In less than 20 years, Amazon managed to expand from a bookstore through an online marketplace and a leading global B2B marketplace to the largest world provider of cloud services.
Jeff Bezos, Amazon’s founder, has been developing his online store and marketplace competing with Jack Ma, founder of Alibaba, but Amazon has diversified in many more online services than any other leading B2B marketplace.
Last year, online stores made up just 52% of Amazon’s overall revenues while the remaining 48% came from AWS (Amazon Web Services, their cloud computing service), subscription services through Amazon Prime, third-party seller services, advertising and revenues from physical stores they have launched in 2017.
That said, Amazon appears to be the most diversified B2B and online marketplace ever created while they still rely on their core online marketplace to develop a working business model further.
Amazon actually shows you the way a brick-and-mortar store or a simple online store service can develop into a service-based company without abandoning your core business model based on connecting suppliers and buyers online. Jeff Bezos also demonstrated how you could grow an online bookstore into the world’s leading online marketplace within a decade, taking advantage of cost savings resulting from automation, cloud-based services and digitization of any process you can digitize.
It is doubtful one could have grown such a huge and diversified business in so short time only 30 or 50 years ago. Amazon took the established business model of distance merchandising to a whole new level by leveraging the power of any emerging technology while brick-and-mortar chains, which had much more financial resources to invest at the time, lagged behind due to missed opportunities.
Another strategic move by Amazon was to start investing not only in the expansion of their core consumer-focused online store but also in B2B services that connect retailers/suppliers and businesses as well as a cloud computing infrastructure that now accounts for almost half of the global public-cloud infrastructure.
When we speak of diversified business here, we really mean diversified. And we also mean strategic thinking to support the brand internationally in order to boost sales generated from varied income sources.
For instance, Amazon lost $2.1 billion in international sales in 2018, which were offset by sales worth $7.2 billion on its domestic market in North America. Their AWS services generated as much as their online sales, generating $7.3 billion of their operating income last year, or roughly 50% of Amazon’s income. In the same period, Amazon generated $10 billion from advertising services and this combined revenue allows the company to lose money on their international sales whiling firmly establishing its brand across the globe.
It will be very hard for another company to replace Amazon as the largest online B2B marketplace and consumer online store in the United States, as they control half of the domestic market today. This, in turn, enables Amazon to invest heavily in expanding its other business services and generate additional revenues to support its international operations.
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