Amazon, king of disruptors

AN INTRODUCTION

When it comes to disruptive technology, there is one company that reigns supreme. Amazon ($AMZN). Amazon and its trailblazing founder and CEO, Jeff Bezos, are responsible for disrupting more industries than I can count on my hands, and they’re still going. In this article I’m going to explain what makes Amazon such an efficient machine and the many disrupted industries.

FIRST BLOOD

When was the last time you walked into a Barnes & Noble ($BKS)? Or any other bookstore for that matter? How about the last time you visited the Amazon website? I’m willing to bet that almost everyone reading this has been to Amazon’s website in the last few days, and I’m equally willing to bet that almost no one has walked into a physical bookstore in quite some time. The bookstore industry, symbolized by the former giant Barnes & Noble, was the first victim of Amazon’s disruptive trends. Amazon’s roots go back to 1994 when the company founded an online bookstore. By design as an online bookstore, Amazon was able to offer a much broader selection than any physical bookstore, as well as being able to offer the same selection at a lower cost to the consumer. As the free market normally behaves, consumers chose the cheapest option when offered an identical product or service. By 2007, Amazon had surpassed Barnes & Noble in book sales revenue, the same year it released the first version of the Kindle e-book reader. By 2010, digital book sales surpassed physical book sales through Amazon. Amazon also runs the company and website Audible, one of the biggest players in the audiobook game. In 2011, Borders Group, what a few years earlier was the second-largest bookstore chain in the United States, filed for bankruptcy and ceased to exist a few months later. As of this writing, Barnes & Noble has a market capitalization of approximately $454 million. Amazon has a market capitalization of approximately $832 billion dollars. By market capitalization valuation, Amazon is worth almost 2,000 times more than Barnes & Noble. Amazon’s entry into the bookstore industry and its replacement of companies that were once cemented in its place is just the first of many industries that the Amazon bull has disrupted.

NO END IN SIGHT

After profits from direct retail sales and fees charged to third-party vendors on Amazon’s website, Amazon gets the largest percentage of its revenue from its Amazon Web Services (AWS) division. AWS has a history dating back to 2006. Over the course of 2006, Amazon launched in succession, Simple Storage Service (S3), a file storage service as the name implies. Simple Queue Service (SQS), a service intended to automate message queues. And to close out the year, they launched Elastic Cloud Computer (EC2), a service that allowed users to pay for server time to run programs and simulations. Today, around 100 different services are offered under the Amazon Web Services umbrella that can satisfy almost any digital need. Today, Amazon operates almost half of all digital computing in the cloud. Similar to what happened to the bookstore industry, Amazon has taken over. By 2020, cloud computing is projected to be a $400+ billion dollar industry. And Amazon is poised to dominate this market for the foreseeable future.

CLAIM TO FAME

The grocery and retail industry is a perfect example of an industry permanently changed by Amazon, and what they are best known for. Walmart ($WMT) has roughly three times Amazon’s annual revenue to begin with, though, so it’s not like Bezos and company have come to dominate the retail industry, but they’ve certainly made a dent. You could say they have disrupted the industry. Although they were founded in 1994, for the first four years they were 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-over-year, and they’ve even been accused of driving many brick-and-mortar retailers out of business. Amazon gets about 85% of its revenue from its retail business, so it’s clearly Amazon’s biggest share. By pioneering online retail, Amazon was able to establish itself as one of the largest retail players despite going entirely online, partly because of convenience and lower prices. Most recently, in 2017, Amazon acquired Whole Foods, an upscale grocery store, to increase its market share in the grocery and retail scene. Through its online retail arm and physical grocery arm, Amazon can grab sizable market share and keep the agency in the space. Oh, and just to put Amazon’s reach into perspective, more than two-thirds of all households have an Amazon Prime subscription.

OBJECTIVE WHAT ELSE

Above, I have talked about which are the largest divisions of Amazon and what they are best known for. But here I am going to talk about the lesser known parts. Amazon operates its Amazon Video service and it is available to all Prime customers. This service acts as competition to traditional TV and media and is popular with cord cutters, competes with other streaming services like Netflix ($NFLX) and Hulu (soon to be owned by Disney, ($DIS)) and offers thousands of movies and TV shows. shows There’s Amazon Drive, which offers unlimited file storage for just $59.99 a year. They also recently acquired streaming website twitch, the largest video game live streaming site that is giving Amazon market share in the streaming and esports industries. One of the first subsidiaries is A9, a highly advanced search engine and marketing company that runs on machine learning. Amazon is also going after autonomous vehicle companies like Tesla ($TSLA) and Google’s Waymo ($GOOG, $GOOGL). Although, Tesla is not as advanced as many believe, nor as good an investment. Getting back on track, they also have Amazon Music, Amazon Tickets, Amazon Home Services, Amazon Inspire, Internet Movie Database (IMDb), Amazon Go, Fire TV, Goodreads, Zappos, and many more. Go ahead and search for Amazon subsidiaries or services offered by Amazon that I haven’t talked about, you can probably find at least a few dozen more. A couple of days ago, Amazon even announced that it would acquire an online pharmacy to offer an online pharmacy and pharmaceutical delivery service that will affect traditional pharmacies.

THE CONCLUSION

Right now, Amazon is the second most valuable company by market capitalization in the world. The only company that beats them is tech giant Apple ($APPL). Based on Amazon’s huge growth potential and lack of equivalent competition, I think its value will continue to skyrocket. They are in a unique position to break into almost every industry imaginable and succeed at the same time. Amazon is a remarkable company that will continue to expand indefinitely, and I would recommend anyone invest in the company, even though some people believe it is overvalued.

Leave a Reply

Your email address will not be published. Required fields are marked *