How Does Amazon Make Money? A Look at FY 2018

Hi I’m Jen van der Meer. And forgive me. I’m a bit obsessed with Amazon.

Amazon just reported 2018 financials. They crushed it.

As you know, Amazon is a juggernaut. We often lump Apple, Amazon, and Alphabet together with even Facebook or Netflix. But nothing is like Amazon. Amazon is complexity. And the most ingenious. Evil genius? Customer-pleasing genius? The company you would most likely refer to a friend? Let’s take a look.

 

Amazon starts basic. If you weren’t around then – books. Then DVDs. Then electronics.

 

Then they start to move, mysteriously.

Amazon is growing, fast, as it is getting bigger. But not the normal way. It’s like all of what it calls its flywheels of growth are feeding each other, compounding in growth. But then I think the only way to really see this bigness see that is to start counting the number and size of the business, markets, industries, and business models that Amazon employs to run its business.

This past year, as reported tonight in their earnings call, the company grew 20% total, year over year in total sales. E-commerce is by far the largest -they do own half of the online commerce market now, and with these recent numbers, maybe more.

The next things to see is how much this has just crept up on us. Just in the last few years, that growth has been massive.

It’s hard to tell how much – they only report a few numbers to tell you how they are growing.

From what they do report, the real growth driver and profit driver company for Amazon is their shift to services.

Whereas Facebook, Google, and Netflix live happily in advertising and streaming subscription services, and Apple is struggling to elegantly shift from high-end device sales to more predictable services growth, Amazon is twirling and looping and compounding into a services powerhouse.

AWS grew 45%.
Subscription Services grew 25%.
Third Party Services (for businesses that sell and ship through Amazon) grew 27%.
“Other” or Amazon marketing, and Amazon cash and credit cards grew a whopping 95%.
All of the above with way better margins than traditional e-commerce.
I’ve been tracking Amazon’s many moves in health – and they are hidden in here, for now, a rounding error. But unlike your typical corporate innovator – Amazon starts new businesses small, two pizza teams, single-threaded teams, and then experiments and builds when they start showing numbers.

This is just the start, a first draft of a way to see complex companies like Amazon, and for people to try to make sense of everything. Customers. Employees. Innovators. Companies who see Amazon as a threat (in other words all companies). Citizens. People in my home town, NYC, to better understand our new potential neighbor in Queens, and ask them to be a bit more neighborly.

I started this project with a simple mission: show how a company can innovate as they grow.

I simply wanted to tell the story of their shift from e-commerce to add services businesses. After a month of breaking my brain Excel, I’m trying to play with new ways of seeing this complexity with a few collaborators. I know it’s no match for Amazon’s 50 economists, but it’s fun.

If you’re curious about the project, find me at Reason Street. We’ll be creating this way to see complex companies and ecosystems to help us all better understand how technology business models are shaping our world.