Amazon Hits Strategic Tipping Point in North America

Amazon announced its relentlessly strong results today, with year-over-year Q3 sales up 28 percent, free cash flow doubling, and operating income up 62 percent. Get past the headline news and into the numbers, and you see an even more interesting story: Amazon quickly continues its march away from being a “media” company and to one with a far more diverse set of revenue streams and business interests.

Back in July, I noticed that the balance of revenue for Amazon was moving away from media. Less of its robust results were beholding to book, music, or video sales. Given the company’s history, this is major. It indicates that the strategy of starting in books and then using the inventory, order taking, and fulfillment infrastructure to broaden into other types of products was canny. As I mentioned then:

Part of that may be the continuing relative strength of non-media sales. By the end of 2008, electronics and other general merchandise sales had reached almost 70 percent of media sales. In this last quarter, that jumped to 84.7 percent. I’d wager that by sometime next year, media will be a minority portion of company sales. In fact, it’s quite possible that Amazon will cross that threshold before the end of this year. It’s a story of diversification to which other companies in the tech space should pay close attention. Another prediction: expect other companies to make a play for Amazon managers that have been key in the diversification move.

What makes this quarter so interesting for Amazon is that in its home North American market, it has finally crossed that boundary:

Not only has it shifted to a media-minority-share business in North America in Q3, but it has done so for the balance of the first nine months of the year. Furthermore, look at the growth rates in the region. Year-over-year, media sales grew by 13.4 percent. But between the other category and the electronics and other general merchandise category, growth was 35.4 percent. That’s the engine of growth for the company. Even internationally, for the nine month period, other and electronics and general merchandise together reached 68.3 percent of media sales, versus 52.6 percent the year before. Amazon is showing that sometimes the advice about focusing on a niche can be taken in creative ways. Instead of assuming that the niche is a given type of merchandise, it may be a set of abilities.

Image via stock.xchng user felipeah, site standard license.