The Shopping Habit I Noticed

My curiosity with Amazon first started when I noticed how often people around me directly go to Amazon first whenever they need to buy something. Even when there are stores that specialize in specific products, Amazon continuously tends to compel people into being the primary choice. According to Numerator, 83% of U.S. households shopped at Amazon at least once in 2024. So how does Amazon make money and compete with specialized stores?

For example, if someone needs a phone charger, they could visit an electronics store, but Amazon is probably the first place they search. This trend goes past just electronics. The next item they're looking for might have nothing to do with the one before, yet they still return to the same site. Amazon allows anyone to just compare choices from home and have anything delivered right to their door within 24 hours. Moreover, Amazon offers incredible prices for a wide variety of products, sometimes even better than stores that are specialized to a single product.

But how does Amazon make so much profit? Amazon spends a lot of money on product storage and delivery, but customers still receive prices that convince them to order with Amazon rather than a different store. How does it cover these costs and keep growing? At first, Amazon began as a relatively small bookstore, but now it makes money in ways people can’t see with the naked eye. Today it earns revenue not only from just selling products but also from people who use its site, advertising, subscriptions, and cloud computing. The finances highlight how much these businesses bring in and how much cash Amazon spends on further expanding its business.

Amazon as a Bookstore

Believe it or not, Amazon actually first started off as a bookstore. A bookstore doesn’t have enough shelf space for millions of books. However, websites, which had just started to become popular during that time, could display a much larger inventory for the store. In fact, during October of 1995, Amazon said it offered more than a million different book titles. If someone needed to find a specific book, they could just check Amazon’s website instead of having to individually check store after store. This was one of the first times online shopping had actually become outstandingly popular.

Soon after its online bookstore success, it started expanding beyond just books. Furthermore, a major change came in 2000, when Amazon launched Marketplace, allowing users to offer used and collectible items on the same pages where Amazon sold those products as new. This was significant because Amazon could show many more products without having to buy every item themselves. In addition, sellers from small businesses also had a more useful way to grow their business and reach other people who were already using Amazon. It was a win-win for both business owners, customers, and Amazon’s growing business, but I still have the question: How does Amazon make so much profit to be one of the top companies in the world?

How Amazon Makes Its Money

Letting other businesses sell on Amazon’s website gave it another way it could make money. In more detail, when Amazon sells an item from its own inventory, the sale would count for store revenue. In addition, when an independent business sells something through Amazon, Amazon counts the commission and any fees it earns for storing or shipping the product as revenue, rather than the product’s full selling price. This way, both the independent seller and Amazon make money from the sale. According to Amazon’s 2025 annual report, the company reported about $172 billion from services for outside sellers, and about $269 billion from its online stores.

Another way Amazon makes money is through advertisements on its website (Amazon’s 2025 annual report). Moreover, independent businesses have the option to buy advertisements from Amazon to have their product stand out on the website. On top of that, frequent customers often purchase a Prime subscription to receive deals on products or get faster shipping. Subscription revenue also includes services such as video, music, and audiobook subscriptions. These are separate parts of the business, but Amazon still made around $69 billion in advertising sales and $50 billion in subscription sales in 2025 (Amazon’s 2025 annual report).

A third major business through Amazon is one that might not seem like it makes much money. This business is AWS, or Amazon Web Services, and it primarily provides data storage and computing for other organizations. It brought in about $129 billion through sales in 2025 with $45.6 billion in operating income (Amazon’s 2025 annual report). Operating income is revenue minus operating expenses. AWS is a very interesting and unexpected way Amazon makes a lot of money.

All in all, these are all major ways Amazon has been making money in past years; however, this isn’t necessarily the same as profit because Amazon still has to pay for things like employees, warehouses, deliveries, and other services that are included in its subscription.

The Cash Flow of the Trillion Dollar Company

It’s a fact that Amazon earns billions of dollars a year from several of its businesses, but this doesn’t factor in how much cash Amazon is spending on keeping them running. According to Amazon’s 2025 annual report, Amazon brought in about $139.5 billion in cash from its businesses. This is the operating cash flow part. However, it also spent about $128.3 billion on property and equipment, after accounting for asset sales and incentives. Amazon says the huge jump in spending from 2024 was reflecting off of investments in Artificial Intelligence. Amazon’s capital spending also supported other sectors like technology infrastructure, largely for AWS growth, and additional capacity for its fulfillment network. In sum, after subtracting its net cash spending from operating cash flow, Amazon reported only about a total of $11.2 billion in free cash flow, about $27 billion dollars less than the year before, even though they made more revenue in 2025. Free cash flow only measures the cash made from operations after these investments; this is different from accounting profit.

This is significant to understand because it seems that Amazon might be making hundreds of billions of dollars in profit just because so many people rely on it for shopping, but it is continuously spending cash to improve and expand its business for the future.

Why Do Customers Keep Returning?

The reason why Amazon is able to compete with so many other specialized stores is because it brings in many sellers to one place. According to Amazon, independent sellers account for about 60% of sales in its store. For example, take a person who might be looking for running shoes. Through Amazon, they can compare pairs from different sellers and differentiate the exact one they want after reading reviews and prices all in one place, instead of having to search through multiple websites to visit several stores. This is still a win-win for independent businesses because shoppers are already looking, and their products might stand out to the customers. That might influence those businesses to purchase advertising on Amazon's website to sell more.

Ultimately, the main reason customers keep returning is because Amazon serves as a shopping hub, kind of like an online mall with all types of products people may need. First-time shoppers may go onto Amazon just to buy a product quickly, but stay longer because of the deals and benefits Amazon has to offer. Then, the next time they need to find something, they choose to visit Amazon, and the trend continues on. On the other hand, those return visits allow Amazon to earn money from product sales, fees from independent sellers, advertising, and subscriptions. In conclusion, Amazon brings both shoppers and sellers together, ultimately creating a win-win situation for both groups and for Amazon itself.

References

• Numerator. “Amazon’s Big Spring Sale Starts Today!” LinkedIn post. View post.
• Amazon. “Amazon Marketplace a Winner for Customers, Sellers and Industry; New Service Grows over 200 Percent in First Four Months.” Amazon Press Center, March 2001. Amazon News Press Center.
• Amazon.com, Inc. 2025 Annual Report. Amazon Investor Relations, 2026. View report.
• Amazon.com, Inc. “Amazon.com Announces Fourth Quarter Results.” Amazon Investor Relations, February 5, 2026. View release.