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How the ecommerce giant uses its flywheel to power its growing advertising business
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Amazon is one of the most influential companies in the world. With its powerful flywheel business model, Amazon has maintained its status as the top ecommerce retailer in the US and has even begun to wear away at the digital ad dominance of the Meta and Google duopoly. In addition, its cloud-computing division, Amazon Web Services (AWS), is used by organizations worldwide. But as competition increases, Amazon is also looking to other business units—like payments, B2B, and logistics—to keep revenues up.
In this guide, we break down Amazon’s many business units and show where the ecommerce giant is facing fresh competition.
Amazon was founded on July 5, 1994 by Jeff Bezos in Bellevue, Washington, as an online marketplace for books. Bezos served as CEO of Amazon until 2021, when he stepped down and was succeeded by Andy Jassy. Bezos remains the executive chairman of the company.
Amazon has acquired several companies since its inception, including Audible (2008), livestreaming platform Twitch (2014), Whole Foods Market (2017), and home security/smart home company Ring (2018).
Amazon’s business units include retail (comprised of ecommerce and physical retail), advertising, cloud computing (AWS), logistics, payments, and B2B services.
Here’s a deeper dive into each business unit:
Retail
Amazon’s retail business includes its ecommerce operations, its grocery offerings (including Whole Foods and Amazon Fresh), and other brick-and-mortar locations like Amazon Go and Amazon Style. Amazon uses a regional retail fulfillment model, dividing its national logistics network into eight regional networks, which include fulfillment centers, intermediate sorting centers, last-mile delivery hubs, and its transportation fleet.
Ecommerce
Amazon is the top ecommerce retailer in the US, according to EMARKETER’s Top 15 US Ecommerce Companies Forecast report. In fact, it’s larger than the next 15 largest US ecommerce retailers combined.
In 2024, Amazon will grow its US retail ecommerce sales by 10.5% to reach $491.65 billion, according to EMARKETER’S February 2024 forecast. Though the company still dominates US ecommerce (it will account for 40.4% of total US ecommerce retail sales in 2024), the company is facing increased competition. . There are a few reasons for this slowing growth, per EMARKETER’s The Power of Amazon in 2023 report, including:
Grocery
Other brick-and-mortar locations
Amazon Prime Day
In July 2015, Amazon introduced Prime Day, a sales event that offers exclusive discounts to Prime members. Amazon Prime Day has grown from a one-day, once-a-year event to a two-day event that happens twice a year. Hoping to steal share from Amazon, other retailers like Walmart, Target, and Best Buy have begun holding their own sales events during the same time period.
Amazon will remain the king of retail media in 2024, generating $41.95 billion in ad revenues, according to a March 2024 EMARKETER forecast. The majority of that spending ($33.86 billion) will come from search ad revenues, but a growing portion ($20.62 billion) will come from display advertising.
Amazon’s advertising business has several facets:
Amazon is even gaining on Google and Meta, capturing 13.9% of the US digital ad market in 2024 (behind Google’s 25.6% and Meta’s 21.3%).
However, Amazon is facing competition from other retail media networks, including Walmart, Target, and The Kroger Co., according to EMARKETER’s The Power of Amazon report. To stay relevant, Amazon is moving beyond search ads to display, video, and streaming TV ads. Sellers are being encouraged to shift ad budgets into upper-funnel ads, and the retailer is now turning its attention to ad-supported streaming TV opportunities with Prime Video, Freevee, and NFL Thursday Night Football.
Amazon in June launched Ad Relevance—its own cookieless tracking solution. Since Google Chrome’s planned depreciation of third-party cookies and overall stricter privacy regulations, digital advertisers are on the hunt for viable cookie replacements.
Amazon claims the product can improve the addressability of previously anonymous impressions up to 65%, and will lower CPMs by up to 34%.
Amazon Web Services (AWS) plays a key role in Amazon’s tech ambitions. Launched in 2006, AWS is the largest player in the enterprise cloud infrastructure services market, earning 32% of market share worldwide in Q4 2022, according to Canalys. It’s also Amazon’s most profitable business by far, according to EMARKETER’s The Power of Amazon in 2023 report.
AWS represents a small share of Amazon’s net sales, but it has grown from 12% in 2020 to 16% in 2022, per Amazon’s 2022 earnings. However, it faces several challenges, including slowing growth in the cloud computing market, increased competition among generative AI technology services, and regulatory risks from antitrust authorities.
AWS has released a B2B AI chatbot dubbed Amazon Q. It claims to speed up software development and help companies better utilize internal data. The chatbot functions as an assistant for AWS users, learning from a company’s data and workflows, so the employees can inquire and learn more about their business. According to Amazon, users can also ask questions related to coding, HR information, or logistics.
Amazon’s other business units include Amazon Prime Video, Amazon Music, Amazon Publishing (including the Kindle), logistics, payments, B2B services, and devices.
Amazon Prime Video
Some 163 million US consumers will be Amazon Prime Video viewers in 2024, per a February 2024 EMARKETER forecast. However, they will only spend an average of 22 minutes a day with Prime Video in 2024, compared with 1 hour and 3 minutes (1:03) a day Netflix viewers spend with the platform.
