How Amazon makes money: The everything store that profits from everything but retail

In 2025, Amazon generated $716.9 billion in revenue, more than the GDP of most countries. Yet the retail operation, the part everyone sees, produces a fraction of the company's profit. The online stores segment posted a 2.4% operating margin in 2025. At Amazon's scale, retail exists mainly to keep people close to the platform.

The profit comes from elsewhere. Amazon Web Services generated $128.7 billion in revenue and $45.6 billion in operating income in 2025: 57% of total operating profit from just 18% of total revenue. The store is the storefront. The cloud is the cash register.

AWS is not the only counterintuitive engine. Amazon's advertising business pulled in $68.6 billion in 2025, larger than its entire subscription services line and enough to rank Amazon among the world's largest ad platforms, despite most users never thinking of it that way.

In this breakdown, we'll unpack Amazon's seven disclosed revenue streams, its massive cost structure, how it competes across cloud, e-commerce, and advertising, and the strategic bets in AI infrastructure, satellite internet, and healthcare that will define its next chapter.

Amazon was founded on July 5, 1994, by Jeff Bezos in Bellevue, Washington, with a stated mission to be "Earth's most customer-centric company." Today, the company operates under CEO Andy Jassy, who framed 2025 as a year of structural progress: revenue grew from roughly $638 billion to $717 billion, and operating income improved from roughly $69 billion to $80 billion.

Amazon is best understood as three businesses sharing one infrastructure stack: 

Financial reporting reinforces this structure. Amazon reports profits and organizes operations into North America, International, and AWS segments. The platform serves multiple customer sets simultaneously: consumers, sellers, developers, enterprises, content creators, and advertisers. It monetizes each group differently through shared capabilities, including payments, logistics, identity, recommendations, ad-tech, and data centers.

For consumers, the value proposition is anchored by Amazon Prime. The subscription service has exceeded 240 million global members, with penetration in over two-thirds of U.S. households. U.S. pricing sits at $14.99 per month or $139 per year. The behavioral impact is significant: the average U.S. Prime member spends approximately $1,400 per year, compared to roughly $600 for non-members. The marketplace lists more than 600 million products. 

For businesses, AWS offers pay-as-you-go compute, storage, and AI tools. For sellers, Fulfillment by Amazon (FBA) outsources storage, packing, and shipping.

The force behind all of this is the Flywheel: Amazon's foundational growth philosophy. Lower prices drive a better customer experience, which generates more traffic, which attracts more third-party sellers, which expands selection, which lowers costs per unit, which enables lower prices. 

Operationally, Amazon has built a vertically integrated logistics network with over one million warehouse robots coordinated by generative AI systems like DeepFleet. In 2025, the company delivered more than 8 billion items same-day or next-day. 

On the cloud side, the AWS Nitro System offloads networking, storage, and security to dedicated hardware. At the same time, custom silicon (Trainium for training and Inferentia for inference) offers better price-to-performance than third-party GPUs. 

Amazon reports net sales broken out by product and service groups. What the filings reveal is a business that has shifted structurally: while first-party retail remains the largest revenue line, the high-margin services, including AWS, advertising, and third-party fees, generate the majority of operating income and fund capital-intensive expansion.

In 2025, operating income reached $80.0 billion and operating cash flow hit $139.5 billion.

Online stores is Amazon's classic retail business: product sales and certain digital media content where Amazon records revenue gross, bearing inventory, pricing, and returns risk.

In 2025, the segment generated $269.3 billion, about 37.6% of total net sales, with year-over-year growth of roughly 9%. It is Amazon's largest revenue line by a wide margin.

Amazon does not publish a standalone operating margin for online stores. Cost of sales ($356.4 billion) and fulfillment ($109.1 billion) dominate retail economics, which is why this segment is typically estimated at below 5% margin. 

The paradox is clear: Amazon's biggest revenue line is arguably its least profitable. First-party retail functions as a traffic engine and data generator that feeds Prime subscriptions, advertising, and higher-margin services. It's less a profit center and more a structural subsidy for the broader ecosystem.

