Amazon Business Strategy: Insights of its operation and investment plan to become the top Fortune 500 company
The study first published on Feb 24, 2018, and then updated on Feb 18, 2019, Feb 13, 2020, and recently on Feb 4, 2021.
Back in 1994, Jeff Bezos was stunned after discovering the 2300% growth rate of the Internet, which eventually led him to think about starting an online business.
“You know, things just don’t grow that fast. It’s highly unusual, and that started me about thinking, ‘What kind of business plan might make sense in the context of that growth?’.” – Jeff Bezos
When he asked his parents for money after sharing his idea, his dad’s first question was, “What’s the Internet?” which vividly indicates that at that time people weren’t much aware of the internet.
Surely, selling things was going to be a problem for the young entrepreneur, but somehow he managed to find low-cost products that could be easily sold on the web.
With the financial help of $245,573 from his parents, Bezos started Amazon in his garage. Fortunately, now their investment almost worth $30 billion – a 12,000,000% ROI.
In 1997, three years after its launch and post-IPO, Amazon’s estimated worth was $438 Million. The startup gradually evolved into a multinational corporation and now is worth a marvelous $1.6 Trillion. The E-commerce giant is the second US company to cross a trillion-dollar valuation after Apple when its stock price reached an all-time high ($2050.50) on September 4, 2018.
Internet was surely a huge part of Amazon’s growth but technological innovation, marketing strategy, and most importantly its business model is what makes Amazon the most innovative company of the current era.
Amazon has grown significantly since its inception as a book-selling website and spread its wings to other areas like logistics, consumer technology, cloud computing, and most recently, media and entertainment – domains that did and would help Amazon tread the path to emerge as a trillion-dollar corporation.
This Amazon business strategy study compiles the ideas, innovations, technological research, partnerships, and most importantly the strategies that are responsible for growing Amazon to such heights. Besides, you will also find their sales numbers in every segment and a brief summary of their stock prices for the past few years.
Mentioned here are the Strategies that Amazon has used over the years and benefited from. But wouldn’t this information have been immensely helpful to Amazon’s competitors a few years prior? Turns out they could have known Amazon’s moves beforehand.
Amazon recently acquired Zoox but one could have foreseen this decision had they been closely following the trail of patents that Amazon had created. One can find numerous patents on autonomous logistics in Amazon’s Portfolio.
It has been forecasted that this recent acquisition can heavily affect companies in logistics, ride-hailing, and food delivery domains. Amazon’s patent portfolio held a tell-tale sign of its interest in these domains. Possessing this information prior to Amazon’s acquisition could have saved these companies from this now present threat looming over their businesses.
If you wish to know about Amazon’s future plans and strategize your business moves accordingly then going through Amazon’s patent portfolio is quintessential.
Fill the form below to know which areas Amazon has been showering its attention on, the tech areas in which Amazon is working, which countries they are securing their IP in, and their acquisitions in various nodes in the form of an interactive dashboard.
While this study will give you more information about Amazon’s business strategy, it will also help you acquire some basic principles which could be applied to any kind of business.
So, ladies and gentlemen, gather around and pay heed as we take a deep dive into Amazon’s moves. Before we get started, presented below is the table of contents, which you can use to jump to the section of your choice, in case you want to skip to the meat of the material.
One more thing, I’ve converted this entire analysis in PDF form that you can download and save for later reading (or sharing with your friends). You can download it using the form below:
Why is Amazon believed to be the most successful company in the Future?
Milestones after milestones, on the path to strive towards its personal zenith, Amazon has been recognized as one of the most successful companies to exist. This statement is not mere theory but purely supported by facts. Let’s have a look at some of them.
FastCompany magazine listed Amazon as the most innovative company of 2017 while Forbes ranked Amazon 3rd on its list of most innovative companies of 2017. Further, Amazon ranked 3rd in MIT’s Smart companies 2017 listing as well, following Nvidia and SpaceX.
That’s not it.
Amazon ranked 8th on Fortune 500 2018 list, 5th in 2019, and 2nd in the 2020 list – It’s the best rank ever since Amazon made its presence in the magazine for the first time in 2002. Since then, the company has been continuously listed on the coveted list, each time with a rank better than the previous year.
In the last five years, the revenue of Amazon increased by 183% – from $136 billion in 2016 to a whopping $386 Billion in 2020. In 2020 alone, the revenue grew by 38% compared to 2019 despite Covid-19.
The chart below portrays Amazon’s revenue for the past five years. In Billions. Mighty numbers, Amazon!
Launching their services to more markets and expanding horizons, Amazon – as a result of their eCommerce business model – increased their sales numbers and customers and hence Revenue. Besides, its AWS business contributes hugely to Amazon’s revenue stream.
Amazon is equally expanding the operations for its three segments – North America, International, and AWS – where it offers its products and services to consumers, sellers, as well as developers, enterprises, and content creators.
