What Is Amazon?
Amazon.com, Inc. (AMZN) is an e-commerce and cloud computing company headquartered in Seattle, Washington. It is known as the largest Internet retail company in the world, according to The Times. The company started as an online bookstore but has diversified to sell DVDs, software, video games, electronics, apparel, furniture, food, toys, and jewelry. The company also builds and sells its own consumer electronics such as the Amazon Kindle and Amazon Echo.
- Amazon is the world's largest internet retailer with sales of $280.5 billion for 2019.
- Amazon has persistently pursued an aggressive acquisition strategy.
- Because of the breadth of Amazon's reach in terms of products and services, the company could go in any direction with its acquisition strategy in the future.
Since it launched in 1994, Amazon has been led by its founder Jeffrey P. Bezos, who serves as President, Chief Executive Officer, and Chairman of the Board. Other top executives of Amazon include Brian T. Olsavsky (Executive Vice President and Chief Financial Officer), Jeffrey M. Blackburn (Senior Vice President, Business Development), and Andrew R. Jassy (Chief Executive Officer, Amazon Web Services).
As the world's largest internet company by revenue, Amazon is consistently in the news. In roughly 25 years of business, Amazon has taken on an assertive acquisition strategy, buying up dozens of different companies. As of early March 2019, one of Amazon's most recent developments was the acquisition of Eero, a company that designs products to facilitate home WiFi and smart device setup.
Amazon's Revenue Growth
According to Amazon's Form 10-K for the year ending December 31, 2019, the company reported net sales of approximately $280.5 billion for 2019. This represents growth of close to 60% over the net sales figure for 2017 ($177.9 billion) just two years earlier.
A significant component of Amazon's sweeping success has been its acquisitions. Below, we take a closer look at several of Amazon's most prominent purchases.
Whole Foods Market
On August 28, 2017, Amazon acquired the organic grocery chain Whole Foods Market for $13.7 billion in cash.
Whole Foods is a prominent grocery store chain with the distinction of being the only USDA Certified Organic grocer in the United States. At the time of its acquisition by Amazon, Whole Foods had a market cap of almost $10 billion and was ranked #176 in the 2017 Fortune 500 list. Since then, Amazon has cheapened some key food items and has integrated aspects of its Prime service into the Whole Foods customer experience. For Q4 2017, the quarter immediately following Amazon's acquisition of Whole Foods, Amazon reported revenue of approximately $4.5 billion from physical stores. This figure is primarily a reflection of Whole Foods' revenue.
Amazon acquired home security company Ring in February of 2018 for a sum as high as $1.8 billion.
One of Amazon's more recent acquisitions is also one of its largest. The exact purchase price of the home security specialty company Ring has not been disclosed, but analysts estimate that Amazon may have paid as much as $1.8 billion. This would make it the second-largest acquisition in the company's history. Ring began as Doorbot in 2012. The company specializes in smart home security devices, including its popular Ring Video Doorbell, which allows users to monitor entry points to their home from a remote location.
Zappos is the leading footwear and apparel website in the world. The name comes from the word zapatos, which means "shoes" in Spanish. Their big hook is that you can return your shoes up to a full year after buying them, as long as they are in good condition. The company is famed for its customer service, and its CEO Tony Hsieh released a bestseller in 2010, Delivering Happiness, detailing how he runs Zappos with happiness in mind. Amazon bought Zappos for $928 million in July 2009.
Alexa is a big data company that collects information on people's browsing habits online and provides analytics on those habits. The company is also the top way to rank the popularity of websites. Amazon acquired the company in 1999 for $250 million in stock. The acquisition allowed Amazon to implement more data insight into its daily operations. The naming of Amazon's smart device, also called Alexa, was a coincidence, or so we are led to believe.
Amazon paid roughly $753 million in cash for PillPack in June of 2018.
One of Amazon's more recent acquisitions is PillPack, Inc., an online pharmacy company. The move is considered an effort by the e-commerce giant to move into the online prescription business. Given Amazon's robust preexisting delivery infrastructure, the company's purchase of PillPack allows it to ship prescription medications overnight to locations across the country.
Like Amazon's purchases of Whole Foods and Zappos, PillPack has so far retained its unique brand within Amazon's larger umbrella of subsidiaries. PillPack generates an estimated $100 million in annual revenue.
Amazon purchased Twitch in August of 2014 for $970 million in cash.
Twitch Interactive is perhaps best known for its live-streaming video platform, also called Twitch. This platform is incredibly popular among video gaming enthusiasts, with more than 15 million daily active users. Twitch is the most popular video game streaming platform in the world, outpacing YouTube's equivalent. Twitch earns revenue both through subscription fees and advertisements, which can be embedded within videos.
Amazon paid $775 million to acquire Kiva Systems in March 2012
Kiva Systems, now rebranded as Amazon Robotics, was one of Amazon's largest purchases at the time of its acquisition in 2012. The company develops and manufactures robotic systems for a variety of uses. Interestingly, compared with Amazon's other acquisitions, Kiva Systems has been fairly unique. While it has become common for Amazon to integrate its subsidiary companies into its own platform and umbrella of offerings, Kiva (and now Amazon Robotics) has been fairly quiet since 2012. It is possible that this was a strategic purchase to not allow Kiva's technology to fall into the hands of a competitor.
Audible was one of Amazon's earliest major acquisitions.
Audible sells and produces audio entertainment, information, and educational programming on the Internet. The company sells audiobooks, radio and TV programs, and audio versions of magazines and newspapers. Amazon acquired the company in 2008 for $300 million in cash. Since then, Audible has acquired the rights to thousands of titles from AudioGO, one of its main competitors. The company is famed for advertising on hundreds of podcasts and, more recently, began producing original content such as podcasts and radio dramas.
The companies listed above are just a few of Amazon's many acquisitions over the years. 2017 was a particularly big year for the e-commerce giant. In addition to Whole Foods, Amazon bought at least 10 other companies in that year. Most recently, Amazon has purchased CloudEndure, a cloud computing company. In 2015, Amazon bought up Israeli chip maker Annapurna Labl. Other notable acquisitions include Goodreads, Alexa Internet, and the Internet Movie Database (IMDb).
Special Considerations: Amazon's Acquisitions Strategy
Based on Amazon's aggressive expansion, it seems likely that the company will continue to acquire other companies in the future. What is more difficult to say, however, is which areas Amazon will focus on. As one of the most successful companies in the world, Amazon could move in virtually any direction that it wishes.