How Does Amazon Make Money? E-Commerce Giant’s Revenue Breakdown

Retail giant Amazon (AMZN) has come a long way since its beginning in 1995 as an online bookseller operating primarily in the US. The company has led the international e-commerce revolution, operating online stores in 20 countries and shipping products to more than 100 countries.

How does Amazon make money today? Is Amazon profitable? This article looks at Amazon’s revenue streams and business model in 2024.

Table of Contents Table of Contents

1. Key Takeaways
2. How Does Amazon Make Money?
3. Amazon's Financials: Revenue Growth Through Years
4. Amazon's Business Model
5. Future Growth Plans
6. The Dark Side of Amazon: Controversies, Criticism & Challenges
7. Competitors
8. The Bottom Line
9. FAQs
10. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. How Does Amazon Make Money?
3. Amazon's Financials: Revenue Growth Through Years
Show Full Guide
4. Amazon's Business Model
5. Future Growth Plans
6. The Dark Side of Amazon: Controversies, Criticism & Challenges
7. Competitors
8. The Bottom Line
9. FAQs
10. References

How Does Amazon Make Money?

Amazon is one of the most valuable brands worldwide in 2024, alongside Apple (AAPL), Microsoft (MSFT), and Google (GOOGL). It has introduced globally recognized brands like Kindle, Alexa, and Prime, helping to drive its annual revenue above $500 billion.

In 2006 it launched Amazon Web Services (AWS), which initially provided IT infrastructure for its own growing business but was soon expanded to provide cloud computing services, including storage, computing power, and databases, for other companies, government agencies and academic institutions to store data and deliver content.

The company reported revenue of $143.3 billion in the first quarter of 2024, a 13% increase from the $127.4 billion it brought in during the first quarter of 2023.

Amazon’s market capitalization, or value, has climbed substantially over the years from around $4.03 billion at the end of 2001 and surpassed the $1 trillion mark in 2020 as the company benefited from the increase in e-commerce and corporate cloud computing during the COVID-19 pandemic.

Amazon’s net worth, or market cap, stood at $1.955 trillion in mid-July 2024, making it the world’s 5th most valuable company in the world.

Amazon’s Financials: Revenue Growth Through Years

Amazon’s net income turned positive in 2003 and has reported a profit almost every year since—with the exception of 2012, 2014, and 2022.

Revenue has grown consistently from $6.9 billion two decades ago, reaching $100 million in 2015 and accelerating in the past few years to reach $547.8 billion in 2023—a total growth rate of 7,839%.

That massive revenue growth has been driven by Amazon’s diversification into new markets.

From online retail, it has expanded into cloud computing, video streaming, digital advertising, and electric vehicles through US manufacturer Rivian.

AWS is also developing Amazon’s custom semiconductors for artificial intelligence (AI) and machine learning (ML).

Amazon’s Business Model

Amazon sells millions of products to consumers directly, including its Amazon Basics range. Since November 2000, it has allowed third-party sellers to use Amazon Marketplace to sell products ranging from used, rare, and collectible books to DVDs, video games, electronics, tools, and hardware at various price points on the same page where it sells the item new.

More than 60% of Amazon store sales come from independent sellers, according to the company.

Amazon’s approach to the e-commerce business is based on selling large volumes of products at low-profit margins, aiming to foster customer loyalty by offering products at the lowest prices so that Amazon.com becomes their first choice when shopping for an item.

This has proven to be effective, as 56% of US consumers start their online shopping searches on Amazon, compared with 42% who start with a search engine, research shows.

Amazon has also diversified into providing its own branded devices and services, such as the Kindle e-reader, Fire TV streaming sticks and cubes, and Alexa—a cloud-based voice-activated service that powers smart home devices like Amazon Echo, Echo Show, Echo Dot, and Echo Dot with Clock.

The company launched Amazon Prime as a membership service in the US in 2005, providing free two-day shipping for all eligible purchases for an annual fee and a discount on one-day shipping rates.

It has subsequently expanded to more than 20 other countries. Amazon held its first Prime Day sales event in July 2015 to mark its 20th anniversary, with sales and promotions exclusive to Amazon Prime subscribers.

The Amazon Unbox video service launched in the US in 2006 and was renamed several times before it was rebranded as Prime Video in 2011 following its acquisition of UK-based streaming and DVD rental-by-mail service Lovefilm. Prime Music was launched in 2007 as an ad-free music streaming service included in the cost of Amazon Prime membership.

Amazon Studios is the company’s corporate division launched in 2010 that develops television shows, movies, and comics for distribution through Prime Video as well as competing services such as Netflix (NFLX) and Hulu.

Amazon Advertising, previously known as Amazon Marketing Services (AMS), was launched in 2012 and refers to all of the company’s advertising offerings, including its self-service pay-per-click ads and managed-service ads.