Unsurprisingly, a big part of Amazon’s revenue comes from North America. Internationally, the company’s revenue increased from $65.86 billion in 2018 to $74.72 in 2019 as Amazon Prime has become a huge success in some of the Asian and European markets.
Further, the 12.5% revenue of $35.03 billion in 2019 was generated from Amazon Web Services – a subsidiary to provide big consumers on-demand cloud services. In 2017, the company rendered more than 90 services of cloud computing with the tools of the Internet of Things (IoT). Big shots comprising Netflix, Unilever, GE, and NASA form some of the consumer bases that use AWS for better web services.
Amazon is worth more than a trillion-dollar, yet it makes little profit. With $386 billion in revenue, their net profit was just $21.3 billion in 2020.
The reason for its huge market cap is investments. Investors took a huge interest in Amazon and bet a huge amount as they believe that Amazon could grow faster, longer, and bigger than almost any other firm.
The investor’s hope suggests Amazon be the most profitable firm than any other, at least, in America. And they are expecting big profits as of 2020. Its sales from $386 billion in 2020 are expected to increase at least to half-a-trillion dollars by 2022 with a sufficient jump in profits.
These are some potential pinpoints that force us to believe in Amazon’s future success story.
What is Amazon’s Business Strategy and how it impacts their investment and research?
“We’ve changed, again, the automation, the size, the scale many times, and we continue to learn and grow there.” – Brian Olsavsky, CFO, Amazon
The business strategy of Amazon consists of focusing on investing in technologies, enhancing its logistics applications, improving its web services by fulfillment capacity, M&A strategy, R&D activities in logistics, experimenting with Fintech, and securing its inventions using patents.
Let’s have a brief look at some of those.
Amazon’s Diversified Patent Portfolio
Amazon’s patent history is as old as the company itself. With the first patent filed in 1995, it is easy to guess that the company now owns patents in thousands. As Amazon gradually increased the patent filing activities in the starting years of the company.
The major increase in filing activity can be noticed from 2010 when Amazon went to become more than an online retailer.
By 2011, Amazon had filed patents for multiple technologies such as Cloud Computing which is the third biggest source of revenue for Amazon. Amazon had also started filed patent applications for Augmented Reality, Speech Analysis (Alexa).
Amazon’s biggest patent share can be found in Logistics and Networking technologies. Besides these, the Hardware, Entertainment, and E-commerce applications hold a fair share of the Amazon Patent Portfolio.
Amazon is a very diversified company, so the range of its patents can be very vast.
But it is clear that in some sectors, Amazon wants to be at the top.
In Logistics, Amazon now competes with traditional logistics companies such as FedEx and DHL.
During the Pandemic, when all businesses are down, Amazon had something else to plan to make the global crisis an opportunity.
Amazon leased 12 Boeing 767-300 cargo aircraft, bringing its air fleet above 80 jets. It added 220 package facilities since the start of the year, ranging from urban delivery stations to giant warehouses, according to an industry consultant.
The company is close to building a logistic system to deliver one-day packages for the customers and overtake its logistics rivals.
Amazon has been filing patents for logistics for a long time but the increase in activity can be seen after 2010.
In 2016, Amazon filed a record of 268 patents alone for Logistics. Amazon has been filings logistics for a long time but in 2016, it went for big numbers.
Amazon has covered almost everything for logistics be it air, land, sea, or even underground. Amazon has filed patents to deliver a shipment from any medium.
Amazon has hundreds of fulfillment centers all over the world. Also, Amazon wishes to be flying fulfillment centers that house drones to deliver packages.
In Dec 2014, Amazon filed a patent for an Airborne Fulfillment center with drones for package deliveries.
The idea seems to be futuristic as of now but it’s one of the pillars of Amazon, i.e. long-term thinking. This idea could become a mainstream medium for package delivery in the future. The important thing is its shows how innovative Amazon can be when comes to as simple as making an item delivery.
Further, Amazon filed for other types of fulfillment centers that house drones and cargo-trucks.
Besides Logistics, Amazon’s AWS arm is significantly bigger than many of the big corporations as it generated $45 billion in revenue with a $13 billion Operating Income.
Amazon has been filing patents for Cloud Computing since 2010. Amazon filed the highest Cloud Computing patents in 2016.
Further, Amazon’s Alexa Everywhere strategy seems to be working as the company includes more and more features to its assistant and the Alexa-enabled devices. Amazon has filed significant patents on Speech Recognition.
They even filed an Alexa patent that can recognize your physical and emotional states and can suggest you relevant solutions.
For more Amazon Alexa Related Patents: Click here.
Amazon is not just dependent on in-house patent filing but also acquires patents. The famous Zoox acquisition is said to make Amazon enter in self-driving vehicle market but besides Zoox’s position in the market, what Amazon found amazing is its patent portfolio.
