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Why Amazon Started With Books, and How It Ended Up Running the Internet

Companies and Brands You Know • Beginner Investing • 7 min

What this lesson is about

Amazon began as an online bookstore in the mid-1990s. The part of its business that quietly generates the largest share of its profit today isn't retail at all.

2 parts · a quick check after each · then the quiz

Part 1 of 2

Amazon, started, in, the, mid-1990s, as, an, online, bookstore., Jeff, Bezos, founded, it, with, a, clear, goal., Books, were, a, smart, early, choice., They’re, standardized, and, have, a, huge, catalog., This, fit, well, with, the, limited, competition, in, online, retail, back, then., Fast, forward, decades,, and, Amazon, now, covers, almost, every, product, category, in, e-commerce., But, here’s, the, catch:, the, biggest, slice, of, profit, doesn't, come, from, retail., It, comes, from, Amazon, Web, Services, (AWS),, Amazon's, cloud, computing, division.

AWS, rents, out, computing, power,, storage,, and, other, services, to, businesses, and, organizations., It, originally, grew, from, the, infrastructure, Amazon, built, for, its, own, retail, operations., While, AWS, has, historically, been, a, smaller, part, of, Amazon's, total, revenue,, it, contributes, a, much, larger, share, of, operating, profit., Why?, Cloud, computing, generally, has, higher, margins, than, physical, retail,, which, is, burdened, with, costs, like, inventory,, warehousing,, shipping,, and, fierce, price, competition.

Capacity and unit costFixed costs spread thinner as the line runs fuller.

Quick check

What product did Amazon originally sell when Jeff Bezos founded the company in the mid-1990s?

Part 2 of 2

Insider, Angle:, This, is, why, calling, Amazon, just, "a, retail, company", misses, a, big, piece, of, the, profit, puzzle., The, retail, side, generates, most, revenue, and, is, still, important., However,, AWS's, significant, profit, contribution, means, Amazon's, overall, profitability, is, more, linked, to, cloud, computing, trends, than, you, might, expect, from, its, "online, retailer", label., It, shows, how, a, company’s, main, profit, driver, can, be, an, area, that, didn’t, even, exist, at, its, start.
Try, This:, Check, Amazon's, latest, quarterly, or, annual, report., Look, for, the, operating, income, breakdown, by, segment:, North, America, retail,, International, retail,, and, AWS., How, much, of, the, total, operating, income, does, AWS, account, for, compared, to, its, total, revenue, share?

Quick check

What is Amazon Web Services (AWS)?

Quiz

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