Amazon is no longer a retail destination for customers, but a service platform for sellers

Since its founding in 1994, Amazon has experienced explosive growth. Initially an online bookstore, the company has evolved into a global e-commerce powerhouse. However, its reach goes far beyond retail. Amazon is also a dominant force in technology infrastructure (Amazon Web Services, AWS), digital entertainment (Prime Video, Twitch, Kindle), logistics and online advertising.

Amazon’s annual revenue has skyrocketed from nearly $7 billion in 2004 $574 billion in 2023. AWS, launched in 2002, has become a major earnings driver, generating $90 billion in 2023. Likewise, the company’s advertising revenue has grown, reaching $51 billion in 2023. Amazon, with 1.5 million employees, has established itself the second largest retailer in the United States after Walmart, accounting for 6% of US commerce and an astonishing 37.6% of US e-commerce.

Locking customers into a comprehensive ecosystem

Amazon’s success lies in its transformation from a straightforward online store into a multi-faceted platform. Initially, Amazon created a marketplace for third-party sellers double-sided platform a model that has evolved into a tightly integrated ecosystem of supplier services, making it a significant source of revenue. Today, Amazon is less focused on serving individual customers and more on offering a suite of tools for sellers, challenging the classic platform model that typically relies on external resources.

In the early marketplace model, third-party sellers could list products on Amazon. By 2004, third-party sales accounted for 20% of Amazon’s revenue. Quick forward to 2024, representing third party sales over 60%with half of these sellers based in China and using Amazon to access international markets.

In 2005, Amazon launched Prime, a subscription service that offered free shipping, effectively ensuring customer loyalty. Two years later, Amazon introduced its Fulfillment by Amazon (FBA) program, allowing sellers to outsource logistics to the company. Sellers using FBA gain access to Prime customers, a growing segment that will reach 200 million members worldwide by 2021, including 140 million in USA Today, 94% of sellers rely on Amazon’s logistics services, fueled by the platform’s dominance and Prime’s lucrative subscriber base.

Amazon has consistently expanded its Prime offerings, adding streaming video, music, games and exclusive promotions. Priced at $139 a year in the United States, Prime has become a central pillar of Amazon’s strategy to ensure customer loyalty.

Service package for sellers

Although Amazon has been successful retained customersits influence on sellers has increased significantly. In 2012, Amazon introduced advertising services to its platform. To ensure visibility, sellers are encouraged to purchase advertising campaigns that prioritize their products in search results. This system mirrors classic retail practices, but on a much larger scale. In 2024, Amazon expanded advertising to Prime Video, introducing default ads for Prime subscribers. Sellers can now promote products on Prime Video and track performance with sales metrics, creating an unrivaled promotional ecosystem.

All advertising revenue generated by Amazon $49.6 billion in 2023further enhanced by cloud computing services via AWS. AWS powers Amazon’s data infrastructure and monetizes market data by offering sellers tailored audience segments. Total revenue from Amazon services – including cloud computing, logistics and advertising – exceeded revenue from direct sales in 2023, total $319 billion compared to $256 billion.

Over the past decade, Amazon has moved from primarily customer acquisition to monetizing seller relationships, transforming the platform into an integrated, multi-faceted revenue generator.

Fighting against the competition

Amazon now operates as a highly integrated, multi-sided platform that leverages cross-network effects to attract both customers and sellers. Data plays a key role in enabling Amazon to integrate search behavior, purchase history and media usage into a consistent promotional and sales environment for brands. This strategy directly challenges classic media companies that cannot match Amazon’s unique blend of retail and advertising.

But Amazon’s dominance has drawn scrutiny from regulators. As of 2023, the US Federal Trade Commission (FTC) and 17 states have initiated antitrust lawsuits against the company for anti-competitive practices. At the same time, Amazon faces increasing competition from Chinese e-commerce platforms such as Temu (Pinduoduo), AliExpress (Alibaba), Shein and TikTok Shop, which have gained popularity with aggressive pricing and marketing strategies. It is worth noting that these platforms have taken note of Amazon’s guidance to refine their approach to Western markets.

In November 2024, Amazon responded with a launch Amazon Transportationa platform similar to Temu offering inexpensive products. The move underscores the growing threat posed by Chinese rivals, which have quickly adapted to Amazon’s dominance by exploiting its weaknesses.

Amazon has built a unique business model, combining media and commerce in a way that challenges both industries. This integration raises critical questions about the impact of competition on advertising and retail markets. Regulators, including the European Commission, may lack the tools to adequately address Amazon’s multi-faceted model, even within a framework such as Digital Markets Act (DMA) i Digital Services Act (DSA). It is unclear whether these regulations will be able to effectively regulate Amazon’s influence.

As Amazon continues to refine its ecosystem, its business model offers a glimpse into the future of commerce – a tightly controlled platform that dominates retail, logistics, media and advertising. But as competition intensifies and regulatory challenges mount, the company’s ability to maintain its dominance will be tested to its greatest extent ever.