IAM also says that Zoox patents are the fifth most cited patents by others for self-driving technology. Further, it owns two of the three most-cited grants by other level 4 and 5 patent owners.
“Amazon’s plans to put a fleet of autonomous taxis as well as delivery vehicles on the road, the acquisition appears to have handed it a powerful stockpile of IP to secure freedom to operate in what is only going to become a more crowded field.”, says IAM.
Amazon Patent Prosecution Stats
We went a step ahead and had a look at Amazon’s pending patent applications currently in the US patent office. Below are our findings on how their patents are performing in the patent office and what their prosecution process looks like.
Amazon has an impressive 97.26% grant rate of their patents.
Amazon has filed 14316 patent applications at USPTO so far (Excluding Design and PCT applications). Out of these 12764 have been granted leading to the grant rate of 97.26%. Not only this, the application Abandonment/Rejection rate of Amazon is meager at 2.47% and only 299 applications have faced abandonment or rejection. – Insights by GreyB
The data below is a bird’ eye view of Amazon’s pending patent applications at the US patent office. We used our in-house prosecution intelligence tool – FIT – to perform this analysis. You can explore more about FIT from here.
Currently, Amazon has 1108 patent applications pending at USPTO. Put under the lens, 654 patent applications out of these are on the right track of a smooth grant however, the rest of the 454 applications are facing high difficulty at the office. Some of them are already in the danger zone.
These patent applications are getting more than an average number of rejections or taking longer than the average time than other applications in similar tech areas. We segregated all these applications into 3 categories:
- SOS – Facing High difficulty at USPTO
- At-Risk – Applications that were running smoothly but of late have started displaying high probabilities of turning into an SOS application
- On-Track – Running smooth as butter
Below are the patent applications based on their group art units, and how many of them are on the right track, and which ones need intervention:
These are the Top 4 tech areas where Amazon’s maximum number of applications are currently pending at the USPTO. The number of an application under SOS column are the ones that need immediate intervention from Amazon’s IP team.
This was an overview of Amazon’s patent applications and how they are performing at USPTO. As I mentioned above, the insights that you see here were extracted from our in-house tool – FIT. FIT also suggests the type of actions Amazon or any applicant can take to help their patent application get granted smoothly.
In case if you’re interested, you can read more about FIT and how it helps in strengthening your patent prosecution process, from here.
Fill the form below to know which areas amazon has been showering its attention on, the tech areas in which Amazon is researching, which countries they are securing their Patents in, and their acquisitions in various nodes in the form of an interactive dashboard.
Amazon’s Investment in Different Technologies
Amazon has been investing considerably in robotic and drone technologies for the past decade and has acquired many patents on them. Its warehouses’ alone house more than 45,000 robots.
In 2012, Amazon acquired Kiva Systems – a company that designs robots for the picking and packing process – for $775 million. By 2014, the company had 14,000 robots for its 10 warehouses. The following year, the count increased by 114% to 30,000 robots and in 2017 the number increased by 50% to 45,000 robots across 20 warehouses.
In addition to acquisitions, Amazon also organizes challenges in different universities and institutes across the world in which they offer a large sum of money for inventing a next-generation robot. In 2017, the prize money was $250,000.
Amazon is also researching drones for their initiative and future service of drone delivery. In Britain, Amazon started its drone delivery service under Amazon Prime Air.
In Oct 2017, the US Federal Government approved a drone delivery program in the US as well. The administration stated that they wanted to open new opportunities and commercial uses for the drones for creating jobs.
Amazon has recently filed numerous drone patents on package delivery, package parachute, and a floating airship warehouse. Also, it has patents on drone design for better maneuvering, secure landing, and long flights.
On an advanced level, they got a patent for a method to charge electric vehicles through drones. This shows their interest in automobiles as the future will require many methods to charge an EV. Further, there would be no surprise if Amazon ventures into the domain of the automobile.
“These big trends are not that hard to spot (they get talked and written about a lot), but they can be strangely hard for large organizations to embrace. We’re in the middle of an obvious one right now: machine learning and artificial intelligence.” – Jeff Bezos
Artificial Intelligence is one tough area where despite having many competitors Amazon got a big draw. It’s continuously focusing on AI and machine learning to enhance the customer experience. The segment AWS and its venture Alexa Internet is a big part of their investment in AI.
In October 2017, the company announced a new research center in Germany focused on developing AI. During the same month, the company and Microsoft partnered to roll out new tools that will make it easier for developers to use open-source artificial intelligence software. Developers can use Gluon, a Python-based application programming interface, to easily work with MXNet, the AI framework backed by public cloud market leader Amazon Web Services.
Amazon’s partnership with Microsoft also ensures collaboration for researching in AI where their personal assistants Cortana and Alexa would communicate with each other and will offer services to the users.
