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February 16, 2018

AMAZON BUSINESS MODEL | How does Amazon make revenue?

Amazon is the largest online retail market in the world which started its services in 1995. The first product that was shipped from Amazon was a book which was stored in Jeff Bezos’s garage. It found success at an exponential rate, and now Amazon’s warehouse has more than 9 million sq. Feet space. It has solidified the foundation of e-commerce and had 21 fulfillment centers all around the world. Amazon’s business models are anything but traditional. It includes several retail strategies which were pioneered by Amazon. Those retail strategies served as a gateway for many companies and online brands to enter the world of e-commerce. Amazon has turned the online marketplace a robust e-commerce platform which can be used to sell all kinds of products and services.

This article explores how Amazon works; it is sharing economy, how Amazon prime works, its technology infrastructure, and its core business model canvas.

 

The Basics of Amazon.com

 

You can buy and sell a wide range of products on Amazon. The buyer to seller approach is similar to other online retailers, but the key difference lies in its range. It includes clothing, food supplies, gourmet, pet supplies, beauty products, books, computers, electronic gadgets, garden supplies, household products, bedding, DVDs, furniture, toys, and more.

Amazon not only hosts a vast array of goods but also ensures an excellent user experience. No matter what you are looking for, you can narrow down your choices by customizing your search through the several options.

 

Customer Tracking

Read Wired related article: Amazon knows who you are

 

If you have shopped from Amazon once or more than once, you will get recommendations for similar products. If you allow Amazon to use cookies on your computer, your customer experience will be enhanced. Amazon uses a state of the art technology for customer tracking which is the best breed in the system.

It utilizes every piece of information and data about a user, to point out to products that lie in the interest of the user. Besides that, customers can tailor the settings of recommendations in order to increase its accuracy. As you land on the homepage, you can view the featured products, discounted items, and special offers. Amazon’s unusual approach to sales entails a personalized shopping experience which is bolstered by its customer tracking.

An area where Amazon has a stronghold is its multi-level e-commerce strategy. Amazon extended its business model by including the sale of used or refurbished products. You can hold auctions, and sell used or refurbished goods as well, much like eBay. It is the ultimate hub which lets users buy and sell merchandise with utmost convenience and ease.

If you have shopped from Amazon once or more than once, you will get recommendations for similar products. If you allow Amazon to use cookies on your computer, your customer experience will be enhanced. Amazon uses a state of the art technology for customer tracking which is the best breed in the system.

It utilizes every piece of information and data about a user, to point out to products that lie in the interest of the user. Besides that, customers can tailor the settings of recommendations in order to increase its accuracy. As you land on the homepage, you can view the featured products, discounted items, and special offers. Amazon’s unusual approach to sales entails a personalized shopping experience which is bolstered by its customer tracking.

An area where Amazon has a stronghold is its multi-level e-commerce strategy. Amazon extended its business model by including the sale of used or refurbished products. You can hold auctions, and sell used or refurbished goods as well, much like eBay. It is the ultimate hub which lets users buy and sell merchandise with utmost convenience and ease.

 

The Technology Infrastructure of Amazon

 

The technology core of Amazon is Linux-based. It has the three largest Linux databases in the world that have storage capacities of 7.8 TB, 18.5 TB, and 24.7 TB. The technology architecture of Amazon is one of the best, and it handles millions of back-end operations daily. The security provided by Amazon is ensured by Netscape Secure Commerce Server. The storage space of personal information and bank details of customers is not accessible by the Internet.

 

Amazon Prime and AWS based services

 

The business model canvas of Amazon is intertwined with its retail business as well as internet-based services. From the business perspective, Amazon has revolutionized the retail marketing strategies by introducing Amazon Prime. Amazon Prime is a service that provides free two-day shipping to its users, free Kindle library access, on-demand video streaming, and special offers. These benefits have to be purchased for an annual fee. The Amazon Prime service was initiated to lure more video subscribers to their website. As the number of subscribers grew, Amazon began gaining a competitive advantage over Netflix. Moreover, Amazon also acquired the rights to many movies like Cafe Society by Woody Allen, Love & Friendship by Whit Stillman, and more.

 

 

Some other Amazon web services known as the AWS are not that well-known. Amazon leases its server space to other companies. Although this was not included in its core marketing strategy, it has led Amazon to become the manager of numerous servers and internet services. Amazon Web Services is a $ 10 million business now which has benefitted greatly from its latest ventures.

 

 

Cloud Computing Infrastructure

 

Cloud computing is the new paradigm and Amazon has already set itself as the dominant player. More than 1 million customers are dependent on the uptime of Amazon’s cloud computing infrastructure. It has emerged to be an overwhelming market leader in share market.

Amazon has not explicitly disclosed information regarding its data centers that power its cloud computing platform. However, according to third-party estimates, Amazon operates more than 30 data centers and more centers are likely to go on board.

