Brian T. Olsavsky
Senior Vice President and Chief Financial Officer at Amazon.com
Thank you for joining us today. Let me first start by reiterating and expanding on a few comments that Andy made in our earnings release. We are now reporting our results for the seventh quarter since the pandemic began and we are especially proud of our employees for both their response to the unprecedented customer demand we have experienced as well as for their implementation of many safety procedures to create a safe work environment.
During this period, we have continued to earn the trust of our customers, especially our Prime members, who have increased their annual purchases and their use of Prime benefits over the last 20 months. We have also seen strong growth in our advertising products as vendors and sellers have embraced our ability to build their brands and to reach customers just as they are considering their purchases. And AWS has seen a reacceleration of revenue growth as customers have expanded their commitment to the cloud and selected AWS as their cloud partner. As a result, Amazon's Q3 revenue of $110.8 billion represented a two-year compounded annual growth rate of 25% versus a pre-pandemic growth rate in the low-20% range. We're grateful to our customers who have put their trust in us.
However, there have certainly been challenges to overcome since February of last year. We've nearly doubled our operations capacity in the past two years to keep up with customer demand. We've incurred billions of dollars in additional costs to keep our employees safe and to support testing and other COVID-related costs. And we have grown our global headcount by 628,000 employees in the past 18 months and recruiting for more, including more than 150,000 in the US to support Q4 seasonal demand.
The demand for labor has recently coincided with the shortage of available workers, particularly in the United States. It began in Q2, but it really started to impact our operations and cost structure in Q3. It has led to wage increases and sign on incentives as companies compete for workers as well as inconsistent staffing levels in our operations.
In addition, disruption to the global supply chains and inflation in the cost of materials such as steel and services such as trucking have also raised our cost of operations. We estimate the cost of labor, labor-related productivity losses and cost inflation to have added approximately $2 billion in operating cost in Q3, particularly in August and September.
Our Q4 guidance range anticipates that these costs will approach $4 billion in Q4 as we see a full quarter's impact of these effects and a higher seasonal unit volume. Specifically in Q3, we saw nearly $1 billion of inflationary pressures primarily tied to wage increases and incentives in our operations.
Our average starting wage is now over $18 per hour with an additional $3 per hour depending on shifts in many locations and sign on bonuses that can be up to $3,000. In addition, we saw inflationary pressures in raw materials and services, as I mentioned, particularly in steel and third-party trucking. We also saw over $1 billion of cost tied the lost productivity and disruption in our operations.
In Q3, labor became our primary capacity constraint, not storage space or fulfillment capacity. As a result, inventory placement was frequently redirected to fulfillment centers to have the labor to receive the products. This resulted in less optimal placement, which leads to longer and more expensive transportation routes. In short, our operations are normally well staffed and optimized to be in stock and to deliver to customers in one to two days. Labor shortages and supply chain disruptions upset this balance and resulted in additional costs to ensure that we continue to maintain our service levels to customers.
As you look to Q4, we have incorporated this nearly $4 billion of added cost into our operating income guidance range. In addition, we have a nearly $1 billion year-over-year increase in Q4 for spend to support our digital media content efforts, including video, music and games. We've recently launched New World, a multiplayer online PC game, and we're delighted with the response and engagement. New World has become the highest played new game this year on Steam.
Moving to video content. Prime Video has a compelling lineup of live sports, including the UEFA Champions League and League One soccer in France as well as NFL Thursday Night Football in the United States. We have a great lineup of original series to look forward to, including the Wheel of Time, Lord of the Rings and Citadel and new seasons from Jack Ryan, The Marvelous Mrs. Maisel and The Boys. We're excited to add this content to our Prime benefits and increase the value of our Prime membership.