Third-party seller services include commissions (referral fees), FBA fulfillment and shipping fees, and other services provided to independent sellers. Amazon acts as a landlord and logistics provider rather than taking inventory risk.

In 2025, this segment generated $172.2 billion, 24.0% of total revenue, growing roughly 10% year-over-year. More than 60% of units sold in Amazon's store come from independent sellers, underscoring how central the marketplace is to selection and growth.

This is Amazon's most capital-efficient revenue stream. It earns fees without owning inventory, and the third-party share of units sold has grown to 62%, a deliberate strategic shift away from first-party inventory risk. 

AWS is Amazon's cloud platform: global sales of compute, storage, database, and other services to startups, enterprises, and public sector institutions. Revenue is primarily usage-based, with enterprise contracts and longer-term commitments influencing pricing.

In 2025, AWS generated $128.7 billion, 18.0% of total revenue, with full-year growth of 20%. Growth re-accelerated to 24% in Q4 2025, driven by explosive demand for generative AI infrastructure.

The profitability picture is striking. AWS reported $45.6 billion of operating income in 2025, reflecting an operating margin of approximately 35.4%. For comparison, the North America segment's margin was roughly 6.9% and International was roughly 2.9%. AWS contributes approximately 18% of revenue but roughly 57% of operating income. This is the engine that funds Amazon's entire expansion.

Amazon's advertising business sells placements to sellers, vendors, publishers, authors, and others through sponsored ads, display, and video formats. The core dynamic is commerce intent: brands and sellers pay to appear where shoppers actively search, browse, and buy. 

In 2025, advertising generated $68.6 billion, 9.6% of total revenue, growing roughly 22% year-over-year from $56.2 billion in 2024. Sponsored Products made up 68% of total ad revenue in early 2026. The introduction of an ad-supported tier for Prime Video added significant upper-funnel inventory.

Amazon does not disclose a standalone operating margin for advertising, but research consistently describes margins as rivaling AWS. This is arguably Amazon's most profitable business per dollar of revenue. It is now larger than the subscription services line.

Subscription services include fees from Amazon Prime memberships plus non-AWS digital subscriptions: video, audiobooks, music, and e-books.

In 2025, this segment generated $49.6 billion, 6.9% of total revenue, growing roughly 11% year-over-year. Prime membership exceeded 240 million globally by mid-2026, with penetration in over two-thirds of U.S. households. 

Clean average revenue per user cannot be computed from public disclosures because subscription revenue includes non-Prime subscriptions and Prime pricing varies by region and plan. Amazon disclosed 200 million Prime members in its 2020 shareholder letter but has not updated the figure in filings since.

Physical stores include product sales where customers physically select items in a store, primarily Whole Foods Market and Amazon Fresh. Online orders delivered or picked up at physical stores are classified under online stores, not here.

In 2025, the segment generated $22.6 billion, 3.1% of total revenue, growing roughly 6% year-over-year. The economics resemble traditional retail: product margin plus volume, supported by store operations and supply chain capabilities. 

It is the smallest segment by revenue, but physical locations provide essential data on grocery shopping habits and serve as hubs for omnichannel fulfillment, both important to Amazon's long-term grocery strategy.

The "Other" line includes shipping services, healthcare services, certain licensing and distribution of video content, and co-branded credit card agreements. Healthcare is now a growing component, built on the $3.9 billion One Medical acquisition.

In 2025, Other generated $5.9 billion, less than 1% of total revenue, growing roughly 9% year-over-year. Small but strategically revealing: this segment signals Amazon's expansion into primary care and pharmacy services as it restructures healthcare operations into six new divisions.

Amazon's cost structure reflects two realities: retail and delivery are operationally heavy (labor, transportation, inventory, returns), while cloud and AI require enormous continuing investment in data centers and infrastructure. 

The company groups core operating costs into cost of sales, fulfillment, technology and infrastructure, sales and marketing, and general and administrative. Total 2025 operating expenses were approximately $636.9 billion against $716.9 billion in revenue.

