Amazon has become one of the biggest e-commerce stores in the world. How was it able to grow this large?
Amazon has grown down to one of the biggest companies in the world with its revenue growing rapidly through recent years. In the first quarter of 2007, the e-commerce company had $3.2 billion, three years later it had over doubled its quarterly revenue to $7.13 billion and just 10 years later, it had increased its revenue to $75.45 billion in the first quarter of 2020. In September 2020, Amazon was responsible for 37.9% of all online retail sales in North America and 22.9% in Japan. Amazon employed nearly 1.5 million people in September 2021. How did Amazon become one of the biggest e-commerce stores in the world?
Amazon’s exponential growth
In 1994 Jeff Bezos founded Amazon.com, an online web shop for books. Bezos wanted Amazon to be more than just a website where people come to buy books. Instead Amazon was a technology company that would deliver a smooth shopping experience. Bezos believed that the internet would be the next big thing, despite criticism from journalists, who still believed that brick and mortar bookstores would be the winners. This did not discourage Bezos from building his webshop.
In December 1996, after a year of being in business, Amazon reached 180,000 customer accounts. In October 1997, it reached 1 million accounts and revenue reached $148 million in 1997. In an interview Jeff Bezos said that during his time working at a hedge fund, he observed that internet usage was growing by 2,300% annually. He saw this as a major business opportunity and drafted a plan that utilized this growing market. Bezos started with books as a large catalogue was available, with at the time, over 3 million books published, which made them the perfect product to build an extensive e-commerce store for. Bezos already operated a warehouse with a couple of thousand titles and others are distributed through a network of wholesalers and other resellers. Bezos knew that increasing brand awareness and gaining attention from potential customers was one of the hardest challenges for any new company. Amazon was able to gain attention from the press and other media outlets, because it was adding value to the customer, setting itself apart from competitors.
Bezos knew that increasing brand awareness and gaining attention from potential customers was one of the hardest challenges for any new company.
As more customers used the service, they became the ambassadors for the store. Amazon didn’t spend any money on advertising during the first year. Their first advertisements were small ones in the printed version of the New York Times, but they stopped as they couldn’t trace back online sales to their paid efforts. They started with online banner advertising which helped them track which websites were generating revenue.
The Person of the Year is set to change our lives forever
In 1997, Jeff Bezos was announced Person of the Year by Time Magazine. In a 1999 article, the magazine foretold that Amazon would change ‘the way we live’ when witnessing the 850,000-sq.-ft Coffeyville Distribution Center, which served as the precursor of a changing consumer landscape where e-commerce would reign supreme. The warehouse was filled to the brim with books, CDs, TVs, stereos and everything in between. Yet it still ran on 10% of total capacity. But the room would not go to waste, as Bezos wanted to add every imaginable product, from washing machines, model aeroplanes and exercise machines. The company was also facing competition from sites like Petopia, and Buy.com, Shopnow and marketplace eBay. Time Magazine noted that this fact alone was enough for Bezos to ramp up its spending and claim as many categories as fast as possible. But questions were raised whether Amazon would reach that ambitious goal as it was making losses every step of the way, with a total net loss of $350 million in 1999.
In 2002, after accumulating a total loss of $2.8 billion the company finally recorded its first quarterly profit. It was able to generate a modest revenue of $5 million, which was a testament to Bezos philosophy of growing revenue as fast as possible without minding profits. Despite the small profit, it was above expectation as the company was able to rigorously decrease its operating costs by closing two warehouses where 1,300 people were let go and simultaneously decreasing the amount of temporary employees by 3,200. This whilst sales rose by 23%.
Bezos’s daring bet proved to be right as the amount of adults who used the internet in the United States was expanding exponentially from 2000 onwards. In 2000, 50% of adults in the US used the internet, a year later this number grew to 55% and in 2002 to 59%. The percentage only kept accelerating. In 2007, this number had already reached 74% and in 2010, 76% of adults in America used the internet. The adoption slowed down during the economic crisis, but quickly recovered and Amazon could take advantage of this momentum.
Amazon goes on the advertising offense
It would be utopian to think that Amazon would grow as fast as it did through word-of-mouth and small scale advertising alone. It was ready to scale up its business through large budget advertising. In 2013, Amazon launched its first TV ad, focusing on the fashion category in a 30-second commercial. The e-commerce website stated that it wanted to follow its customers across its media habits, extending the reach of its website to offline media.
Amazon further set out to promote its fashion category by partnering up with English model, Suki Waterhouse two years later. Fashion network noted that the fashion industry is one of the most lucrative markets and Amazon wanted to tap into this popular product category. The campaign would utilize print ads to reach its desired audience in the countries Germany, France, Italy, the UK and Spain. Products would also be prominently featured on the website. But Amazon was always meant to be more than just an e-commerce store according to its founder Jeff Bezos.
Amazon wants to be more than just e-commerce
In 2011, Amazon launched its video streaming service for Prime members. The release of the service was accompanied with over 5,000 movies and TV shows. The company prided itself by delivering a commercial free, instant video streaming product. Amazon started to ramp up its content budget to become a worthy rival for Netflix and Disney. In 2013 it invested $1.22 billion for content production and increased it to $2.67 billion in 2015, closing the gap to Netflix who invested $2.38 and $4.91 billion respectively in the same period.
Three years later, Amazon expanded its entertainment repertoire by launching Prime Music, for, you’ve guessed it, Amazon Prime members. The catalogue featured over 1 million songs, but would not include popular releases from Universal Music. In 2017, Amazon launched a fake digital radio station, highlighting the thriller series, “The Man in the High Castle.” The guerilla style ad campaign was able to gain attention from the press, as Trump supporters believed, ‘Resistance Radio’, was real, being under the impression that it was a vehicle for the Democrats to defame Trump.
In 2021, Amazon launched a dedicated campaign for its advertising services. The ads were developed by creative agency Code and Theory, who created the content such as display ads, video and billboards. Amazon wanted to position itself as more than just a webshop, but also a place for advertisers to promote their goods. In the same year, Amazon went for another major content push, increasing its content creation budget to $13 billion, an increase of $2 billion compared to the year prior. The following year, Amazon launched a big campaign during the Super Bowl for it’s Amazon Alexa voice assistant product. The 60-second commercial would feature Scarlett Johansson and Colin Jost as its main cast.
Jeff Bezos’s strategy paid off
Bezos was onto something when he viewed the spectacular growth figures of the internet and its adoption across the United States. He could capitalize on this growing consumer market, but he had to act fast and ruthlessly to stay ahead of its competitors. One of the core strategies was an inexhaustible drive to create revenue and outpace upcoming competitors. The e-commerce store had generated hundreds of millions in debt to claim every imaginable category and spend millions on advertising to stay top of mind, something it was aiming for from the very beginning.
In 2020, Amazon generated $386.07 billion in revenue and when breaking down the different segments, we can see how all different products fuel the growth engine that Bezos had envisioned a little over 2 decades ago. 51% of revenue came from online stores, followed by retail third party seller services, which contributed 20.8% and third came Amazon Web Services which were responsible for 11.75% of total revenue. The marketing campaigns and diversification into other products helped Amazon create more additional revenue streams making it less dependent on its digital storefront. The speed at which the company has been able to grow its revenue is remarkable to say the least.