From a small garage book store to a Retail Empire
Amazon had a humble beginning as an online bookstore operating out of Jeff and MacKenzie Bezos' rented garage in Bellevue, Washington. In its early days, the company had only ten employees, mostly software engineers, handling tasks ranging from programming to packing books. Jeff Bezos, the company's founder, quickly recognized new opportunities and expanded Amazon's business scope soon after. By 1998, Amazon was selling not only books but also a wide array of consumer goods such as food, CDs, clothing, and electronic components. To support this rapid growth, Bezos acquired several small companies, helping to scale Amazon's operations and services. As of 2024, the company offers over 30 types of goods, with third-quarter revenue increasing by 11% year-on-year (reaching $158.9 billion).
In 2024, Amazon ranked fifth globally by market capitalization, with a valuation of $1.045 trillion. The company has established itself as a global powerhouse, playing a pivotal role in reshaping shopping and consumption habits worldwide. Amazon's services extend far beyond shipping; it also offers streaming services and develops advanced technologies like the virtual assistant "Alexa." Thanks to its remarkable success, Amazon has become one of the most recognized online shopping brands in the world.
Amazon’s Annual Revenue from 2019 to 2023 (Source: Stock Analysis)
Amazon's Business Strategy
The Launch of Amazon Prime Boosts Customer Loyalty
One of Amazon's most renowned and profitable services, Amazon Prime, was first introduced in February 2005. Initially, the service offered an unlimited two-day free shipping subscription for an annual fee of $79. At the time, Amazon Prime attracted a relatively limited number of customers, as the concept of online shopping was still novel, and the subscription fee seemed high to consumers. However, after several years of expanding its services, Amazon began to see significant growth in Amazon Prime subscriptions starting in the 2010s.
Amazon Prime Subscription Services Revenue Worldwide Q2 2024 (Source: Evoca.tv)
According to data from Search Logistics, Amazon saw an increase of approximately $29 billion in net revenue from 2013 to 2021, with total net revenue from Amazon Prime reaching $31.77 billion in 2021. This growth was primarily driven by an increase of around 28 million new subscribers from 2019 to 2021, during the peak of the COVID-19 pandemic when most transactions had to be conducted online.
Number of Amazon Prime Members over the years (Source: Yaguara.co)
Thanks to the fast shipping speeds and convenience of free delivery, Amazon has been able to generate higher annual revenue from Prime members compared to non-members. According to a 2024 survey, the average annual spending of a Prime member on Amazon is $1,400, while non-members spend around $600 each year.
In addition to fast shipping, Prime subscribers gain access to Prime Day—a special event that rewards Amazon Prime members with numerous discounts across shopping, entertainment, food delivery, and other services. Amazon announced that Prime Day 2024 was its largest shopping event to date, with record-breaking sales and the number of products sold surpassing all previous Prime Day events. During the 48-hour event, Prime members worldwide saved billions of dollars through discounts across all shopping categories. Amazon's branding strategy immediately addressed a real consumer need: online shoppers want a platform where they can buy anything, have it delivered anywhere, in the shortest possible time, and at the most competitive prices.
A to Z: Multi-Sector Business Strategy
As the world’s largest retail e-commerce platform, Amazon also has a highly diversified revenue stream across different business models. Amazon's main revenue sources include: Online Retail Sales, AWS Cloud Services, and Online Advertising.
Online Retail Sales: Online retail remains Amazon’s primary source of revenue. Products sold on Amazon's website range from books, CDs, electronics, clothing, household goods, and a variety of other items.
Affiliate Marketing: Amazon's affiliate marketing program, known as "Amazon Associates," is one of the first affiliate marketing platforms in the world, launched in 1996. The program is free to join and user-friendly, allowing participants to earn 10-15% of the value of products sold. As of 2024, revenue from third-party sellers—including Amazon's affiliate marketing—accounts for 61% of the company's total revenue in the first quarter.
