In Jeff Bezos’ annual letter to Amazon shareholders, the founder and CEO celebrates the fact that the company doesn’t have just one profitable side-business, it has three — Amazon Marketplace, Amazon Prime, and now, Amazon Web Services. And it’s on the hunt for a fourth.
“Each of these offerings was a bold bet at first, and sensible people worried (often!) that they could not work. But at this point, it’s become pretty clear how special they are and how lucky we are to have them,” Bezos says.
Bezos reserves a lot of space in his letter to praise the growth of Amazon Prime, the company’s $US99 a year premiere membership tier, which he says at the outset cost the company “millions of dollars in shipping revenue, and there was no simple maths to show that it would be worth it.”
But these days, Bezos writes, Amazon has gotten so efficient at shipping and processing, thanks in no small part to its 15,000-strong fleet of warehouse robots, that those revenue gaps have shrunk mightily.
Selling inventory from warehouses is still Amazon’s best customer acquisition strategy, Bezos says, and Prime’s all-you-can-eat shipping model drives that, since it encourages users to buy and buy again.
But what’s interesting is that Amazon’s original video content, including the Golden Globe-winning Transparent, is actually a huge driver of Prime memberships in the first place. People come to Prime for the shows everybody is talking about, and once they have the membership, it’s consumerism city, baby.
“Finally, our business model for original content is unique. I’m pretty sure we’re the first company to have figured out how to make winning a Golden Globe pay off in increased sales of power tools and baby wipes,” Bezos writes.
Bezos also praised the growth of Amazon Web Services, its business cloud computing unit, where customers can run their applications in large-scale data centres, as something that will continue to “have strong returns on capital.”
Marketplaces, for its part, is a strong driver of growth in India, where all of Amazon’s inventory is handled through third-party sellers, not Amazon itself. Worldwide, 40% of stuff sold on Amazon is through the same kind of third-party seller, Bezos writes.
As for the future, Bezos reaffirms that the company has “a number of candidates in work” for a fourth profitable additional business.
“With the opportunities unfolding in front of us to serve customers better through invention, we assure you we won’t stop trying,” Bezos writes.
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.
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