“Ensuring Cortana is available for our customers everywhere and across any device is a key priority for us. Bringing Cortana’s knowledge, Office 365 integration, commitments, and reminders to Alexa are a great step toward that goal.” – Satya Nadella, CEO, Microsoft
In Jan 2021, Amazon announced Alexa Custom Assistant, a new service that lets device makers, automakers, and service providers create custom-branded voice assistants that are powered by and work in cooperation with Alexa. The Alexa Custom Assistant can be built into automobiles and consumer electronics, including smart displays, speakers, set-top boxes, fitness devices, and more, providing a complete, managed voice solution that substantially reduces cost, complexity, and time to market.
Alexa Everywhere – Strategy
Amazon announced its Alexa Everywhere strategy in 2017 and surprisingly it became a huge success despite the presence of other top personal assistants in the market.
Alexa, Amazon’s AI-infused voice assistant, was first released with the original Amazon Echo smart speaker in November 2014. Since then, it’s giving a head to head competition to its rival Google Home and now Apple also has joined the race with its Siri-enabled speakers, Homepod.
In 2017, Amazon announced to install Alexa (AI) in every echo device and launched a number of new products. Currently, Amazon Echo and Echo Dot hold 2/3 market share of smart speakers – beating Google Home and Apple Homepod to a great margin. Amazon also announced two major Alexa integrations for non-Echo devices. Amazon further revealed that Alexa would be supported in BMW cars beginning of the next year.
Further, the Fire TV set-top box was launched with microphones embedded in the device so consumers can shout Alexa commands across their homes.
Alexa, Play The Marvelous Mrs. Maisel.
If that was not it, Alexa based in-house drones were released, which could be called from anywhere around the house.
Alexa, Where’s my drone?
Alexa became more multilingual, allowing members of a household to interact with Alexa in two different languages without needing to change the settings. In the U.S., the multilingual mode allows bilingual customers to code-switch from English to Spanish, and vice versa. Amazon also launched multilingual mode in new languages and countries including Germany, Spain, France, Italy, and Japan.
Further, Amazon added new Alexa features that make customers’ daily lives more convenient, including the ability to share a shopping list with Alexa contacts by voice, video calling on Fire TV, and new Alexa Routines on Fire TV.
In Dec 2016, Amazon demonstrated the world’s most advanced physical store. In 2018, Amazon officially opened the store to the public and showed the world that its research in machine learning can truly eliminate jobs.
In Feb 2020, Amazon opened the first cashier-less grocery store using “Just Walk Out” technology that also powered 25 Amazon Go stores.
The store has no checkout point and therefore has no cashier for making payments of your purchases. The payment can be added automatically to the cart whenever you take a product from the shelves. And after the purchase, the payment automatically gets deducted from your account or digital wallet.
Amazon Web Services (AWS)
Amazon has recently acquired companies in the cloud computing space and invested in businesses based on the cloud. In early 2017, the company acquired a number of companies to strengthen its AWS Cloud business. Some of these include GameSparks, Thinkbox Software, and Harvest.ai. Additionally, Amazon invested in Grail which is a potential future customer of Amazon cloud services.
In order to increase the usage of its cloud technology, Amazon Web Services (AWS) is investing some of its money to open data centers in Britain and France.
In 2020, Amazon’s cloud segment, AWS, accounted for 58.9% of the company’s overall operating income.
The tech and automotive industry alike are abuzz with the news of Amazon acquiring Zoox, a California based startup that develops autonomous driving technology in a deal estimated to be worth over $1.3 billion.
Amazon announced in late June that they are acquiring Zoox “to help bring their vision of autonomous ride-hailing to reality”.
Although it was the first strong move by Amazon to take part in autonomous vehicles, there were certain pieces that suggest the company’s interests in driverless vehicles before this deal.
Since Amazon has been aggressively investing and researching in the domain of autonomous vehicles and various automated methods of delivery.
In Dec 2020, Zoox revealed the first look at their fully functional, electric, autonomous vehicle, which features bi-directional driving and is capable of speeds up to 75 miles per hour.
Wants to know about Zoox Patent Portfolio, here a glimpse: Zoox Patent Portfolio.
Amazon In Entertainment Sector
Amazon Prime Video
Amazon has been investing in TV series and movies either by acquisition or production as it strives to compete with streaming rivals Netflix, HBO, Hulu, and Disney.
Though Amazon Prime members can enjoy their streaming service as a part of the membership, Amazon also launched the video-only plan for non-prime members for a cost of $8.99/month.
“Amazon planned to triple the amount of original content over the rest of the year, and it’s probably safe to assume that its torrid investment pace will continue into 2017.” – Amazon CFO, Brian Olsavsky,
In 2017, Amazon acquired many TV shows and movies. Amazon acquired Marvel’s Inhumans and Runaways to give good competition to Netflix — which also owns rights to stream some of Marvel’s shows.
