Amazon is no longer a sales site for customers, but a service platform for sellers

Amazon is not only the world’s largest online sales platform. The revenue the company generates on its market has even exceeded the revenue from the numerous online services it offers to its sellers.

Since its founding in 1994, Amazon has grown rapidly. Starting as an online bookstore, the company gradually transformed into a global e-commerce giant. Less known is that it is also a key player in the area of ​​technological infrastructure (Amazon Web Services, or AWS), digital leisure (Prime Video, Twitch, Kindle), but also logistics and online advertising.

The company’s annual revenues increased from nearly $7 billion in 2004 to $574 billion in 2023. AWS, launched in 2002, has become a major revenue generator, generating $90 billion in 2023. The platform’s advertising revenue has also increased dramatically since launch, reaching $51 billion in 2023. Amazon employs 1.5 million people. In the United States, Amazon is currently the second largest retailer after Walmart and alone represents 6% of commerce and 37.6% of US e-commerce.

Locking customers into the complete ecosystem

To achieve these results, Amazon fundamentally modified its original model. From a uncomplicated online sales site, the platform initially became a marketplace open to millions of sellers. THIS double-sided platform model implemented by Amazon, it was gradually enriched with numerous services for sellers. The end customer is no longer at the center of the model. Amazon is now an increasingly integrated service platform for sellers, from which it derives a very vast part of its revenues. More generally, the Amazon case calls into question the development of platforms towards models that differentiate them less and less from the classic company. Amazon actually manages more and more processes internally, whereas the platform’s historical model relied on and coordinated external third-party resources.

In its original marketplace model, Amazon offered third-party sellers the opportunity to offer their products on its platform. In 2004, 20% of sales were from external entities. This is now over 60% in 2024. Half of these sellers are Chinese merchants who employ Amazon as a distributor in the various markets where the platform operates.

In 2005, Amazon introduced its Prime subscription program, providing access to free shipping. This system builds customer loyalty and encourages them to focus their purchases on the platform. In 2006, Amazon opened up its logistics to third-party merchants, who could focus on sales and let Amazon make deliveries. A program called “Fullfilment by Amazon” (FBA) is required to sell your products to Amazon customers who subscribe to Prime. Many sellers are opting for this solution to avoid losing sales, especially as the number of Prime subscribers has grown significantly over the years, reaching 200 million in 2021, including 140 million in the United States. That’s why 94% of sellers trust Amazon with their logistics.

To attract recent subscribers, Amazon has actually beefed up its Prime program by integrating numerous services for streaming video, music, games and access to promotional sales. The Prime program, currently sold in the United States for $139 per year, thus locks customers out of the platform.

Online services offered to sellers

Apart from that client lockvendor dependence was reinforced with the introduction of in-market advertising in 2012. To boost the visibility of their products on the platform, sellers are encouraged to purchase advertising campaigns that result in greater visibility in the website’s search results. A common practice in physical distribution, Amazon’s advertising program takes on a whole recent dimension when the company expands it to its Prime Video platform, where it pushes advertising by default to Prime subscribers in 2024.

From this point on, the marketplace seller can promote their products on Prime Video and directly evaluate their effectiveness by increasing sales or not. Amazon’s closed environment provides a comprehensive and unique framework for promotion and marketing. Amazon’s advertising business generates a turnover of $49.6 billion in 2023.

This development is complemented by the company’s services cloud computing provided by Amazon Web Services, which hosts all of its services and is the platform of choice for leveraging market data. This data is then monetized into audience segments for various sales or media spaces.

In 2023, adding revenues from its services (cloudlogistics, advertising) outperforms Amazon’s direct sales and marketplace sales: $319 billion versus $256 billion. That’s why Amazon’s model has undergone a profound transformation over the past decade. After the customer acquisition and lock-in phase through the Prime program, the model focused on the other side of the platform, increasing services for sellers.

Facing competition

Amazon is now applying logic multi-faceted, plate-shaped strongly integrated. Maximizes cross-network effects by blocking different users of the platform. At the heart of this model, data plays a pivotal role in integrating various aspects of the model and maximizing revenue. From detailed knowledge about research and shopping to viewing audiovisual content, Amazon offers brands an unrivaled, complete promotion and sales environment. It competes directly with media players who are unable to offer brands such an advertising environment.

This model has been the subject of antitrust proceedings in the United States since 2023, where the Federal Trade Commission (FTC) and 17 states are suing Amazon for anticompetitive practices. If the outcome is still uncertain, Amazon’s model has been subject to a three-year review. China’s trade offensive. Pinduduo has launched its Temu platform in the United States, following the likes of AliExpress (Alibaba) and Shein. Finally, ByteDance has also launched a TikTok store in the United States. Thanks to massive advertising campaigns and aggressive pricing policy, Chinese platforms prove to be formidable competition. They learned how to meet and sell to Western customers largely thanks to Amazon. Introduced in November 2024, Amazon Transportationcopy of Temu, is intended to be a response to this sedate Chinese threat.

Amazon has built a unique model in the commercial world. It brings together the worlds of media and commerce in a unique combination that challenges both worlds. Such an integrated model raises questions about potential competitive effects in the advertising and distribution markets. It is not obvious whether the regulators (European Commission and Competition Authority) have the necessary tools to understand such a model. It is not certain whether DMA, DSA and competition law are consistent with such a model.