Amazon’s Third Party Revenue from 2007 to 2024 (Source: Statista)
Amazon Web Services (AWS): This is the golden goose of Amazon, the e-commerce giant. AWS is a cloud computing platform that currently ranks as the largest in terms of revenue.
Online Advertising: Amazon provides online advertising services, including ads on Amazon’s website and on external websites. This is one of Amazon’s strengths, leveraging the massive daily traffic on its website, which significantly contributes to the success of this billion-dollar empire.
Amazon’s Revenue by sectors (Source: Amazon)
Using M&A to Expand the Market
When it comes to the Amazon empire, the ecosystem surrounding the customer experience is extensive: Amazon Prime builds a loyal customer base with exclusive perks, Amazon Fresh reaches customers familiar with traditional retail through Alexa, and Amazon Live connects users with thousands of trusted reviewers and content creators—providing helpful insights and information on products they wish to buy on Amazon.
However, beyond Amazon’s wide range of in-house services, the company is also known for its multi-billion dollar acquisitions, such as Whole Foods ($13.7 billion) and MGM ($8.5 billion). To diversify its core revenue, Amazon has acquired companies across various sectors, from healthcare to entertainment. Over the past 20 years, the tech giant has acquired or invested in over 128 different companies.
Largest M&A deals by Amazon (Source: Cafebiz)
When discussing the Amazon empire, several services stand out in enhancing the customer experience: Amazon Prime expands its loyal customer base with exclusive perks, Amazon Fresh reaches traditional retail customers via Alexa, and Amazon Live connects users with thousands of credible reviewers and content creators—providing valuable insights and information on products they want to buy on Amazon.
Beyond its diverse range of in-house services, Amazon is also renowned for its multi-billion-dollar acquisitions, including Whole Foods ($13.7 billion) and MGM ($8.5 billion). To diversify its core revenue, Amazon has acquired companies across various sectors, from healthcare to entertainment. Over the past 20 years, this tech giant has acquired or invested in over 128 different companies.
Whole Foods Market is a trusted chain of organic food and product retail stores in the U.S., founded in 1980 in Austin, Texas. Whole Foods Market has become a symbol in the organic and sustainable food sector. With over 500 stores across the U.S. and some international locations, Whole Foods offers a wide range of organic and specialty foods as well as food services. Whole Foods stores focus on chemical-free, certified organic products, promoting sustainable shopping and supporting local communities. Its commitment to fair distribution and environmental values has built a strong connection with customers who prioritize food quality and positive social impact.
Amazon’s acquisition of Whole Foods has yielded notable results for both parties and the food retail industry. Amazon has increased its revenue and market share in the food retail segment, particularly for organic and premium products, using Whole Foods stores as warehouses and pickup points for its AmazonFresh grocery delivery service. Amazon’s strategy of reducing prices on Whole Foods groceries attracted many new customers and increased traffic to Amazon’s online stores. Moreover, it integrated Whole Foods into its retail system, including Amazon Prime, Amazon Go, and Amazon Echo.
For Whole Foods, the brand has benefited from Amazon’s technology, management, and marketing support, enhancing operational efficiency and service quality. Through this M&A, Whole Foods expanded its reach to many new customers via Amazon’s online sales channels. This acquisition shook up the food retail industry, intensifying competition and pressuring rivals to cut prices. Many retailers sought strategic partnerships or invested in technology to maintain their positions, inspired by Amazon’s strategic vision.
Not only Whole Foods, but on March 17, 2022, Amazon announced it had completed the acquisition of MGM Studios for $8.45 billion. This marked an ambitious step into the streaming industry, gaining access to franchises like James Bond and Rocky. This deal expanded Amazon Prime Video’s library with around 4,000 films and 17,000 television shows, as the streaming market surged with intense competition from major players like Netflix and Disney.
These two case studies illustrate that Amazon’s M&A strategy has been instrumental in the company’s rapid expansion and diversification into new sectors, such as food retail with Whole Foods and streaming media with MGM. Instead of developing new technologies from scratch, Amazon leveraged existing companies’ services to save time and costs. Merging with technology and service companies has strengthened Amazon’s competitive edge and brand positioning. M&A has not only driven significant growth but also laid a sustainable foundation for Amazon’s long-term development, maintaining its leadership in the global market.