Amazon continually upgrades its infrastructure with innovative approaches to drive the costs down. It is viewed as a low-margin, high-volume business. Amazon expanded its web services and continued to build enhancements. Amazon Lumberyard was a great hit after its release. It is a free 3D game engine with a cross-platform, which helps developers create games. The creations can be stored online in AWS Cloud storage. Presently, Amazon is the leader in the cloud market, and its global market share is almost 31%.

 

Alexa

 

Amazon made significant progress regarding its services as well as product categories. It introduced the voice-enabled Alexa enabled products like Amazon Tap and Amazon Echo Dot. These devices are inexpensive, highly convenient and add the amazing benefits of Artificial Intelligence in daily lives. From booking an Uber to reading BBC news, it is capable of many things. Alexa can also select a playlist for Spotify subscribers who use Echo.

 

Kindle

 

One of the most prominent advances and expansion of Amazon was the Kindle ecosystem. Amazon’s Kindle is an e-book reader device which has features specially built for the best reading experience. You can access thousands of Publications on Kindle. It is light weighed, convenient and comfortable to carry. It rules out the hassle of carrying heavy books to places and offers an easy way to read on the go.

It has made a new addition – the Kindle Oasis. It is 30% thinner than all other Kindle tablets and much lighter. The Kindle app Amazon can also be downloaded for availing its services.

 

Amazon Advantage

 

Amazon Advantage is a sales channel of Amazon where people can sell new publications and productions of books, movies, and music directly from the warehouse of Amazon. The sellers do not need to ship the products from their addresses or stores. This is highly beneficial for wholesale sellers who sell products in bulk. The benefit that this channel offers is that sellers can leave the responsibility of handling sales and shipping on Amazon.

 

Amazon Services

 

Amazon did not leave any stone unturned. Besides its commendable business ventures and successful acquisitions, Amazon added a subsidiary company to its repertoire known as Amazon Services. Enterprises that plan on refurbishing or overhauling their business can greatly advantage from Amazon Services. Businesses that avail this service can buy a sales platform with a complete package of Amazon’s e-commerce. Along with that, Amazon also sets up technology infrastructure and websites using the latest Amazon technology and software. Using this service, developers can build their web applications and sites with the aid of Amazon technology.

Amazon’s business model canvas maintains consistency in product price and quality, which has strengthened its relationship with its huge customer base. Automated customer service is an integral part of Amazon’s business model. The convenience with which customers can shop on Amazon has remained consistent since its inception. This is one of the primary reasons why Amazon still has a stronghold in the online marketplace, and it continues to dominate the e-commerce ecosystem.

While maintaining the fundamental blocks that created its foundation, Amazon continued to scout other potential business ventures. Amazon’s financial status boosted significantly over the years, and its revenues reached 28% resulting in a whopping $29.1 billion amount.

The latest venture that Amazon has undertaken is the Mechanical Turk project. The goal of the project is to combine technology with the community and compensation. This system will allow web developers post tasks that need a workforce. It aims to create a platform where job seekers can find small duties, and employment and software developers and web developers can get help whenever required. Amazon only gains from a commission earned from every completed transaction.

Amazon started out as a bookseller, and today it has emerged as the biggest e-commerce platform which offers an endless number of services. It is business models are some of the best and the most innovative in the history of e-commerce. It provides a complete set of infrastructure, beneficial integrations, favorable rates and a massive platform. Amazon.com contributes the maximum value to Amazon through its retail store, when compared to all the subsidiaries. The philosophy of Amazon is to maintain its long-term goal by prioritizing the interests of shareholders and customers.

Now that we have an extensive overview of the company let’s have a deep insight into his business strategy, trying to get an answer to all the business model questions.

 

 

First/ whom does Amazon help? What is his customer segment?

 

  • Massive consumer market. All the internet users that do online purchases have used Amazon from time to time.
  • Multi-sided, Niche provider segment (companies, developers).
  • Some big sellers use Amazon to sell their products in addition to selling them through their websites.
  • Teenage young-adult and adult readers

 

Second/ What’s the value proposition that Amazon offers?

 

  • To provide an extraordinary eCommerce marketplace in two clicks.
  • Amazon provides a unified stage by which a client can interact with all the site that is retail.
  • The company also produces consumer electronics (Kindle e-readers, Fire tablets, Fire TV, and Echo).
  • It is the world’s largest provider of cloud infrastructure services (IaaS and PaaS).
  • Amazon also sells particular low-end products such as USB cables beneath its in-house manufacturer AmazonBasics.
  • Amazon is the earth’s most customer-centric company it always works for the client!
  • Amazon is the world’s most innovative company.
  • Best-in-class logistic process.
  • Intermediation services.
  • Aggregation of demand (long tail).
  • Fulfillment.
  • Mass web services.
  • Outsource the logistic process.
  • Scale-up global your business.
  • Amazon Echo (Smart voice-enabled wireless speaker, Voice-controlled intelligent personal assistant service Alexa).
  • Prime Instant Video and now they are bringing original content to it.
  • Amazon music.
  • Low prices.

