Amazon generated over half a trillion dollars in revenue in 2022, of which $220 billion from online stores, over $117 billion from third-party seller services, $80 billion from AWS, almost $38 billion from advertising, over $35 billion from subscription services, almost $19 billion in physical stores, and over $4 billion from other sources.
| Amazon Revenue Breakdown | Online stores | Physical stores | Third-party seller services | Subscription services | AWS | Advertising | Other |
| 2022 | $220B | $18.96B | $117.71B | $35.22B | $80B | $37.74B | $4.25B |
The interesting take about Amazon, which many are not aware of, is the fact that its core business (the e-commerce platform) is also, and still, unprofitable.
And the picture is even more impressive if we look at Amazon’s profitability with AWS!
Amazon was not profitable once AWS was removed in 2022.
In fact, Amazon, without AWS, generated $10.6 billion in operating losses.
While Amazon, without AWS, generated $12.2. billion operating income.
It’s easy here to dismiss Amazon and say, “wow, after decades in business, the company is not yet profitable.”
But wait for a second.
Before you dismiss it, there are a few considerations to make.
Bits and atoms
First, Amazon isn’t just an e-commerce company. Amazon is about inventory and fulfillment as much as it’s about e-commerce.
That’s the nature of its flywheel!
Inventory and fulfillment are very intensive in terms of capital requirements, and yet they are critical for enabling customer experience.
And the good news? They give the company much stronger moats.
Over time, anyone might be able to replicate Amazon’s e-commerce.
But a combination of e-commerce, inventory, and last-mile delivery?
Extremely hard to replicate!
Last-mile and transferable network effects
When you look at business models which rely on network effects, those are usually very hard to build.
But when they do kick-off, they might make a tech company valuable for years.
There is another critical point about it: transferable network effects.
Building, maintaining, and speeding up network effects is extremely hard.
Do you know what’s harder? Building liquid network effects.
In short, a liquid network effect is when a platform business has built such an infrastructure that there is plenty of supply and demand to rely on, and those sustain themselves in a sort of smart dynamic market.
When that happens, a company that has empowered such liquid networks can go on and try to transfer them across a new industry.
One example of this is how Uber, starting from ride-sharing, first expanded this market to become a multi-billion dollar one.
Then it managed to expand into adjacent segments like delivery and freight.
When you have transferable network effects, you don’t think about a single industry but start thinking about the entire industry, which can be unified under a single paradigm.
For instance, you don’t want to call Uber a ride-sharing, delivery, or freight company today.
Instead, you want to call it a Last-Mile Platform!
A last-mile platform can tackle any industry which relies on the last-mile problem, which states that the most challenging part of a delivery network is in the last mile (or, if you wish, in the last steps) from the company to the customer.
These last steps in the networks, indeed, are a trillion-dollar issue.
These last steps fall outside the network, making it fragmented, unreliable, and expensive.
Thus, when you re-frame the kind of problem a company like Uber and perhaps Amazon is trying to solve, you understand the real potential value of the network!
In short, the sort of network effects that might make you able to launch a whole new business much more quickly by simply leveraging on the existing tech platform!
While figuring out how to unify the networks and make them less and less fragmented.
If you can figure out that problem, you can transfer it across many industries, thus, redefine them!
Built for scale!
When we look at Amazon’s e-commerce platform, it’s critical to consider that since the onset, it has been built for scale and reach.
In short, the e-commerce platform aims to enable as many customers as possible via convenience, variety, and service.
That’s it!
Amazon might make money from it in the future, but it might well be that in 20 years, the e-commerce platform will still be primarily run for scale and reach through convenience, variety, and service.
And it’s worth remembering that thanks to this strategy, Amazon was propelled into “Walmart Status!”
In 2022, Amazon closed its divide in terms of total revenue, as it generated over $513 billion in revenue, compared to over $572 billion in revenue from Walmart.
It took Walmart sixty years to get there, while Amazon took less than thirty years…
The digital ads empire
Now take the case of the Amazon e-commerce platform and Amazon Ads.
And to put things in context, Amazon Ads were larger than YouTube Ads in 2022.
With a core difference, Amazon’s ads segment is just one of the many moving parts for the company!
And we can easily guess that the ads segment might be highly profitable and scalable.
So, if Amazon scaled this to a hundred billion per year business, would e-commerce finally become profitable due to the ads platform?
The AWS rocket ship
In the meantime, Amazon AWS keeps growing at a staggering rate.
Amazon AWS (cloud) is the most successful business segment within Amazon, and it generated over $80 billion in revenues in 2022 and almost $23 billion in operating profit. Compared to over $62 billion in revenues in 2021 and $18.5 billion in net profits.
Of course, as competition in the cloud industry intensifies, this might slow down revenue growth and profitability.
However, it’s worth pointing out that now only is Amazon AWS a tech giant for its own sake, but also how instrumental it will be for the current AI revolution.
Indeed, AI models that rely on massive computational power through AI supercomputers need an infrastructure like AWS to run in the first place.
Take the case of how Stability AI has pre-trained Stable Diffusion on top of AWS!
Thus, AWS will be a key player in the AI race!
Key facts about Amazon
| Key Facts | |
| Founder | Jeff Bezos |
| Year & Place Founded | July 5, 1994, Bellevue, WA |
| Year of IPO | 5/15/1997 |
| IPO Price | $18.00 |
| Total Revenues at IPO | $15.75 million |
| Total Revenues in 2021 | $469.8B |
| Amazon Employees | 1,608,000 full-time and part-time employees |
| Revenues per Employee | $292,177.86 |
Amazon revenue model evolution
| Amazon AWS | $62 |
| Microsoft Intelligent Cloud | $60 |
| Google Cloud | $19.20 |
Connected to Amazon Business Model
Is Amazon Profitable Without AWS?