There was also news doing rounds that Amazon Studio planned to have their own web series based on Lord of the Rings. The Studio’s head Roy Price said that Amazon Studios will refocus on “big shows that can make the biggest difference around the world,” and specifically cited Game of Thrones as a model.
Amazon also spent a big amount on some small-budget movies that have excellent reviews. They paid $12 Million for ‘The Big Sick’ even before its theatrical release. It’s the amazing reviews – 98% Rotten Tomatoes – that made Amazon pay the price.
Amazon has over 126 million Prime members in the U.S while Netflix has 73.94 million subscribers. After the success of Prime in the U.S., Amazon is pushing the same playbook in Europe.
Prime Video continues to launch Amazon Original series and movies globally. Amazon Original movie Borat Subsequent Moviefilm, starring Sacha Baron Cohen, generated tens of millions of customer streams globally on opening weekend.
Alone creating a video-streaming service is not going to help, that’s why Amazon went for creating its own film and tv series production distributor, known as Amazon Studios. Currently, the original content by Amazon is too less when compared to other services such as Netflix, Hulu, and HBO. But Amazon has planned to produce its own content and with a great number.
Amazon studios not only focuses on English content but also works on the content related to a particular geography.
Many of Amazon’s original content has won major awards. For example, Manchester By the Sea, which was nominated for six Academy Awards, made Amazon Studios the first streaming service to nominate for the Academy Award for Best Picture. The Marvelous Mrs. Maisel and Fleabag are some top-performing and award-winning TV series created by Amazon.
Amazon Studios announced deals for upcoming Prime Video series and movies, including the Eddie Murphy comedy Coming 2 America, which premieres in March 2021 on Prime Video globally, and an unscripted docuseries and new coming-of-age series based on Jessica Simpson’s best-selling memoir Open Book.
On May 26, Amazon acquired MGM for $8.45 billion. And with this acquisition, Amazon also acquired MGM’s vast content library of 4000 films including classics such as 12 Angry Men, Basic Instinct, Legally Blonde, Silence of the Lamb, Rocky, and the James Bond franchise as well as and 17000 TV shows – including Fargo, Vikings, and The Handmaid’s Tale.
Amazon is not limited to provide video streaming as the company also has its own music streaming platform – tough competition for Spotify, YouTube Music, Apple Music, SoundCloud, etc. Amazon has millions of songs in its library which they are offering to their prime members. Prime Music is a kind of a gift for their prime members as the company isn’t charging any extra cost for this music platform.
It’s cool, isn’t it?
Even for a better experience, Amazon integrated Alexa in its music app which can help you find the songs you are searching for.
Further, Amazon Music signed an agreement to acquire an innovative podcast publisher, Wondery. Through this acquisition, Amazon Music aims to accelerate the growth and evolution of podcasts by bringing creators, hosts, and immersive experiences to even more listeners across the globe.
Becoming A Logistics Powerhouse
Amazon is opening small warehouses to support Prime Now and Amazon Fresh – its grocery delivery service. In Germany where a rapid expansion in online grocery delivery is expected, Amazon has been running warehouse purchase plans to tap on the market opportunity.
Amazon Fulfillment Centers
In Jan 2020, Amazon said it has 110 active fulfillment centers in the US and 185 globally.
Its plans include investing heavily in expanding fulfillment centers and other logistics capabilities. Driving further growth in the number of sellers and packages going through Fulfilled by Amazon (FBA) is a key focus.
Amazon Logistics App
To strengthen the logistics and delivery network, Amazon announced developing an app to help truck drivers. Amazon hired aggressively for the project and announced to launch it in 2017. In November 2017, they secretly launched the app, Relay. The app makes it easier for truck drivers to pick up and drop off packages at Amazon warehouses. Besides, Amazon is also working on a second app that could connect truck drivers with cargos.
Amazon Prime Air
In March 2016, Amazon gave a public demo of its Prime Air delivery drones in the US. The concept has multiple regulatory barriers. However, the situation may get better, as in October 2017, the Trump Government issued an order giving local governments more authority to conduct tests of such new technologies.
Amazon is experimenting with a new delivery service intended to make more products available for free two-day delivery and relieve overcrowding in its warehouses.
The service, Seller Flex, began two years ago in India, and Amazon has been slowly marketing it to US merchants in preparation for national expansion. The trial began this year on the West Coast with a broader rollout planned in 2018.
Amazon will oversee the pickup of packages from warehouses of third-party merchants selling goods on Amazon.com and their delivery to customers’ homes. Handling more deliveries are expected to provide Amazon greater flexibility and control over the last mile to shoppers’ doorsteps.
