Amazon Becomes an Electronics Company

Amazon's emphasis on the Kindle has been obvious. But rather than being a simple extension of the company's focus, you could say that the device is a natural outgrowth of a longer term trend at Amazon -- the process of becoming an electronics company, not a media company. And results over the last few years clearly show this.

Last summer, I argued that Amazon was moving more toward becoming a technology company and less of a retailer. And I think that still holds true. But even more interesting, and telling, is the product sector revenue breakout that Amazon provides.

The shift in category sales becomes clearer in a graph of how the three categories contribute to total revenue:

Or, put differently, look at the percentage of media sales that electronics and other general merchandise represent:

Of course, from the outside there is no way to know for sure how much of this "everything else" category is electronics sales, and what part is other merchandise. But the title of it is likely telling, certainly consumer electronics is one of the tighter margin product categories for retailers, and if electronics were not so important, would the company have moved into creating an e-book reader? But even if the electronics aspect is not so dominant, that still leaves Amazon moving away from the media product dominance that once ruled it.

That trend continued in the first quarter of 2009. Electronics and other general merchandise represented 41.8 percent of total sales, and 75 percent of media sales. The numbers suggest that by the end of this year, the electronics and other category could be as large as media for Amazon. That is even with the growth the company has seen in e-books and downloadable media to date. To my eye, at least, it seems likely that within two years at most, media will represent a minority part of the company's total business for the first time.

This category growth, although fueling the company's overall expansion, also provides a problem. According to Amazon, the gross margins on electronics and other general merchandise are lower than in media sales. Perhaps that explains the drive to non-retail types of business that offer higher margins. Only by keeping margins higher can Amazon keep pursuing what it foremost in its strategy, remaining the dominant player in its markets, because only by bolstering margins can Amazon get the resources and freedom to do what it thinks necessary.

Electronics image via stock.xchng user pawel_231, standard site license.