How Amazon Came to Dominate Online Commerce

It's estimated that Amazon.com is responsible for and controls about 33% (1/3) of North America's ecommerce. With an annual revenue of $34 billion, it's the largest electronic powerhouse for commerce on the Internet. How did this company go from losing money in the billions for a decade before hitting the big leagues and becoming the online sales powerhouse it is today?

Books, CDs, and DVDs weren't cutting it

Amazon CEO and founder Jeff Bezos realized, as his company continued to post losses every year, that books, CDs and DVDs were not going to make his company a success ñ especially when competition like Borders and Barnes & Noble entered the scene early on, seeing the same opportunity he did. So he expanded into digital content.

Digital media has a lot going for it, from a retail standpoint. Digital enables limitless inventory and can be stored in a space smaller than most coat closets (on servers). It also allows for high volume, high-margin sales at low prices consumers will pay willingly. Those two things alone make digital a dream option for retailers.

The next thing that was realized was that the three categories of books, music, and video were getting crowded. So the company began expanding at a rate of about 2 new categories per year (from 3 in 1997 to 16 now).

The newest of those is Web services.

Amazon Web Services power a lot of other well-known companies

Until its partial outage last month, most were unaware of just how much of the Web was powered by Amazon's Web Services division with their cloud and network facilities.

Big names online like Netflix, Foursquare, Zynga, Reddit, Dropbox and others are using Amazon's Web Services for their business' online (and usually only) presence. In fact, Amazon operates in most regions of the world and provides services for online companies located all around the globe.

Compared to powerhouses of Web service like Google, Amazon is not on equal financial value footing, but it's a contender in technology for online business. This despite the fact that Google, Apple, Microsoft and the others nearly always own the limelight.

Through this set of services, Amazon has also quietly acquired a lot of businesses as well.

Amazon owns a lot of companies you've probably purchased from.

Amazon owns several well-positioned companies on the Internet that provide both products and services you didn't know were coming from the online book seller. IMDb, the famous movie database, is owned by Amazon. So is bargain hunter Woot!, Web analyzer Alexa, audio bookseller Audible.com, and over a dozen others.

They grew by building infrastructure from the ground up.

Finally, Amazon's biggest feat was that they were able to build their infrastructure from the ground up. They hired experts pulled from big retailers like Walmart, build their services and distribution warehouses based on the Walmart model (but with a lot more automation), and linked everything together with top-notch, self-built software from in-house developers.

Today, Amazon operates fifty fulfillment centers in the U.S. and Canada and they're all linked in a network of fulfillment that manages inventory, shipping, and Web Services all at once.

In the end, what got Amazon from a dream that was losing money working out of a 400 square foot storage room to 26 million square feet of integrated, networked and communicative warehouses and server farms was determination and a strong focus on a planned business model that included aggressive expansion almost from Day 1.