Amazon Is No Longer A Retail Site For Customers But A Service Platform For Its Sellers

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

Amazon's annual revenue skyrocketed from nearly $7 billion in 2004 to $574 billion in 2023 . AWS, launched in 2002, has become a major profit driver, generating $90 billion in 2023. Similarly, the company's advertising revenues have surged, reaching $51 billion in 2023. Employing 1.5 million people, Amazon has cemented its position as the second-largest retailer in the United States after Walmart, accounting for 6% of U.S. commerce and an astonishing 37.6% of American e-commerce .

Amazon's success lies in its transformation from a simple online store into a multifaceted platform. Initially a marketplace for third-party sellers, Amazon developed a two-sided platform model that has evolved into a tightly integrated service ecosystem for vendors, making it a significant source of revenue. Today, Amazon is less about serving individual customers and more about offering a suite of tools for sellers, challenging the traditional platform model that typically relies on external resources.

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

In 2005, Amazon launched Prime, a subscription service offering free shipping, effectively locking in 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 reached 200 million members globally by 2021, with 140 million in the U.S. Today, 94% of sellers rely on Amazon's logistics services, driven by the platform's dominance and the lucrative Prime subscriber base.

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

While Amazon has successfully retained customers , its influence over sellers has grown significantly. In 2012, Amazon introduced advertising services on its platform. To ensure visibility, sellers are encouraged to purchase advertising campaigns that prioritise their products in search results. This system mirrors traditional retail practices but on a much larger scale. In 2024, Amazon extended advertising to Prime Video, introducing default ads for Prime subscribers. Sellers can now promote products on Prime Video and track performance through sales metrics, creating an unparalleled promotional ecosystem.

Amazon's advertising revenue alone generated $49.6 billion in 2023 , further boosted by its cloud-computing services via AWS. AWS hosts Amazon's data infrastructure and monetises marketplace data by offering sellers tailored audience segments. Combined, revenue from Amazon's services – including cloud computing, logistics, and advertising – surpassed direct sales revenue in 2023, totaling $319 billion compared to $256 billion .

Over the last decade, Amazon has pivoted from primarily acquiring customers to monetising its relationships with sellers, reshaping the platform into an integrated, multifaceted revenue generator.

Amazon now operates as a highly integrated multi-sided platform, leveraging cross-network effects to lock in both customers and sellers. Data plays a crucial role, enabling Amazon to integrate search behaviour, purchase history, and media consumption into a seamless promotional and sales environment for brands. This strategy directly challenges traditional media companies that cannot match Amazon's unique blend of retail and advertising.

However, Amazon's dominance has drawn regulatory scrutiny. Since 2023, the U.S. Federal Trade Commission (FTC) and 17 states have pursued antitrust lawsuits against the company for anti-competitive practices. At the same time, Amazon faces growing competition from Chinese e-commerce platforms such as Temu (Pinduoduo), AliExpress (Alibaba), Shein, and TikTok Shop, which have gained traction through aggressive pricing and marketing strategies. Notably, these platforms have studied Amazon's playbook to refine their approach to Western markets.

In November 2024, Amazon responded by launching Amazon Haul , a Temu-like platform offering low-cost products. The move underscores the rising threat posed by Chinese rivals, who have quickly adapted to Amazon's dominance while exploiting its weaknesses.

Amazon has built a unique business model, blending media and commerce in ways that challenge both industries. This integration raises critical questions about the competitive effects on advertising and retail markets. Regulatory authorities, including the European Commission, may lack the tools to adequately address Amazon's multifaceted model, even with frameworks such as the Digital Markets Act (DMA) and the Digital Services Act (DSA). Whether these regulations can effectively govern Amazon's influence remains uncertain.

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 face its toughest test yet.

This article was originally published in French

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