There’s a public face Amazon (AMZN 0.78%)This is very important. But when you dig deeper into the story, you see that Amazon’s public face is just a facade. The real business is about selling technology services. Let’s take a look at the important fact that you cannot ignore if you buy or own Amazon.

Amazon is a leading web retailer

There’s no escape, Amazon has turned into the world’s 800-pound gorilla online retail industry. According to some estimates, its online market share is 5 times greater than the second place in the United States Walmart and 10 times larger than the third row Apple. It’s safe to say that more people are looking online for things to buy on Amazon than on any other website. And a lot of ministers are buying it.

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In the second quarter of 2024, Amazon’s product sales reached $59 billion. This is a huge figure for a company that offers products that cover almost all aspects of daily life, from food to toys, from clothing to medicine. Now add in the company’s Prime membership, which comes with a (very good) competing video service. netflixAmong its many other benefits, you can see why Amazon is the preferred destination for many consumers.

Amazon understands how important it is to be at the top. Therefore, he is always looking for ways to strengthen his position. For example, it has pivoted to selling pharmaceuticals and is working to improve that offering, combining its Grubhub+ membership with its Prime membership and working to provide same-day and next-day delivery to markets around the world. This is a short list of things management has accomplished in the second quarter of 2024.

Amazon’s retail industry is the leader in losses

There is no doubt that Amazon’s position in the online retail market is important. It sets the company apart from others and makes it a household name. But there is a little problem. While it sold products worth $59 billion in the second quarter, selling cost It was 69 billion dollars. You don’t need a degree in mathematics to understand that the retail industry is not a profit center for the company. It includes things like cost of sales, cost of physical products, shipping and handling costs, and content creation costs.

This is where service selling comes into play. The company achieved service sales of approximately $75 billion in the second quarter. According to the company statement 10-K annual report“Service sales primarily represent commissions and third-party seller fees, which include any applicable order fulfillment and shipping fees, AWS sales, advertising services, Amazon Prime membership fees, and certain digital media content subscriptions.” There is clearly some overlap here; because Prime membership revenue goes here, and content creation costs go into the cost of sales. But the most important takeaway here is that selling physical products isn’t the way Amazon makes the most money.

The company’s core competence is focused on technology. It sells advantageous access to retail services through Prime. It sells access to its industry-leading retail platform to third-party sellers. It sells access to its massive technology system through Amazon Web Services (AWS, effectively the company’s data centers). There’s a lot more in the mix, but you get the idea. Amazon is more interested in technology-related services than selling physical products. The company’s leading position in the world of online retail allows it to sell all of its services, but that’s what gets customers through the door.

Make sure you know the real Amazon

There’s clearly nothing wrong with Amazon’s business model. It generated $6.75 billion in net income in the second quarter. However, this was due to service sales, not product sales on the website. Amazon wouldn’t be Amazon without the retail website Amazon.com. But the Amazon.com retail website is just the tip of the iceberg when you look at Amazon’s company and its stock.