Following the acquisition of Whole Foods for $13.7 billion in 2017, Amazon expanded into its own physical retail grocery stores in 2020 with the launch of Amazon Fresh, initially in Los Angeles and Chicago. By July 2022, there were 38 stores in the US and 17 in London, although several have since closed.

Building on its AWS business, the company launched Amazon Bedrock in 2023, a generative AI service that allows customers to customize a large language model (LLM) with their own data to deploy AI-based applications.

Major Amazon Revenue Streams

Amazon’s revenue primarily comes from retail sales, specifically its North American business.

Net sales from the North American segment grew by 12% year-over-year in the first quarter of 2024 to $86.3 billion, while the International segment reported a 10% increase to $31.9 billion. Revenue from AWS grew by 17% to $25 billion.

Amazon’s revenue breakdown shows that:

Amazon expects its net sales during the second quarter to grow by 7-11% year on year to between $144 billion and $149 billion, while its operating income is expected to increase to between $10 billion and $14 billion, up from $7.7 billion in the second of quarter 2023.

It is interesting to note that while it generates around 82.5% of its revenue from retail sales, Amazon’s focus on offering low prices and expedited shipping means that the retail business generates thin profit margins. Operating income for North American business was just under $5 billion in the first quarter and only $903 million for the International segment, compared with $9.4 billion for the AWS segment.

So, how much money does Amazon have? The company reported cash and cash equivalents of $72.9 billion on its books as of March 31, 2024.

Future Growth Plans

Amazon’s future growth plans are focused on using automation and AI to continue driving innovation in its own product and service offerings and leveraging AWS to benefit from other companies’ technological development.

Updates from Amazon’s most recent annual Delivering the Future event in 2023 show that the company:

The company has also announced that the AWS segment will offer new AI certifications for people looking to improve their skills, indicating the opportunities for AWS to benefit from the rapid adoption of AI across multiple industries.

The Dark Side of Amazon: Controversies, Criticism & Challenges

While Amazon is one of the world’s most popular retailers, it is subject to criticism and legal challenges over its treatment of employees, anti-competitive business practices, alleged tax avoidance, data privacy and security, and environmental impact, as well as offering counterfeit, plagiarized, or prohibited products. Examples include:

• The European Commission conducted investigations in June 2015, July 2019, July 2020 and November 2020 into potential breaches of European competition law.
• In July 2020, the US Congress accused Amazon, along with Apple, Google, and Meta, of using anti-competitive strategies. In October 2020, the US House Antitrust Subcommittee released a report accusing Amazon of holding a monopoly position to compete unfairly with third-party sellers on its platform.
• Several US state attorneys general have investigated Amazon for potential antitrust violations in its business practices. California’s Attorney General sued the company in September 2022 following an investigation that began in 2020, alleging that stifled competition and prevented merchants from offering their products on other websites for lower prices. In 2021, Washington DC’s Attorney General filed an antitrust lawsuit.
• Amazon’s tax payments have been investigated in multiple jurisdictions, including China, the EU, Japan, Singapore, South Korea, and the US. In 2017, the European Commission ordered the company to repay €250 million in illegal tax benefits it received from Luxembourg.
• Amazon is frequently criticized for its treatment of its workforce and the quality of the working environment it provides its warehouse employees and delivery drivers. The company has faced numerous lawsuits, including claims of inadequate breaks, unsafe working conditions, and unfair labor practices.
• Amazon has a large carbon footprint, primarily because of its excessive product packaging and extensive fleet of delivery vehicles. The company has faced lawsuits over environmental regulations, including its handling of hazardous waste and its delivery operations’ environmental impact.
• Amazon Fresh stores have been subject to criticism for their visible surveillance cameras that make customers reluctant to shop in them. In 2021, a class-action lawsuit was filed against the company in New York for not disclosing that it was monitoring customers’ body shapes and palm prints.
• The company has also faced class action lawsuits related to misleading advertising about the Prime membership program and automatically renewing subscriptions.

Competitors

Amazon’s competitors vary across different areas of its business.

The Bottom Line

Amazon’s massive growth over the past two decades has been built on a diversified business model that has expanded from e-commerce to encompass cloud computing, advertising, digital streaming, and more.

The company’s primary revenue stream remains its e-commerce platform, where it sells its own products and also hosts millions of third-party sellers, generating income from commissions and service fees. Amazon has effectively leveraged its massive customer base to grow its subscription services, including Amazon Prime, which aims to encourage customer loyalty and increase spending across its ecosystem.

But it is Amazon Web Services (AWS), which is one of the world’s leading cloud computing players, that contributes significantly to the company’s profitability and offers the potential to benefit from the AI revolution to further drive growth.

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