Cost of sales is Amazon's largest operating expense at $356.4 billion in 2025. This includes the purchase price of consumer products, inbound and outbound shipping costs (including sortation and delivery centers where Amazon is the transportation provider), and digital media content costs where revenue is recorded gross.

One sub-metric stands out. Shipping costs alone were $102.7 billion in 2025, up from $95.8 billion in 2024. That single number exceeds the total annual revenue of most Fortune 500 companies. It also shows why retail scale does not automatically translate into retail profit.

Fulfillment expense was $109.1 billion in 2025. This includes operating and staffing fulfillment centers, physical stores, customer service centers, and payment processing costs.

Seller transactions carry higher payment processing costs as a percentage of net sales because processing is based on the gross purchase price of underlying transactions. The operational scale is enormous: over one million warehouse robots, a regionalized fulfillment network, and more than 8 billion same-day or next-day items delivered in 2025. FBA fees increased approximately $0.08 per unit for 2026 to cover rising fuel and logistics costs.

Technology and infrastructure expense was $108.5 billion in 2025, up materially from 2024. Amazon defines this broadly: R&D payroll and related expenses, development and maintenance of stores, and infrastructure costs including servers, networking equipment, data-center depreciation, rent, and utilities.

This category also captures spending on long-horizon bets, including the Amazon Leo satellite network, autonomous-vehicle initiatives, and custom silicon development. The Trainium3 chip, released in late 2025, offers a 4x performance boost for AI training and is intended to reduce Amazon's dependence on Nvidia's GPU infrastructure. AWS property and equipment (net) rose to $190.1 billion at year-end 2025 from $110.7 billion in 2024, nearly doubling in one year.

This is the cost center that most directly determines Amazon's future competitive position in AI and cloud.

Sales and marketing expense was $47.1 billion in 2025. This includes advertising costs and payroll for marketing and selling activities, including AWS sales commissions. Customer acquisition is driven by sponsored search, third-party referrals, and other advertising.

Amazon states that Prime shipping benefits are not counted in sales and marketing expense but views them as effective marketing tools. Prime Video's content budget is a key driver for membership retention, while aggressive pricing and marketing spend in emerging markets like India and Brazil aim to capture share from local incumbents.

General and administrative expense was $11.2 billion in 2025. The figure covers corporate overhead, and despite job cuts of roughly 30,000 in late 2024 and early 2025 to reduce bureaucracy, Amazon remains one of the world's largest private employers. Managing 9.7 million registered sellers requires massive support and policy compliance infrastructure.

Other operating expense was $4.6 billion in 2025, versus just $0.8 billion in 2024. The increase was primarily attributed to the settlement of a lawsuit with the Federal Trade Commission, plus the resolution of tax disputes and certain impairments.

Regulatory and legal costs can meaningfully affect operating income in any given year. The FTC v. Amazon trial scheduled for late 2026 represents a future risk that could result in mandated behavioral remedies or structural changes to the marketplace.

Amazon is a conglomerate-like platform spanning retail, logistics, advertising, and cloud, which means it faces multiple competitive arenas with different economics. 

Cloud is Amazon's most profit-concentrated battlefield. Estimates put AWS at roughly 28% of cloud infrastructure spend in Q4 2025, followed by Azure at 21% and Google Cloud at 15%.

AWS is positioned on breadth, scale, and strong profitability (roughly 35% operating margin), supported by continuing infrastructure investment, expanding AI services, and custom silicon (Trainium, Inferentia). 

Azure benefits from tight enterprise IT relationships, Microsoft ecosystem integration (Windows, Office 365, Active Directory), and existing procurement stacks. Enterprise adoption of Azure slightly surpassed AWS in early 2025, 80% vs. 78%. 

Google Cloud carries the fastest growth narrative in AI-centric workloads (48% year-over-year in Q4 2025) alongside its data and analytics heritage.

