Amazon.com, the tech giant that dominates online retail and cloud computing, has been searching for years for what it calls a “fourth pillar”, a new business that can match the success of its core operations. However, this goal has proven to be elusive, as many of its ventures into different industries have failed to generate significant profits or market share. Some analysts and investors are starting to question whether Amazon still deserves its reputation for being capable of relentless and limitless expansion.
The Three Pillars of Amazon
Amazon’s first pillar is its online retail marketplace, which offers millions of products across various categories, from books and electronics to groceries and fashion. Amazon’s marketplace is powered by its vast network of fulfillment centers, delivery services, and third-party sellers, who account for more than half of its sales. Amazon’s online retail business generated $236 billion in revenue in 2022, up 19% from the previous year.
Amazon’s second pillar is its Prime membership program, which offers customers free shipping, video streaming, music streaming, e-books, and other benefits for a monthly or annual fee. Prime has more than 200 million members worldwide, who spend more than twice as much as non-members on average. Prime generated $32 billion in revenue in 2022, up 28% from the previous year.
Amazon’s third pillar is its cloud-computing unit, Amazon Web Services (AWS), which provides online storage, computing, database, analytics, and other services to businesses and governments. AWS is the global leader in cloud computing, with a market share of more than 30%. AWS generated $59 billion in revenue in 2022, up 25% from the previous year.
These three pillars account for almost 90% of Amazon’s total revenue, which reached $386 billion in 2022. They also provide most of its operating income, which was $22 billion in 2022.
The Search for the Fourth Pillar
Amazon’s CEO Andy Jassy, who took over from founder Jeff Bezos in July 2021, has said that the company is always looking for new opportunities to serve customers and deliver financial returns. He has also said that with good execution and a bit of luck, Amazon could have several very large businesses in the years ahead.
However, finding a fourth pillar that can rival the size and profitability of its existing ones has been challenging for Amazon. The company has invested billions of dollars into various endeavors across several industries, such as healthcare, entertainment, hardware, and physical retail. However, many of these bets have not turned into thriving or profitable businesses.
For example, Amazon’s acquisition of Whole Foods in 2017 for $13.7 billion was seen as a key part of its plan to expand its physical store footprint and grocery offerings. However, four years later, Amazon’s share of the U.S. grocery market is still less than 5%, while rivals like Walmart and Kroger have grown their online sales faster. Amazon’s other physical stores, such as bookstores, cashierless stores, and specialty stores, have also been slow to expand.
Another example is Amazon’s entry into healthcare, which has been met with mixed results. In 2018, Amazon partnered with Berkshire Hathaway and JPMorgan Chase to form Haven Healthcare, a venture that aimed to lower costs and improve quality for their employees. However, Haven disbanded in 2021 after failing to achieve its goals. Amazon also bought PillPack, an online pharmacy startup, in 2018 for $753 million. However, PillPack has faced regulatory hurdles and competitive pressures from traditional pharmacies and insurers.
Amazon’s entertainment business has also been struggling to produce hits and attract subscribers. Amazon Prime Video offers original shows and movies, as well as licensed content from other studios. However, Prime Video has not been able to match the popularity or awards recognition of rivals like Netflix or Disney+. Amazon also owns Twitch, a live-streaming platform for gamers and creators. However, Twitch has faced challenges from competitors like YouTube and Facebook Gaming.
Amazon’s hardware business has also been hit or miss. Amazon sells devices such as Echo smart speakers, Fire tablets, Kindle e-readers, Ring doorbells, and Blink cameras. However, some of these products have faced privacy concerns or quality issues. Amazon also launched products that flopped or were discontinued, such as the Fire Phone in 2014 and the Dash Button in 2019.
A Reality Check for Amazon
Some analysts and investors are starting to lose patience with what they see as Amazon’s scattershot efforts and the poor returns on many of its big swings. They argue that Amazon should focus more on its core businesses and improve its margins and profitability. They also question whether Amazon still deserves its reputation for being capable of disrupting any industry it enters.
“Just because Amazon says it’s going to enter a new arena doesn’t mean it’s going to dominate it,” said Hal Reynolds, chief investment officer at Los Angeles Capital Management, which holds Amazon shares. “Their track record lately hasn’t been as good.”
Amazon’s stock price has also lagged behind its peers in the past year. As of April 14, 2023, Amazon’s shares were up 9% in the past 12 months, compared to 25% for Microsoft, 31% for Apple, and 49% for Google. Amazon’s market capitalization was $1.7 trillion, behind Apple’s $2.5 trillion, Microsoft’s $2.3 trillion, and Google’s $1.9 trillion.
Amazon, in a statement, said that it is optimistic about its future prospects and that it has a history of building successful businesses over time. “With good execution and a bit of continued good luck, we are optimistic that we have several very large opportunities to serve customers and deliver financial returns in the years ahead,” the statement said.