In October 2017, French supermarket operator Leclerc was approached by Amazon for a possible logistics partnership. This probable collaboration shows Amazon’s intentions to expand in the supermarket sector.
The partnership and other logistic investments became an immediate reason for other services’ fall as companies like UPS and FedEx’s share price dropped drastically. UPS shares fell as much as 2.1% to $116.52 and were trading down 1.3% in New York on October 4th, 2017. FedEx dipped by 1.6% to $217.77 before recovering somewhat to $220.09 on October 4th, 2017.
Amazon Acquisition Strategy
Amazon has been harnessing aggressively its merger and acquisition strategy, as it closed 30+ deals in the past five years. In the first two quarters of 2017 alone, the company closed eight deals that cost them an arm and a leg.
The chart below summarizes the M&As of Amazon from 2016 to 2020 Quarter-wise.
2020 saw a big drop in the M&A activity but it’s also the year when Amazon surprised the world by acquiring Zoox for more than $1 billion, making it the company’s biggest acquisition of 2020. With it, Amazon has entered the self-driving industry as well.
2021 saw the second-biggest acquisition of Amazon when it acquired MGM for $8.45 billion to boost its streaming services Prime Video. MGM owns 4000 movie titles and 17000 TV series that are enough to attract customers to its streaming platform to binge on some of the classics movies such as 12 Angry Men, Basic Instinct, Legally Blonde, Rocky, and the evergreen James Bond movies.
Further, in TV series, MGM owned some of the renowned series of current times such as Fargo, Vikings, and The Handmaid’s Tale.
During the last few years, Amazon made multiple acquisitions to strengthen its core e-commerce operations. Additionally, it also invested in technology companies such as Harvest.ai – a cybersecurity player, and Do.com – a software for meeting productivity needs.
In June 2017, Amazon acquired grocery giant Whole Foods for a whopping $13.7 billion. Buying Whole Foods has been a big step ahead for Amazon as it not only strengthened its grocery e-commerce segment but also opened doors to new opportunities.
Internationally, Amazon expanded its operations by acquiring other businesses such as Souq.com in the middle-east for growing e-commerce in the region.
Amazon made their first acquisition of 2018 — their second-biggest ever — in a deal valued more than $1 Billion purchasing Ring, a video doorbell maker that shows their interest in robust home security to flourish their Amazon Key service.
Here are the 10 biggest acquisitions of Amazon since 2009:
New Businesses and Emerging Market
Amazon has been experimenting with fintech initiatives and intends to become a prominent player in the fintech segment. Amazon nearly lent out $1 billion in small loans in 2016.
In India, the company has been offering thousands of loans to e-sellers so suppliers can expand their operations and manage seasonal spikes.
Amazon expanded its financial reach by launching Amazon Cash which allows users to add to their Amazon.com balance by showing barcodes at brick-and-mortar checkout locations.
“Amazon is the most formidable. If Amazon can get you lower-debt payments or give you a bank account, you’ll buy more stuff on Amazon.” – Alex Rampell, Partner, Andreessen Horowitz
Amazon makes big moves in emerging markets too. One of the key international markets targeted by Amazon is India, which is perceived to be one of the fastest-growing e-commerce markets globally in the near future.
In Late 2016, the company’s CEO Jeff Bezos announced an additional investment of $3 billion in India, taking its net investment to over $5 billion in the country. This amount is more than the company’s total capital expenditure of $4.5 billion in 2016. Looks like Amazon sees huge potential in India.
In October of 2017, Amazon announced to expand in Brazil to enter the electronics and appliances marketplace. Amazon also expanded its operations in the Middle East, one of the fastest-growing e-commerce markets in the world. It acquired Souq in the UAE to serve the local market. In September, Amazon-owned Souq acquired Wing.ae, a startup that is building a network for Prime-style same-day and next-day deliveries for various e-commerce marketplaces.
On May 21, 2020, in the midst of a pandemic, Amazon launched a food delivery service in India. The service known as Amazon Food is currently available in Bangalore now but with top players having a setback the company has enough resources to go big and be a worthy competitor.
In Nov 2020, Amazon opened yet another venture called Amazon Pharmacy that could disrupt US healthcare. With the service, the company offers prescription medications to customers’ doorsteps. Customers can now browse medications, create a secure pharmacy profile, and request or manage prescriptions on Amazon.com. Just like other services, Amazon offers Prime members unlimited, free two-day delivery on Amazon Pharmacy orders with their membership.
Amazon Investment Landscape
Amazon is investing in a wider variety of industries. During the period of 2011-2013, Amazon slowed down its investment activities as they invested mostly in internet companies.
During 2014-2016, the company changed its investment strategies and started channelizing investment in other industries like Media, Auto & Transport, and Mobile. Amazon also made few other big investments, as they invested in the UK-based Yodel Delivery Network to expand its logistics network in the UK.