The AI infrastructure boom is driving all three to invest tens of billions in data centers. Amazon's custom silicon strategy is a differentiator aimed at reducing dependence on Nvidia GPUs. If customers migrate to Amazon's own chips at scale, the margin implications for AWS could be substantial.

In U.S. e-commerce, Amazon holds an estimated 37.6% of sales, with Walmart at 6.4% and eBay at 3.0%. Amazon and Shopify together controlled roughly 50% of all U.S. online spending by early 2026.

Walmart is the world's largest retailer and Amazon's most formidable rival in groceries and essentials. By late 2025, Walmart's online sales were growing nearly three times faster than Amazon's, driven by household staples and 10,500 physical stores that enable seamless in-store pickup and delivery. 

Shopify powers 14% of U.S. e-commerce as of February 2026 and represents a philosophical alternative. Where Amazon provides a marketplace where sellers compete on borrowed ground, Shopify empowers independent brands to own their customer data and build their own destinations. Shopify businesses are often valued higher, at 3 to 5 times annual profit, because buyers acquire a defensible brand and a direct customer list rather than a listing dependent on platform algorithm shifts.

eBay holds roughly 3.0% of U.S. e-commerce share and is named as a competitor in Amazon's SEC filings. The competitive dynamic across all of these players is not only about checkout but about fulfillment speed, marketplace selection, and membership flywheels.

Retail media is one of the most aggressively contested growth categories because it monetizes existing shopping traffic. Estimates put Amazon Ads at $46.99 billion (79.9%) of U.S. retail media ad revenues in 2025, far ahead of Walmart Connect at $4.75 billion (8.1%).

Amazon's advantages are scale of commerce traffic, on-platform first-party purchase data, closed-loop measurement (ad exposure mapped directly to purchase), and a 9.96% conversion rate. Walmart's advantages are omnichannel reach (store and online) and growing marketplace penetration. Walmart Connect is growing at over 400% year-over-year, challenging Amazon's grip in the grocery ad category.

In the broader digital ad landscape, Amazon is the third-largest ad platform globally, trailing Alphabet (Google) and Meta. Together, those three companies hold 56.1% of global ad spend excluding China. Amazon's edge is bottom-of-the-funnel targeting via first-party shopper data, a structural advantage that search and social platforms cannot easily replicate.

Amazon's near-term trajectory centers on AI infrastructure and platform monetization, with retail speed and convenience as its customer-facing north star.

The defining strategic bet is AI. Amazon plans $200 billion in capex for 2026, largely directed at AI-focused data centers. The annualized AI services revenue run rate already exceeds $15 billion, and the custom chips business run rate tops $20 billion. AI is a multiplier across consumer experiences and AWS, not a standalone project. 

The commerce business faces a different question. The issue is not whether Amazon will sell more, but how the margin mix will evolve. The structural levers are expanding third-party services (fees without inventory risk), growing advertising (high-intent, high-margin placements), and improving delivery speed without letting fulfillment and shipping costs outpace monetization. 

Simultaneously, Amazon's satellite connectivity project, Amazon Leo (formerly Project Kuiper), is targeting a mid-2026 commercial launch with 241 satellites already in orbit as of early 2026 and a 3,236-satellite network as the full build-out target. Expected download speeds of 1 Gbps serve a dual strategic purpose: a new connectivity revenue stream and an expanded addressable market for AWS edge-to-cloud services in remote and underserved regions.

The primary risk to growth is regulatory. The FTC v. Amazon trial, scheduled for late 2026, could result in mandated behavioral remedies or structural separation of the marketplace. The 2025 FTC settlement has already cost $4.6 billion in other operating expenses. 

Key milestones to watch over the next 24 months include the mid-2026 Amazon Leo commercial launch, the late 2026 FTC trial outcome, whether $200 billion in 2026 capex translates into proportionate AI revenue growth in 2027 and 2028, and the continued evolution of third-party seller fee structures in the U.S. and Europe.

The financial outlook supports continued scale. And if Amazon delivers on its growth plans, it could potentially become a first trillion-dollar revenue company within the next few years.