Cheatsheet: Amazon’s 2021 growth was propelled by retail services

But the company’s recent earnings report also reveals the extent to which Amazon has been able to diversify its revenue sources, especially in advertising and retail services — and it has used those new markets to clock in a healthy profit. Last quarter, Amazon brought in $8.1 billion in net income, then one of its biggest profit numbers to date. This quarter, it hit $7.8 billion in net income.

Below are some highlights from the e-commerce giant’s second quarter results.

A slower Prime Day

One of the major storylines of the second quarter for Amazon was Prime Day, which happened a month earlier than its usual mid-July date and was beset by inventory and logistical challenges. Prime Day sales slowed year-over-year, growing just 7.6% compared to Prime Day 2020 — a significant drop given that, in all previous Prime Days, Amazon had seen double-digit increases.

In its earnings, Amazon said that Prime Day “biggest two-day period ever for small and medium-sized businesses in Amazon’s stores worldwide” — a telling caveat.

Overall, Amazon’s third-party seller services — a category that includes commissions, fulfillment fees and so on that sellers pay to Amazon — grew at a healthy rate, bringing in $25.085 billion, up 34% from last year.

Feeling the Marketplace heat

But that does not mean the Amazon Marketplace has been smooth sailing for Amazon. In the past few months, Amazon felt the heat from controversies involving some of its top sellers. It removed many of its most popular third-party electronics brands, including Mpow, Aukey and many other Chinese brands, after a report indicated that many of them were paying customers to leave positive reviews.

At the same time, international sellers who have no real U.S. presence have become a headache for Amazon in the courts. Soon after a California judge found that Amazon could be liable for defective third-party products sold on its marketplace, a federal agency — the U.S. Consumer Products Safety Commission — made the same argument.

“It could make it to where Amazon is officially on the hook if anything goes wrong for the items in the third-party marketplace,” Rachel Johnson Greer, managing partner of the Amazon brand management agency Cascadia Seller Solutions, told Modern Retail.

Focusing on retail services 

Even as the marketplace causes headaches, Amazon is expanding its revenue sources beyond consumer products.

The company’s cloud-computing software, Amazon Web Services, has remained profitable for years, and many of the company’s other divisions are beginning to follow the AWS model of honing a technology in-house and then selling it to competitors. As a result, Amazon’s burgeoning services business is becoming a much larger slice of its revenue.

Amazon has found success offering shipping and fulfillment services to its third-party sellers. But the company has also begun to push its fulfillment program, Fulfillment by Amazon, to brands that don’t sell on Amazon. A recent partnership with BigCommerce shows how Amazon is trying to make money on fulfillment from brands of all stripes, regardless of where they sell. Its consistent growth in seller services revenue this quarter hints that it is already finding success in this arena.

Meanwhile, the company has scaled its ad business to the point where Amazon ads no longer exist merely as a way to sell sponsored search slots to pre-existing sellers. Through its recent spate of sports streaming deals, and its acquisition of MGM, the company is setting itself up to sell high-cost ads even to major brands with no presence on Amazon.

Though Amazon doesn’t break out ad revenue specifically, its “Other” bucket — the bulk of which is ad revenue — grew 83% this quarter, totaling $7.914 billion. “Without question OTT is the number one priority for all of Amazon’s ad teams,” Adam Epstein, vp of growth at Perpetua, previously told Modern Retail, referring to the the ad units that appear on platforms like IMDb TV, Fire TV and Amazon Prime Video’s Thursday Night Football.

That approach of selling technology and digital real estate to retailers has proven to be so lucrative that Walmart is attempting to replicate it. Not only is Walmart more than doubling the amount of search ads it displays on its marketplace, but the retail giant announced this week that it was going to begin selling its pickup and delivery software to outside brands — bolstering the argument that the major profits in retail might lie on the services side.