In 2016, Amazon partnered with Twilio to strengthen its communication platform through text and voice messaging.
In 2017, Amazon invested in a healthcare startup Grail which specializes in genomics for cancer diagnostics. This is Amazon’s first investment in the life science segment.
In the last few years, Amazon focused on late-stage deals where most of the investment amount fell into the $10M-$20M range.
Amazon founded the investment venture in 2015. The Alexa Fund provides up to $200 million in venture capital funding to fuel voice technology innovation.
As of Feb 4, 2021, Alexa Fund has made 102 investments in startups of different industries such as AI/ML, Education, Fintech, Gaming, Hardware, Health, Mobility, Robotics, Smart Home, and Voice Developer Tools.
The maximum number of investments can be seen in Artificial Intelligence (10 startups), Healthcare (13 startups), and Smart Home (11 startups) sectors.
Here are the last 10 investments made by Alexa Fund:
Amazon Financial Analysis
Amazon Revenue Analysis
Recently, Amazon announced its revenue for the 4th quarter of 2020, and with that, we found its overall revenue of 2020. AWS arm proved to be the most profitable segment raking in $13.5 billion operating income alone leading to record-breaking sales in 2020.
Despite Covid-19, Amazon saw a growth that beat the growth estimation in three quarters, and in Q4, it achieved for the first time a $100 billion revenue in a single quarter.
There are several reasons for this immense growth of Amazon’s revenue. While its online shopping business is the major source of revenue, its physical stores didn’t generate many sales due to the pandemic.
The subscription service also grew but a significant growth happened due to third-party sellers which accounted for $80.43 billion dollars. Amazon is a huge marketplace and one can sell their products via Amazon for which the company takes a margin of 15 to 20%.
Furthermore, advertising on Amazon is also increasing at a faster rate and accounted for $21.47 billion in 2020. The potential of Amazon’s advertising business has such potential that analysts affirm it could surpass the AWS revenue by 2021. But considering the AWS revenue, it’s highly unlikely that Advertisement can surpass AWS this year.
Majorly, Amazon operations, from the revenue perspective, can be divided into three major segments: North America, International, and AWS.
North America Segment
The segment includes earnings from retail sales of consumer products (including sellers) and subscriptions through North America-focused websites. The major competitors in the North American region are Best Buy, Target, eBay, Peapod, and Netflix.
The chart above shows both the sales and operating income of Amazon in North America for the last three years.
The segment is responsible for 61.1% of total revenue yet the operating income is responsible for 37.5% of total operating income.
North America has three sub-segments namely Media, Electronics, and other general merchandise and others. Electronics and other general merchandise represent the highest share of sales in North America with consistent growth.
The international segment includes earnings from retail sales of consumer products and subscriptions through internationally-focused websites. The chief challengers are Alibaba Group in China, Woolworths in Australia, Rakuten in Japan, Flipkart in India, and JD.com in the United Kingdom.
Amazon International Segment Revenue surged to $104.4 billion in 2020. However, it is still suffering an operating loss of $770 million which is the lowest in the last five years.
That means the segment has a chance to become profitable in this or the next year.
The sales growth was due to increased unit sales, including sales by marketplace sellers. The changes in foreign currency exchange rates impacted International net sales. Increased unit sales were driven largely by the continued efforts to reduce prices.
Amazon hosts the three major sub-segments, i.e. Media, Electronics, and other merchandise and Others, internationally. With Prime Services, the Electronics and other general merchandise successfully increased the sales in the International segment, too which was more than $30 billion.
Like every year, AWS was the most profitable segment of 2020, thanks to the Amazon B2B strategy, which bagged a $13.5 billion operating income – 59% of the total income.
The AWS segment is earning from global sales of compute, storage, database, and other service offerings for startups, enterprises, government agencies, and academic institutions. The major rivals in this segment are Microsoft, Google, Oracle, and IBM.
AWS is the fastest-growing segment of Amazon in terms of sales and net income. The sales were increased by 28.5% in 2020. Amazon’s increased sales are proof of growing consumers and product cost structure.
Amazon Stock Analysis
The year 2020 was too much up-and-down for Amazon’s stock price. While it saw the all-time high price i.e. $3552 in Sep and it also suffered a heavy blow when its share price fell $1626 in March.
The decline was the result of low-than-expected quarter profits. But after that, the stock price has been increasing consistently until it reached the peak in Sep 2020.
After comparing 52-week low and high, Amazon stock shows a growth of 118%. In 5 years, this is a solid 334% increment.
In 2017, the stock crossed the $1,000 per share mark in October 2017 and the overall year witnessed an increment of 57% compared to 2016.
Amazon has a total of 504 million shares and 56.47% of the total share. i.e. 283M+ shares are being held by Institutional holders that make a total holding of $943 billion.
