Amazon CEO Jeff Bezos went to great lengths in his annual shareholder letter this year to highlightthe three big "pillars" of his company: Amazon Web Services, Marketplace, and Prime.
All three businesses have played a significantrole in growing Amazon's revenue, which topped $100 billion for the first time last year. But as bigas those three businesses are, it's equally important for Amazon to find the fourth pillar of the businessthat could eventually generate billions ofdollars a year.
"While I'll focus on those three, I assure you that we also remain hard at work on finding a fourth," Bezos wrote in the letter.
It's hard to predict where that fourth pillar will come from. Some think that it'll be Amazon's voice-controlled audio speaker, Echo, while some expect its video-streaming service to take off.
But according to RBC Capital's Mark Mahaney, these are the three areas most likely to become Amazon's next growth drivers: shipping, business supplies, and groceries.
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Mahaney notes that hepicked them based on market size, market efficiency, Amazon's competencies, and signs of traction by Amazon. Here's a summary of his thinking:
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1. Shipping: Mahaney sees the parcel-shipment market to be about $200 billion in size, the smallest among the three. But he still believes that's a big-enough opportunity for Amazon to invest in, and an area that needs improvements given the shipment delays it experienced in recent holiday seasons. Plus, having a stronger logistics network will only bolster the customer experience.
Mahaney believes that Amazon already has the capacity and scale to build up its own logistics network, and it's only a matter of time before it bulks up its shipping business.
"Shipping as a Fourth Pillar for Amazon will be either an obvious option or an obvious reality," he writes.
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2. Business Supplies: Amazon Business sells everythinga company needs, from basic office supplies to industry-specific products like lab equipment or hospital wear. Mahaney believes that the business-supplies market to be $5 trillion worldwide.
Within a year of officially launching, Amazon Business has sold over $1 billion worth of products, and is growing 20%month-over-month. Given its size and hyper-growth rate, Mahaney believes that Amazon Business could generate $3 billion in revenue in this year alone. And although that's a relatively small number compared to Amazon's total revenue, Mahaney sees huge potential for itto gain bigger traction soon.
3. Groceries: Amazon has been working on grocery-delivery services for a while, but it was over only the past couple of years that it really started to ramp up. Mahaney estimates the annual grocery spend to be roughly $3 trillion, giving Amazon a huge future opportunity.
Mahaney notes that Amazon is already one of the largest players in the online-grocery space, and will further grow only as the total online-groceries market is expected to keep expanding. And with its already-robustlogistics network, Amazon's groceries business has all the potential to be the next growth driver, he says.
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