 

Tirth/ How does Amazon reach his customers? What are his channel strategies?

 

 

Fourth/ What kind of customer relationships have Amazon with his clients?

 

  • The central leadership principle is CUSTOMER OBSESSION.
  • Amazon is so innovative that Amazon wants to send stuff before you order it!
  • Same-day delivery race.
  • Free shipping with Amazon Prime.
  • Amazon began by focusing on business-to-consumer connections between itself and its clients and relationships between itself and its suppliers and then moved to facilitate.
  • Online purchases.
  • Fully digital.
  • Self-service.
  • Automated service.
  • Co-creation.
  • Community.
  • Recommendations.
  • Amazon enables users to submit reviews to the web page of each product.
  • Reviewers have to rate the product on a score scale from one to five stars.
  • Partnerships and alliance, Convenience.
  • Wide selection.
  • Customer experience.
  • Twitter users can link their accounts and automatically add items to their shopping carts by just reacting to any tweet.
  • Same-side and cross-side network effects.
  • Benefits to every group display demand economies of scale.

 

Fifth/ How much revenue it takes? What are the primary income sources for Amazon?

 

  • Amazon.com is mostly a retail site with a sales revenue version.
  • Amazon makes its money by taking a small percentage of the sale price of each item that is sold through its website.
  • Prime monthly subscription.
  • Value added services (Amazon fullfilment).
  • Listing fees Amazon charges $0.99 per item to list along with a referral fee that ranges from 6-45% depending on the item’s listing category.
  • Amazon also allows companies to advertise their products by paying to be listed as featured products.
  • The Amazon Affiliate Program is utilized by 1.2% of all sites, and it is the 2nd most popular marketing network after Google Advertising.
  • AWS cloud services income.
  • Amazon Prime Video subscription.
  • Amazon Hardware (Kindle, Echo, and FireTV).
  • Amazon Alexa (Alexa integration with Connected Car and & e-Mobility).
  • Amazon Payments (FinTech and Payments commissions).

 

Sixth/ How does Amazon do it? What are the main activities develop in his business process?

 

  • Platform/Software development and maintenance.
  • Innovation (new products and new ways of delivery).
  • Logistics and Distribution.
  • Customer service.
  • Warehouses automation.
  • Fulfillment.
  • R&D.
  • Content aggregation.
  • Legal.
  • Human Resources.

 

Seventh/ What does Amazon needs? What are the primary resources needed?

 

  • Brand.
  • Platform.
  • Staff.
  • Robotic systems.
  • Amazon employs a multi-level e-commerce strategy.
  • It derives many of its sales from third-party sellers who market products on Amazon.
  • Amazon has “over 900,000 members” in its affiliate programs.
  • Amazon sales rank.
  • Global fulfillment infrastructure.
  • Physical Warehouses.
  • Kindle platform.
  • Payment processing.
  • Recommendation Algorithm.
  • Big data.
  • R&D.
  • Intellectual Property.
  • Patents.
  • Amazon owns a patent which Amazon calls “anticipatory” or “speculative” shipping.
  • Just in time production system.
  • Amazon’s innovation strategy is centered around customer-driven innovation.
  • Avoid Complete Anonymity.
  • Connect Managers and Employees through Transparent Feedback.
  • Use Accountability to Keep Feedback Positive.
  • Logistic assets.
  • Artificial Intelligence.
  • Focus on invention not “innovation.”
  • The technology giant is the biggest Internet-based merchant in the world by market capitalization and overall sales.
  • Amazon acquired Whole Foods Market which would vastly increase Amazon’s presence as a physical retailer.
  • Amazon is also building out its logistics in trucking and air freight to compete with UPS and FedEx potentially.

 

Eighth/ Who is helping Amazon? What are the main partners of the company?

 

 

Ninth/ What are the company cost structure?

 

  • Amazon spends high investment in India.
  • New projects and adventures.
  • Warehouses.
  • Offices.
  • Employees.
  • R&D.
  • IT maintenance.
  • Software development.
  • Shipping cost.
  • Fulfillment.
  • Marketing.
  • Technology.
  • Content generation and acquisition.
  • Acquisitions.
  • Legal.
  • Taxes.
  • General and Administration.
  • Amazon uses both Economies of scope and Economies of scale.
  • Amazon at its core is committed to optimizing costs and processes.
  • That is why they are pushing the limits of optimization on delivery and operations.
  • Associates receive a commission for referring customers by placing hyperlinks when the referral results in a sale.
  • Amazon uses mostly renewable energy to runs data centers for its online services and owns generators or purchases electricity.
  • Lobbying.

If you want to know more about the Amazon competence, please visit the following canvas, Flipkart, Alibaba, eBay, and so on.

You can find the full Canvas archive here.

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