When it comes to disruptive technology, one company is at the fore. Amazon ($AMZN). Amazon and its groundbreaking founder and CEO, Jeff Bezos, are responsible for disrupting more industries than I can count on my own hands, and they keep going. In this article I will explain what makes Amazon an efficient machine, disrupting many industries.
When was the last time you walked into Barnes & Noble ($BKS)? Or any other library for that matter? What about the last time you visited Amazon? I’m willing to bet everyone reading this has been on the Amazon website for the past few days, and I’m equally willing to bet almost no one has been in a bookstore for quite a while. The bookstore industry, symbolized by former giant Barnes & Noble, was the first victim of Amazon’s disruptive tendencies. Amazon’s roots go back to 1994 when the company established an online bookstore. By designing as an online bookstore, Amazon has been able to offer a much wider selection than any physical bookstore, along with being able to offer the same selection at a cheaper cost to the consumer. Since the free market behaves naturally, consumers have chosen the cheapest option when offering an identical product or service. By 2007, Amazon had surpassed Barnes & Noble in revenue from book sales, the same year it released the first edition of its Kindle e-book reader. By 2010, sales of digital books exceeded sales of physical books through Amazon. Amazon also operates the company and website Audible, one of the biggest players in the audiobook game. In 2011, Borders Group, what had been just a few years before, the second largest bookstore chain in the United States, filed for bankruptcy, and after a few months ceased to exist. At the time of writing this article, the market capitalization of Barnes & Noble is approximately $454 million. Amazon has a market capitalization of about $832 billion. By market capitalization assessment, Amazon is worth nearly 2,000 times that of Barnes & Noble. Amazon’s entry into the bookstore industry and its replacement of pre-established businesses in its place is simply the first of many industries the Amazon bull has disrupted.
No end in sight
After profiting from direct retail sales and fees from third-party sellers on the Amazon website, Amazon generates the largest percentage of its revenue from the Amazon Web Services (AWS) division. AWS has a history dating back to 2006. Over the course of 2006 Amazon successively launched Simple Storage Service (S3), which is a file storage service as the name may imply. Simple Queue Service (SQS), a service intended to automate message queues. To end the year, they launched Elastic Cloud Computer (EC2), a service that allows users to pay for server time to run programs and simulations. Today there are around 100 different services offered under the Amazon Web Services umbrella that can cater to almost every digital need. Nowadays, nearly half of all digital cloud computing is powered by Amazon. Similar to what happened in the bookstore industry, Amazon took control. By 2020, the value of cloud computing is expected to reach more than $400 billion. And Amazon is set to dominate this market for the foreseeable future.
Claim to fame
The retail and grocery industry is a great example of an industry that has been permanently changed by Amazon, and what it is best known for. However, initially, Walmart (WMT in USD) has nearly three times the annual revenue of Amazon, so it’s not as if Bezos & Co. have taken over the retail industry, but they certainly made a negative impact. One could say they have disrupted the industry. While it was founded in 1994, for the first four years it was just an online bookstore, but in 1998, the company expanded its catalog and began selling more than just books. Since then, the company’s online sales have grown exponentially year on year, and they have been accused of putting many traditional retailers out of business. Amazon generates about 85% of its revenue from its own retail business, so it’s clearly the bulk of Amazon. By pioneering online retail, Amazon has managed to establish itself as one of the largest retail companies despite being fully online, in part due to convenience and low prices. Most recently, in 2017, Whole Foods, a luxury grocery store, was acquired by Amazon to increase its market share in the retail and grocery scene. With its online retail arm and physical grocery arm, Amazon is able to capture a significant market share and acquire an agency across the space. Just to put Amazon’s domain in perspective, more than two-thirds of all households have an Amazon Prime subscription.
But apart from that
Above I talked about what the largest divisions of Amazon are, and what they are most famous for. But here I will talk about the lesser known parts. Amazon operates its own Amazon Video service and is available to all Prime customers. A competitor to traditional TV and media and popular with cable cutters, the service rivals other streaming services like Netflix ($NFLX) and Hulu (soon to be owned by Disney, ($DIS)) and offers thousands of movies and TV shows. There is Amazon Drive, which offers unlimited file storage for just $59.99 per year. Recently, they also acquired the website Twitch, the largest video game streaming site giving Amazon market share in the streaming and e-sports industries. One of the first affiliates is A9, a highly advanced search engine and marketing company that works using machine learning. Amazon is also after self-driving car companies like Tesla ($TSLA) and Google’s Waymo ($GOOG, $GOOGL). Although Tesla is not as advanced as many think, nor is it considered a good investment. Back on track, they also have Amazon Music, Amazon Tickets, Amazon Home Services, Amazon Inspire, IMDb, Amazon Go, Fire TV, Goodreads, Zappos, and more. Go ahead and look up Amazon companies or services that Amazon offers which I haven’t talked about, you can probably find at least a few dozen more. Two days ago, Amazon announced that it was buying an online pharmacy in order to offer an online pharmacy, drug delivery service that would disrupt traditional pharmacies.
Currently, Amazon is the second most valuable company by market capitalization in the world. The only company that has been outdone is the tech giant Apple ($APPL). Based on Amazon’s huge potential for growth, and the lack of equivalent competition, I believe its value will continue to rise. They are in the unique position of disrupting nearly every industry you can think of, and succeeding at the same time. Amazon is a great company that will continue to expand indefinitely, and I would advise anyone to invest in the company, even though some think it is overrated.