Amazon CEO Jeff Bezos is often called the best CEO in the world. And there really is a reason.
Experts expect Amazon to be the first company to cost $ 1 trillion dollars.
Bezos has grown from a small bookseller, a real retail giant, valued at $ 400 billion dollars with revenue of $ 136 billion in 2016 alone. A lot of money. But how does Amazon manage to earn it?
The largest and possibly the most obvious source of income. Revenue from the sale of goods sold and delivered by Amazon itself accounted for approximately 80% of the company’s revenue in 2014. Amazon buys products directly from manufacturers or third parties, and then sells them with a small markup. Note that the key word here is small.
In fact, despite the 25-year presence in the market, Amazon did not bring profit until the end of 2015. Instead of focusing on profits, Amazon is trying to grab as much market share as possible with pleasant options, like free shipping and low prices compared to competitors. At Amazon, they realized in time the upcoming transition from traditional stores to online shopping. Now Amazon is selling everything from food to electronics. In fact, the company earns money by selling everything at low prices and thinking about profit last.
Third Party Business
And now that is not an obvious source of income for all. Amazon realized that they could not sell anything at all and that other small competitors are also present in the market. And they decided to make friends, not enemies. They began to negotiate with third-party companies to deliver their goods faster, cheaper and, of course, for a commission. Thanks to the ease of use of the Amazon Marketplace site and the services that Amazon provides, more and more people are using this opportunity to sell products. And then everything is simple — Amazon is happy, because they make good money on commissions, and sellers are happy that they have such an opportunity to sell their goods.
Amazon Web Services
Jeff Bezos has grown another offshoot of Amazon — web services. Amazon Web Services (AWS) is a cloud business from Amazon. AFS provides cloud computing services to everyone, from government agencies to start-ups. AWS provides the excellent infrastructure needed for such services, and then charges users as they are used. This attractive payment method, coupled with the reliability of Amazon services, helped the company to take the lion’s share of the cloud computing market. Revenue from AWS grew from $ 4.6 billion in 2014 to $ 12.2 billion in 2016. Given how competently Amazon uses technology and innovation, the growth of AWS will rapidly increase.
Amazon’s famous Prime service, priced at $ 99 per year, allows users to maintain their loyalty by offering special discounts and free delivery of a wide range of products in just two days. Using Prime during the free trial month and realizing the beauty of the service, people will definitely return to continue using. Thus, Amazon is able to create a loyal customer base that constantly buys almost everything they need on Amazon. In addition to customer retention, Prime allows Amazon to make money. Despite the fact that this is an open company, Amazon is very reluctant to share information. It has never been reported how much was earned on Prime. Many people agree that even if Prime’s subscriptions didn’t bring profit (and maybe even that), the money is made on additional sales. Due to the two-day delivery, customers are more likely to order a product from Amazon than go to a local store.
How not to mention the famous Kindle? Jeff Bezos recently said that the company does not make profits from selling Kindle — at least, directly. Kindle helps Amazon make money on users because it pushes them to buy content and other Amazon products. Each Kindle Fire, for example, includes a free monthly subscription to Prime. Users remain impressed by the two-day delivery and other bonuses and eventually buy a one-year subscription to Prime. Also, Kindle owners are more inclined to buy books, films and TV shows from Amazon. It is on these purchases that Amazon makes money.