An ad-free subscription is available for an additional $2.99 monthly, but live broadcasts and sporting events will still have ads. Amazon’s 2024 OTT revenues will see an increase of 84.4% compared to 2023, per a March 2024 EMARKETER forecast.
Amazon Prime Video with ads CPMs range in the low to mid $30—an attractive price point compared to rivals like Netflix and Disney+, which charge $50 and $60 CPMs. Competitively priced CPMs are luring in more advertisers to Amazon’s platform while giving them access to its vast audiences.
“Amazon’s decision to price Prime Video ads in the mid-$30s is partly a strategic move to undercut competitors, but also an indication of the retail titan’s scale, its wealth of first-party data, and its luxurious position of being able to run its streaming business as a loss leader,” our analyst Paul Verna said.
In an attempt to grab both ad dollars and more viewers, Amazon also scored the exclusive rights to the NFL’s Thursday Night Football beginning in 2022. 2023’s opening game set records for both the Prime Video platform and NFL streaming overall, according to Nielsen and Amazon’s internal data. Amazon also hosted a Black Friday NFL game, during which it ran interactive shopping ads that enabled viewers to shop in real-time.
Amazon Music
Some 53.1 million US consumers will listen to Amazon Music in 2024, about half of Spotify’s 2024 listeners, per an August 2023 EMARKETER forecast.
Amazon Music Prime, which is included in a Prime membership, gives users access to a catalog of 100 million songs and most of the top podcasts, according to the retailer. For non-Prime members, Amazon Music Unlimited offers the same perks—along with unlimited skips and HD versions of songs—for $10.99 per month (or $9.99 for Prime members). A free version also exists with ads.
Amazon Publishing
Amazon Publishing publishes fiction, nonfiction, and children’s books in digital, print, and audio formats. Kindle Direct Publishing provides authors with the tools to self-publish their books in more than 10 countries and over 45 languages, for ebook, print, or Amazon’s serialized reading platform Kindle Vella.
In November 2023, Kindle Direct Publishing announced it was beta testing technology that would allow authors to produce audiobook versions of their ebooks using virtual voice narration.
Logistics
In September 2023, Amazon launched Supply Chain by Amazon, which expands its fulfillment and logistics operations for sales outside of Amazon.com. The product suite includes discounts for cross-border transportation; automated inventory replenishment; improved visibility and tracking; and low-cost, long-term bulk storage through Amazon Warehousing and Distribution.
This is in addition to Fulfillment by Amazon, a service that enables businesses to use Amazon to store, pick, pack, and ship customer orders.
Payments
Amazon Pay, Amazon’s online payment service, integrates directly with retailer websites so customers can use information stored in their Amazon accounts to pay. It also allows customers to use buy now, pay later services (like the one from Affirm, which was previously only available via Amazon’s US checkout page) and Citi Flex Pay, an installment plan for Citi credit card holders, according to EMARKETER’s The Power of Amazon report.
Amazon also offers a “Buy with Prime” button, which enables retailers to use Amazon’s payment and delivery services. In January 2023, BigCommerce became the first partner to enable the Buy with Prime button, opening the solution to its 51,000 merchants. Then in August, Shopify announced it would give its merchants the option to offer Buy with Prime directly into checkout.
B2B
Amazon Business will bring in $43.44 billion in US product sales in 2024, a 12.3% growth YoY, according to EMARKETER’s August 2023 forecast. Even though that only represents 2.1% of total US B2B ecommerce site sales, Amazon is still outperforming competitors like BigCommerce ($2.58 billion) and Shopify ($11.29 billion).
Echo and Alexa
The number of Echo users will grow to 68.9 million in 2024, a meager 1.7% annual growth, per EMARKETER’s August 2023 forecast.
After struggling to find a way to monetize the Echo, Amazon made major cuts to its device team in late 2022. But in September 2023, Amazon announced it was revamping its voice assistant, Alexa, with new generative AI-powered capabilities. The technology will be based on a new large language model, which the company says will help Alexa feel more human, more personalized, and more connected to other smart devices.
Though Amazon is undoubtedly the king of ecommerce in the US, it’s facing its share of competition.
Over the past few years, Amazon has faced increasing antitrust scrutiny from the US government over alleged anti-competitive practices. On September 26, 2023, the Federal Trade Commission and 17 state attorneys general announced they were suing Amazon for “illegally maintain[ing] its monopoly power” with an “ongoing pattern of illegal conduct.”
To stay relevant in the AI race, Amazon has incorporated generative AI into a wide variety of its businesses and services, including:
Amazon has also launched Rufus, an AI-powered shopping assistant, in its mobile app. Rufus references Amazon’s product catalog and the internet to address customer inquiries about shopping needs, products, and comparisons. Amazon expects it to aid in product discovery.
In its attempts to keep up with AI chatbots from Google and OpenAI, as of June 2024, Reuters reported that Amazon is working on updating its “Classic Alexa” with an AI-version that offers conversational genAI—debuting it as “Remarkable Alexa.” This new update will also mean a monthly fee of up to $10, depending on the tier the customer chooses. The new Alexa’s conversational skills are anticipated to become more advanced, enabling customers to use the integrated AI for shopping, writing emails, ordering food, and managing smart devices connected to the internet within their homes.
This article has been updated. Original was posted January 31, 2024.
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