Would you be surprised if I told you that Amazon doesn’t make most of its money from selling you phone chargers, clothes or Alexas? Well, it’s true. Although the corporate behemoth is considered part of the retail industry, they make a majority of their money from other income streams. The most profitable sector by far is their Amazon Web Services (AWS).
What’s Amazon Web Services?
AWS hosts several of the largest websites on the internet. This includes Netflix, ESPN, Twitch, Facebook, LinkedIn and many others. In fact, the website you’re reading this article on right now is hosted by AWS. By becoming so prevalent in the digital services industry, Amazon doesn’t even need to worry about turning a profit in the retail sector.
In 2019, Amazon brought 63% of its profits from web services while losing money in its retail division. If AWS were a standalone company that year, it would have been valued at $500 billion. Without solely relying on their retail sales, Amazon is given an advantage in the space.
What’s the advantage?
The advantage comes out in ways you wouldn’t expect. Have you ever noticed that when you want to return a package — because it’s broken, lost, or you’re just not happy with it —Amazon will take it back and send a new one, no questions asked? Well, they can afford to. They don’t care about the cost of replacing whatever product they gave you because they aren’t relying on any profits from retail. In fact, they plan on usually losing money in retail.
Making money in web services also prevents Amazon from falling into any retail death spiral. The retail industry was suffering even before the pandemic, and although numbers are up since we’ve been reopening, the internet will undoubtedly be the future of retail. And Amazon will survive even if we see other retailers close their shops for good.