Undoubtedly, the world’s richest man holds the most shares – 53.2 million. This makes his net worth $195.7 Billion. His net worth surpassed the $100 Billion mark for the first time on November 24, 2017, when the share prices increased by 2.5%. In November, he sold 1 Million shares when the price reached an all-time high of $1100/share which helped him make $1.1 billion.
With 81000 shares, Andrew R. Jassy – CEO of AWS – and soon to be CEO of Amazon, is Amazon’s second-largest individual shareholder. Jeffrey M. Blackburn is the senior vice president of business development and digital entertainment of Amazon, and with 48,967 shares, he is the third-largest shareholder of Amazon.
Amazon’s Business and Research Partnerships
- Amazon and Microsoft partnered to integrate Alexa and Cortana
In August of 2017, Amazon and Microsoft entered into a partnership for better integration of their Alexa and Cortana digital assistants. This cross-platform integration would allow Alexa users to access some unique aspects of Cortana and vice-versa.
- Amazon and Ford partnered to access cars from a distance
Ford and Amazon teamed up to offer consumers the ability to access their cars from a distance. This is done by bringing Amazon Echo into Ford’s cars. With the help of Alexa – Amazon’s cloud-based voice service, the car lets you control functions such as lighting, security systems, garage doors, and other Alexa smart home devices.
- Dish Network and Amazon wireless collaboration
Dish Network is looking to use an e-commerce platform, streaming service, home assistant (Amazon Echo), and proposed drone delivery services, in collaboration with Amazon and T-Mobile USA. According to the deal, Dish will utilize their spectrum for wireless service, in collaboration with Amazon and T-Mobile USA.
- Cognizant is a Premier Consulting Partner for AWS
Cognizant in partnership with AWS provides services like migration competency, big data, workspaces, healthcare and life sciences, financial services, and SharePoint. The AWS Cognizant Team (ACT) delivers the differentiating integration strategy and creates industry-specific and horizontal solutions for their mutual customers.
- Amazon and Accenture united
Amazon and Accenture combined to precipitate real innovation by combining AI tools into a contact center running from the cloud. Amazon offers Amazon Connect, a fully hosted, customizable, cloud-based contact center service. The collab structures such that Accenture would help its clients rapidly deploy Amazon Connect at scale and build vertical industry applications that use AWS AI services. The partnership will focus on delivering cloud transformation projects.
- Nokia announces a Strategic collaboration with Amazon Web Services
Nokia and Amazon Web Services (AWS) collaborated given the rising need for “tighter integration” between networking and IT infrastructure. The partnership will improve cloud migration and software-defined wide-area networking (SD-WAN) services for enterprises, along with working across the development of 5G and Internet of Things (IoT) use cases.
- 2nd Watch Named AWS Management Tools Service Delivery Launch Partner
2nd Watch achieved AWS Service Delivery Launch Partner status for three Amazon Web Services (AWS) Management Tools in the AWS Service Delivery Program. The Partner Program is designed for those who are skilled at cloud infrastructure, application migration and deliver value to customers by offering proactive monitoring, automation, and management of their customer’s environment.
- Ericsson wants a presence in Cloud Computing by merging with AWS
Ericsson which is one of the top companies working on 5G also wants to strengthen its position in cloud computing. In 2016, the Swiss giant worked with AWS for enhancing its infrastructure for developing and deploying mobile apps.
Amazon, for quite some time, has been focusing its efforts on cloud services and its personal assistant Alexa for which it has raised millions in Funding. Further, it is also trying to make Alexa a smarter assistant by hiring more AI talents.
The increase in the sales of AWS suggests it might become a favorite choice for corporations in the future. Prime, after the record-breaking sales, is getting bigger in India and Mid-East. Further, the company is trying to get a hold of the Indian Fintech market for which in Dec 2017, it funded a digital lending startup Capital Float.
Last year, Jeff Bezos also announced its $1 billion investment in India for the next five years.
The company has hit an almost $400 billion revenue mark and has more than $1.6 Trillion market capital.
Such huge sources could make Amazon enter any kind of business they want and this could be a problem for the players for different domains. Zoox acquisition is a solid example as it could make other autonomous vehicle companies a run for the money.
But when talking about the most noteworthy competitor of Amazon, Walmart would be the prime choice.
Even though Amazon is way ahead of Walmart in terms of market capitalization but in revenue, it’s still quite behind Walmart. But considering Amazon’s fast growth, sources predict that Amazon would overtake Walmart’s revenue by 2022.
Amazon already surpassed Walmart as the world’s largest retailer in 2019 and in a few years, it would surpass its revenue too.
But after a downfall, Walmart too has taken new steps to be more than a retail company and has now collected resources to give Amazon tough competition. Walmart now understands the value of technologies as the company started investing in technologies and patents to take on Amazon.
Authored by: Vipin Singh, Sr. Research Analyst, Market Research.