions. Third-pary sales grew around 25 percent, year over year, in the third quarter of this year, according to ChannelAdvisor’s data, against an overall e-commerce backdrop of 15 percent growth. According to the company’s last earnings report, third-party merchants accounted for 45 percent of all items sold on Amazon during Q2, up from 41 percent last year. Though Amazon doesn’t report the dollar value of those sales, ChannelAdvisor estimated that third-party sellers accounted for 58 percent of the $48.3 billion in merchandise sold on Amazon sites during the quarter.
ChannelAdvisor also estimates that Amazon’s business is closing in on $10 billion per year in revenue from commissions on third-party sales—and that it’s making a profit on those sales. Meanwhile, the other big public marketplace, eBay, Wingo says, is growing low single digits. “Amazon is gobbling up market share,” says Wingo, adding that what Amazon is raking in is the equivalent of five to ten JCPenney e-commerce businesses.
So, yes, the 21-year-old company would seem to have its hand in everything, from producing Emmy-winning original content to enterprise computing to selling sneakers. Not every endeavor is successful. But like the best tech companies, Amazon knows how to iterate. If one thing doesn’t work, it tries another. And as the Fire Phone showed, it certainly doesn’t wait until its next product is perfect. But it turns out Amazon does have one pretty good gauge of what will become a big seller. If it works for Amazon, it’s going to work for somebody else, too. When you try everything, chances are, you’re going to get something right.