What began as Earth's biggest bookstore has become Earth's biggest everything store. Expansion has propelled Amazon.com in innumerable directions. While the website still offers millions of books, movies, games, and music, selling other items -- such as electronics, apparel and accessories, auto parts, home furnishings, health and beauty aids, toys, and groceries -- contributes more than 60% of sales. Shoppers can also download e-books, games, MP3s, and films to their computers or handheld devices, including Amazon's own portable e-reader, the Kindle. Amazon also offers products and services, such as self-publishing, online advertising, e-commerce platform, hosting, and a co-branded credit card.
Amazon rings up more than half of its sales in North America. Important international markets include Germany, Japan, and the UK, each contributing more than 10% of the company's sales. Amazon also does business in Brazil, China, France, Italy, and Spain.
In addition to products (85% of sales), Amazon is increasingly a provider of services. Service sales represent third-party seller fees earned (including commissions) and related shipping fees, digital content subscriptions, and other non-retail activities. Its Amazon Web Services unit caters to developers, start-ups, and larger enterprises by providing access to Amazon's technology infrastructure. (Clients include Pinterest and airbnb.)
During the past five years, the online giant's sales have more than quadrupled from about $15 billion in 2006 to $61 billion in 2012. Indeed, sales rose 27% in 2012 vs. 2011, fueled by increases in fast-growing categories, such as electronics and other general merchandise, and price cuts and free-shipping promotions. Sales in all of Amazon's markets grew by double-digits, with North America up 30% is 2012 vs. 2011 and international sales up 23%.
Historically, Amazon's vast scale and efficient operating model have allowed it to prosper despite downward pressure on prices. (Offering customers low prices is key to Amazon's business strategy.) However, 2012 marked the second year of steeply falling net income. Indeed, in 2012 the online giant was unprofitable, posting a net income loss of $39 million. Drags on profitability include razor-thin margins on the sale of the Kindle Fire tablet computer launched in late 2011. (Amazon is apparently willing to take a short-term hit to profits to achieve its larger goal of increasing merchandise sales at its online store down the line.) Higher costs for product, digital content, and shipping also took a toll on the company's bottom line.
Still, Amazon continues to mint cash, with cash flow from operation climbing to $4.2 billion vs. $1.7 billion in 2008.
The Kindle Fire is the latest in Amazon's line of Kindle e-readers (launched in 2007). Digital books have emerged as the fast-growing segment of the book market. In 2011 Amazon announced that it now sells more Kindle e-books than print books. The Kindle, Kindle 3G, and new Kindle with Special Offers (which sells for less but displays ads and sponsored screen savers) comprise Amazon's e-book offering. Rival Barnes & Noble, which launched its own e-reader Nook in 2009, emerged as a formidable competitor to Kindle, but has since faded. As a way to boost its already robust e-book services business, Amazon in 2013 announced plans to purchase online book community Goodreads. Based in San Francisco, the social media site, which is used by 30,000-plus book clubs, provides the platform for its 16 million members to share book reviews and recommendations.
To boost membership in its Prime shipping and customer loyalty program (launched in 2005), Amazon has struck a deal with Discovery Communications. Discovery has agreed to sell the online-streaming rights to some of its older programming, including episodes of the popular shows "Dirty Jobs" and "Whale Wars," to Amazon's online-streaming service. Amazon's Instant Video streaming service is a distant second to Nexflix.
Amazon finally caved to increasing pressure from state legislatures and its brick-and-mortar rivals and began collecting sales tax on its online sales. After pitched battles in several states, including Texas and California, the company agreed to begin collecting taxes in The Golden State in 2012.
Mergers and Acquisitions
Amazon in early 2013 acquired Poland's IVONA Software, a leading text-to-speech technology firm offering voice and language portfolios with 44 voices in 17 languages. Amazon already uses IVONA's technology in its Kindle Fire.
Acquisitive Amazon has spent more than $1.4 billion over the past two years on acquisitions. Looking to improve its automation fulfillment centers, as well as cut processing times and personnel costs, Amazon in 2012 acquired Massachusetts-based Kiva Systems, a warehouse technology company, for around $678 million.
Notable purchases in 2011 included UK-based online bookseller The Book Depository in the fall. The Book Depository was founded by a former Amazon.co.uk employee, and acquiring it strengthened Amazon's market share in the UK and bolstered its position in the e-book market. Raising its entertainment stakes in Europe, Amazon in 2011 acquired the remaining shares it did not already own in LOVEFiLM International, which streams video and rents DVDs by mail to customers in the UK, Germany, Denmark, Norway, and Sweden. Amazon previously held a 42% stake in LOVEFiLM.