The Rise of E-Commerce Empires Threatening Amazon’s Position
Globally, the rise of Chinese e-commerce platforms has intensified competition in the e-commerce race—challenging Amazon’s leading position. Combining extremely low prices, free shipping, and aggressive spending on marketing, these platforms are catching up to Amazon’s once-unparalleled advantages. Notable competitors include Temu, Alibaba, Shein, and TikTok Shop.
According to Goldman Sachs, Temu spent nearly $3 billion on marketing in 2023, with $1.2 billion allocated solely to advertising on Meta. This substantial expenditure made Temu one of the largest online advertisers in the U.S., alongside Amazon, underscoring the Chinese e-commerce platform’s ambitions in this market.
In just a few years, Shein, initially a low-cost clothing brand from China, has become a global fast-fashion giant. The platform has even set its sights on competing with established players in e-commerce. Shein has contributed to a shift in fast-fashion purchasing trends, from intermediary e-commerce platforms to dedicated fashion-focused platforms. As a result, Amazon may no longer be the go-to destination for fast-fashion shopping online in the future.
In another context, Bloomberg reports that TikTok Shop aims to increase its total merchandise value in the U.S. e-commerce market tenfold to $17.5 billion this year, presenting a significant threat to Amazon. TikTok’s ambitious goal further fuels competition in the U.S. e-commerce market, dominated by Amazon and rival Chinese companies. Unlike its "domestic" competitors, TikTok leverages its social media reach and the appeal of trend-worthy videos to attract buyers. Last year, TikTok Shop’s global merchandise value was estimated at $20 billion, with Southeast Asia contributing a large portion of revenue. However, TikTok Shop’s growth in the U.S. market is also formidable, even though it has only been in operation for two years.
GMV Share of Tiktok Shop in some countries in 2024 (Source: Influencer Marketing Hub)
But it’s not just Shein and TikTok Shop; Temu and Alibaba are also quickly rising to catch up with the e-commerce giant. According to research by Global Wireless Solutions in the U.S., in 2023, American consumers spent an average of 11 minutes per day on the Amazon app. In contrast, Temu users spent 22 minutes daily on its app, drawn in by frequent discount offers.
According to a survey of 1,000 U.S. consumers conducted by Jungle Scout, an analytics service for sellers, 52% of respondents said they searched for products on Amazon first when shopping online between April and June, a 9-percentage-point drop from two years prior. Sales from Amazon's online shopping business grew by 5% year-over-year from April to June, slowing from a 7% increase in January to March. This suggests that while the rise of Chinese e-commerce giants has not yet dealt a severe blow to Amazon’s revenue, signs of a fragmented market share are emerging, requiring Amazon to stay ahead of the race amid economic downturns and the growing availability of cheap Chinese goods.
However, this race is far from over. The U.S. and the European Union—two of Amazon's key markets—are closely monitoring foreign e-commerce platforms operating within their regions. EU authorities have voiced concerns about the influx of low-cost goods from China and the risk of counterfeit products. The sudden surge of ultra-cheap goods is putting considerable pressure on transportation, logistics, and fashion brands across Europe and the U.S. As a result, authorities are considering countermeasures to address the situation. If Amazon no longer holds the advantage in logistics and customer care, product quality and a diverse global supply will become the new trends in the e-commerce competition.
Conclusion
Amazon's growth strategy has transformed the company from a small online bookstore into a global retail empire offering a wide range of innovative services. By expanding its business, implementing an effective M&A model, and developing standout products and services like Amazon Prime and AWS, Amazon has not only strengthened its market position but also built a solid foundation for the future. However, increasing competition from other e-commerce platforms like Shein and TikTok Shop poses a significant challenge for Amazon, pushing the company to continuously innovate and enhance the customer experience to maintain its lead.
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