Q4's guidance also includes an estimated $1 billion year-over-year negative impact from lower fixed cost leverage in our fulfillment network. Recall that we saw very high unit volumes in Q4 of last year and then our fulfillment centers are running at close to a 100% capacity as we work to add physical capacity to match demand. As we are now back to having more normal Q4 fulfillment capacity and have even brought forward 2022 capacity into 2021, our operating leverage drops compared with last Q4.
Our revenue guidance for the fourth quarter reflects the current trends we are seeing, including the lapping of our Prime Day event in October' of last year. We are dealing with labor risks and supply chain interruptions, like many other companies, which increases our range of potential outcomes in Q4. Consumers have started to return to pre-pandemic spending patterns, increasing their mobility and spending more on travel and services in Q2 and Q3, but we are appreciative that the incremental demand that came our way during the pandemic has remained and we are continuing to grow on top of that.
We also had to make this a great holiday season for customers. Last quarter, we discussed the physical capacity we were adding to meet customer demand. We made strong progress in Q3 to build and open new facilities. And as a result, for the first time since the pandemic began, we are no longer capacity constrained for physical space in the network. September alone we brought online more than 100 new buildings in the United States, including fulfillment centers, sort centers in the last mile delivery stations. For the year, we expect our 2021 footprint additions to exceed last year's build out, which was also significant.
To put this in perspective, we are on track to double our fulfillment network over the two-year period since the pandemic's early days. A lot of this increased capacity supports our FBA sellers. Third-party sellers and the products they offer remain an important strength of our offering for customers, representing 56% of total paid units sold in Q3. That's up from 54% in Q3 of last year. And we're working with these partners, most of whom are small and medium-sized businesses, to build an even stronger offering.
We recently hosted Amazon Accelerate, a US conference for selling partners or re-introduce new tools and capabilities, including local selling, which enables sellers to start or expand their multichannel offerings by providing both in-store pickup and fast delivery to nearby customers and global selling tools to make it easier for US third-party sellers to offer their products worldwide.
I'll finish with a few highlights regarding two fast-growing areas with strong profitability profiles. First, we saw a continuation of strong usage and revenue growth in AWS with revenues accelerating to 39% year-over-year in Q3, driven by a broad base of services and customers. There are number of areas we are excited about, but let's focus for a moment on our efforts in machine learning. Customers of all sizes and across all industries are using AWS as the preferred cloud provider for machine learning services.
We've been investing in this area for several years offering an extensive set of machine learning services, including ones that can be applied to common business problems like Amazon Connect for Contact Center Intelligence or Amazon Kendra for intelligent enterprise search. We have recently launched solutions specific to industries, including industrial machine learning services as well as Amazon HealthLake to help healthcare and life sciences customers seamlessly transform their data across disparate sources to understand and extract meaningful medical information.
And Amazon SageMaker continues to help customers scale their use of machine learning to core workloads, making one of the fastest growing services in AWS history with tens of thousands of active external customers using it every month. We also continue to see strong interest in rapid adoption of our custom silicon, an AWS-designed Graviton2 processors. Delivering customers up to 40% better price performance, I think current X86 processors. Moving to Graviton2 means little to no code changes, so the customers can quickly and easily migrate their workloads to access the best price performance in Amazon EC2.
Last but certainly not least, Amazon Advertising continues to grow quickly, representing the significant majority of other revenue, which grew 49% year-over-year in Q3. We're seeing strong adoption across Amazon vendors, sellers and authors as well as brands that don't sell in our store, particularly as we've built out our streaming TV offerings. Of course, advertising only works if we make it useful for customers. And when we create great customer experiences, we deliver better outcomes for brands.
The team also recently hosted Unbox 2021, our annual conference for advertisers and brands, where we shared some of our new solutions to help companies to connect with their customers, measure the impact of their advertising and grow their businesses. As we shift into Q4, we are heads down focused on delivering a great experience for our customers this holiday season. We are committed to make the necessary investments in both people and capacity to bring more items and stock and to deliver them quickly to customers.
With that, let's move on to Q&A.