Amazon Business model

Amazon remains to be ruling out all business rules in the line of business models. The e-
commerce giant had a humble beginning and now currently states its business into three
pillars:
 Marketplace- Core business
 Amazon Prime
 Amazon Web Services
Apart from these are several related and unrelated diversifications across various verticals of
the business line to explore various opportunity across multitude of industry. Few of the
notable mentions are: gaming, vegetable door step services e-commerce and Whole Foods
market etc. its is more than an e-commerce company. Its go to market strategy remains to be
its core business to test the commercialization of internet as the source of business as a
service using e-commerce. From their it started utilizing the opportunity of third-party sellers
as the rich source of humongous source of its variety of products.
Amazon remains to be the strategic genius in terms of utilization of data network it uses its
data feedback loop to continuously contribute to its existing data centre further utilizing these
data to further develop new products and optimize both buyer and seller experience in the
platform. Being the richest source of dataset on how consumers consume products in
ecommerce it curate’s multiple methodology continuously to develop the environment of the
platform, create dense logistic network with exclusive voice assistance for aid in turn making
Amazon’s offering even richer.
Amazon’s strategic business intent in creating several of its business units:
 It started with Amazon Marketplace or the amazon as the e-commerce platform as its
core business where it created a consumer grip in the market by testing it platform and
eventually launched from being first party seller to giving third party sellers an
opportunity to sell their product at a nominal marginal cost on each category based on
demand in the market
 To withstand the majority proportion of sale being the third-party sellers it started the
seller service for in which they would provide them multitude of services as such
inventory management, logistics and IT infrastructure
 To become a self-dependent giant its next step was to create the AWS cloud services
in which could start helping its sellers and create an integrated data centre in which all
its services could be handled at ease. Not just keeping this service exclusive to the
company it expanded its horizon to developers and enterprises as the medium to
perform their business and develop server and grow their individual business.
 From here the journey became further more interesting as utilizing the fact of repeat
purchase consumer across its platform it opened the Amazon prime subscription
services which not just catered the existing customers in faster delivery, before hand
offers but also provided them content as a new option of business competing with
other players like Netflix, Zolo etc
  Utilizing the new powerful build infrastructure of AWS and becoming the richest
source of consumerism it started utilizing its data centre knowledge as a service for
advertising for paid listers and sellers becoming one more source of revenue

Amazon has borrowed the concept of everyday low price from Walmart, by it is able to
deliver and withstand its strategy through competitive pricing. The company’s dominance is
often linked to its pricing strategy.
Amazon ways to create its self-sustaining business:
 Customer obsession
  Ownership
 Invent and simplify its services
 Continuous learn and remain curious
 Best hiring practices and developing the best
 Insisting on the highest standards
 Thinking big
 Bias for Actions
 Earning trust
 Deep Divers
 Remain committed towards the strength of agreement and disagreement
 Delivering results

Cooperation is the next level of business strategy in which now modern business ideology is
where organization compete as well as cooperate, where cooperative competition exists. In
which Netflix streaming platform has been the major customer of Amazon AWS cloud
infrastructure while amazon remains to be its major competitor being a content platform.
Amazon applies the long tail strategy in which it opts to sell large number of different
products in very small quantities. The reason behind this is: low demand leads to low
competition but leads to high conversion rate. To further emphasize this model amazon
developed its fulfilment centre to as a stock hard for which sellers give money for the
inventory and the logistic to the delivery cost towards the end customer.
Amazon Revenue Model

Amazon is currently the most valuable retailer in the world with market capitalisation of $1.7
trillion.

While ecommerce makes a significant portion of the company’s overall sales, Amazon’s
diverse revenue model generates billions through various business segments. Here is the
breakdown of Amazon’s revenue mix:

Business Segment Net Sales (June 2019- 2020)

Online Stores $163 B
Amazon Web Services $40B
Physical stores $17B
Third-party selling services $63B

Subscription services $22B

Other $17B
Total Revenue $322 billion

The online retail stores of Amazon bring high margins, while the other parts of the Amazon
Business Model, like Amazon advertising services, Amazon Prime and Amazon AWS run
with higher margins.

The major source of revenue for Amazon is the commissions and fees that it obtains by
making the borrowers and sellers meet. It also derives huge chunk of its revenue from
affiliate programs, to get a larger commission on their sales. Company also sells advertising
space on its website so the sellers can boost their sales by advertising on the site. Amazon
also generates a huge revenue from the Kindle marketplace.
 Figure 1 The main products and services of Amazon

Breakdown of Amazon’s Revenue Mix:

 Online stores- The online stores sell products and services to generate revenue.
Amazon leverage our retail infrastructure to offer a wide selection of durable products
both in digital and physical format, such as books, videos, games, music and software.
The subscription method provides unlimited viewing or usage rights according to the
subscription plans.
 Third party seller services- There has been a growth in the third-party sellers from
3% to 58%. Amazon helps independent sellers by selling them various tools like
shipment tracking, reporting, payment processing and inventory management. These
tools help the sellers to grow their businesses, sell their products and order-fulfilment
through Amazon.
 Developers and enterprises- Amazon serves start-ups, government agencies and
academic institutions, through our AWS segment which offers various services like
storage database, global compute, and other service offerings.
 Content creators- Amazon also generates revenue by helping authors and
independent publishers with Kindle direct publishing, an online service that lets
independent authors and publishers to choose a 70% royalty option and make their
books available in the kindle store. They also offer programs that will allow
musicians, filmmakers, app developers, authors to publish and sell their content.
 Advertising- With such an infrastructure and many e-commerce hosted on Amazon
infrastructure, more and more entrepreneurs and marketers are willing to pay for
Amazon advertising services. This part of the business has higher margins compared
to the tight margins of the online stores.

Amazon’s Cash Machine

It is one of the business strategies by Amazon, where the company reduces its spending and
keeps an eye over the financial transactions. Amazon is doing this since many years and
continuing with the same strategy by making its prices low, and convenient compared to
traditional physical stores with fast and efficient delivery system.

Amazon collects payment from its customers quickly and then pays its vendor with relatively
longer payment terms which gives short-term liquidity that can invest back to grow the
business. With the help of this strategy, Amazon has been able to grow their business in
several industries.