Amazon CEO Jeff Bezos went to great lengths in his annual shareholder letter this year to highlight the three big “pillars” of his company: Amazon Web Services, Marketplace, and Prime.
All three businesses have played a significant role in growing Amazon’s revenue, which topped $100 billion for the first time last year. But as big as those three businesses are, it’s equally important for Amazon to find the fourth pillar of the business that could eventually generate billions of dollars a year.
“While I’ll focus on those three, I assure you that we also remain hard at work on finding a fourth,” Bezos wrote in the letter.
It’s hard to predict where that fourth pillar will come from. Some think it will be Amazon’s voice-controlled audio speaker, Echo, while some expect its video streaming service to take off.
But according to RBC Capital’s Mark Mahaney, these are the 3 areas most likely to become Amazon’s next growth drivers: shipping, business supplies, and groceries.
Mahaney notes he picked them based on the market size, market efficiency, Amazon’s competencies, and signs of traction by Amazon. Here’s a summary of his thinking:
Shipping: Mahaney sees the parcel shipment market to be about $200 billion in size, the smallest among the three. But he still believes that’s a big enough opportunity for Amazon to invest in, and an area that needs improvements given the shipment delays it experienced in recent holiday seasons. Plus, having a stronger logistics network will only bolster the customer experience.
Mahaney believes Amazon already has the capacity and scale to build up its own logistics network, and it’s only a matter of time before it bulks up its shipping business. “Shipping as a Fourth Pillar for Amazon will be either an obvious option or an obvious reality,” he writes.
Business Supplies: Amazon Business sells everything a company needs, from basic office supplies to industry-specific products like lab equipment or hospital wear. Mahaney believes the business supplies market in to be $5 trillion worldwide.
Within a year of officially launching, Amazon Business has sold over $1 billion worth of products, and is growing 20% month-over-month. Given its size and hyper-growth rate, Mahaney believes Amazon Business could generate $3 billion in revenue in this year alone. And although that’s a relatively small number compared to Amazon’s total revenue, Mahaney sees huge potential for it to gain bigger traction soon.
Groceries: Amazon has been working on grocery delivery services for a while, but it was only over the past couple years that it really started to ramp up. Mahaney estimates the annual grocery spend to be roughly $3 trillion, giving Amazon a huge future opportunity.
Mahaney notes that Amazon is already one of the largest players in the online grocery space, and will only further grow as the total online groceries market is expected to keep expanding. And with its already robust logistics network, Amazon’s groceries business has all the potential to be the next growth driver, he says.
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.