Amazon business model

Amazon Business Model: A Complete Guide

Elena Hudgens
By Elena Hudgens 10 Min Read

Amazon is a company that focuses on retail, cloud computing, digital streaming services, and artificial intelligence. The Amazon business model is referred to as “one of the most influential economic and cultural forces globally” by many analysts. 

It’s also one of five American technology giants – Alphabet (Google), Apple, Meta (Facebook), and Microsoft- which are all part of The Big Five.

Let’s dive in and explore in the depth, the Amazon business model.

The Timeline

Jeff Bezos, an internet visionary and former Wall Street hedge fund executive, Jeff Bezos started Amazon in 1994. He was fully aware of what would come after his first step: creating an “online everything store” – yes, he knew that’s what Jeff meant on Amazon from day one. 

Jeff initially thought about naming it Cadabra (from abracadabra) but then decided not to because it sounded like a “cadaver”, especially over the phone.

With the company’s name decided, it is time to figure out what they will sell. Bezos found that books would be most logical for his e-commerce site. People who work in finance couldn’t see how the internet would grow as he could – but Amazon.com reached 180,000 accounts in its first year and $610 million by 1997’s end.

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The company expanded rapidly, making it possible to sell music, videos, electronics, and more. Customers are attracted by personalized recommendation tools and reviews while developing a community of consumers.

In 2000 the company opened its doors to small businesses to sell their goods. While in 2002, Amazon Web Services was launched, which confirmed what Bezos said from the start: “Amazon is not a retailer” but rather “a technology company.” 

From this year on, AWS has encompassed statistics on the internet for developers and marketers and Elastic Compute Cloud that rents out computer processing power, all with Simple Storage Service renting data storage space.

In 2007, Amazon released the Kindle e-reader to foster the expanding e-book market. One year later, it launched Amazon Encore (their first publishing line), which allowed individuals to publish their books on Kindle. Two years after this, it would become Amazon Publishing and develop its titles. 

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As time passed and things changed for them in terms of business entities– they were no longer just a bookstore but also an “everything store” that extended worldwide. Their brand never seemed like it had ended there; popular demand was consistently high with minimal mention of profit margin (low on any product/service offered).

When buyers shop from Amazon, they will find a good deal. And sellers can use the multi-sided platform to make sales on all continents on Earth without breaking a sweat! They have recognized this popular site as the largest retailer globally in recent years.

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Ways Amazon makes money.

Amazon abides by four principles:

  • customer obsession rather than competitor focus
  • passion for invention
  • commitment to operational excellence
  • long-term thinking

The Amazon business model strives to be the world’s most customer-centric plan.

  1. Amazon Marketplace earns Amazon.com more than 50% of its income and is the company’s first revenue stream. Sellers on Amazon’s Marketplace pay a fee to promote and advertise their products on the site, which Amazon does with its buyers.
  2. Amazon Prime is a subscription business model and has played a significant role in the brand’s growth. Subscribers have access to videos and music streaming catalogs, free two-day shipping, unlimited photo storage, etc. Currently, it has more than 150 million members.

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  1. Amazon Web Services offers an end-to-end IT infrastructure platform for a low cost to companies, organizations, and institutions worldwide. It is not their primary source of revenue, but it is undoubtedly the most profitable one.
  2. Amazon Kindle is an e-reading service. Users can buy, browse, and download books available at the store. The most remarkable thing about this service? It attracts traffic to the Prime membership plan. Besides that, independent authors can publish their info-products and e-books on Amazon’s platform for a royalty fee of 30%-70% from each sale.
  3. Amazon has more than 1,000 patents and licenses, some of those for other companies.
  4. Amazon Advertising is an efficient marketing channel. It offers sponsored ads and videos. The audience that accesses the platform is already there with the intention of buying, which makes it easier to reach potential customers for brands like yours!

The Amazon business model

The customer segment is divided into three parts: seller, developer, and buyers.

  1. Sellers are all the companies that use Amazon’s platform to sell their products. They have a broad customer base and can reach more people than otherwise. Sellers are the most important partners of a brand because they are Amazon’s first source of revenue. There are 8 million worldwide, guaranteeing more than half the company’s revenue.
  2. Developers are members of the AWS community – customers and partners across industries. This includes startups, enterprises, and public sector organizations. Amazon Web Services has over 15,000 partners and 60,000 software vendors, so developers can work with them to create new things.
  3. Amazon tracks and collects data on customers who acquire products and services through different channels. Some of the characteristics it gathers information about are location, age, gender, or language.

Jeff Bezos, CEO of Amazon, defines the company’s business model as having three primary value propositions: low price, fast delivery, and wide selection. 

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Yet if we look at these three benefits for consumers, it is easy to determine that convenience is the most significant value proposition. As an audience who understands that with just a device connected to the internet, you have access to Amazon’s product catalog (which includes products from around the world) – all this at reasonable prices. 

And using an agile service providing safe deliveries makes it clear that convenience sets them apart from other retailers. 

Amazon is the largest and most important channel for its company, but it also has other just as essential channels. Amazon Prime is an essential of the Amazon business model (it is streaming, entertainment, and subscription platform), the Amazon app, advertisements on various sites online-all of these are equally indispensable marketing tools to reach customers. 

In 2019 alone, they invested 10 billion dollars in media marketing!

Key activities and resources of Amazon

Amazon focuses its efforts on developing, maintaining, and expanding its colossal platform. That’s why the company invests in website development, app development, management, supply chain management (including storage), information security for all platforms, including e-commerce, etc., film production from their video platform, and the marketing of all products or services have to offer.

The technological infrastructure is the single most crucial resource, which is also a vital part of the Amazon business model. It needs to be broad and secure to ensure that no interruptions or losses occur throughout the company’s chain without disruption. 

Physical spaces such as offices, warehouses, supply chains, and automation are also critical resources for Amazon. And lastly but not least importantly, human resources should be a priority for Amazon because it guarantees A-players amongst its designers’ engineers, developers, etc., which need job security.

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Affiliates are people who earn commissions for any referrals that lead to a sale. They also promote traffic to the company’s website by writing blogs and social media posts about it. Independent authors can publish their work through Kindle Direct Publishing. 

Amazon operates subsidiaries that provide storage spaces, stores, and systems. They also manufacture brands of products developed by Amazon themselves, such as Amazon Essentials, Amazon Elements, Kindle & Alexa.

Conclusion

Amazon is the face of the current market. Amazon has global, digital, and constantly expanding operations while also adapting quickly to new demands – in a fast and effective way. 

This doesn’t mean that Amazon faces no competition on all fronts individually: its corporate umbrella remains unmatched and can remain in lead years to come because of this. There’s a lot to learn from the Amazon business model since it’s one of the easiest structured but still has its complexities. 

Also Read: How to Start a Clothing Business: The Ultimate Guide

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Posted by Elena Hudgens
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Elena Hudgens is an entrepreneur with 10+ years of experience. She started her journey by building her own e-commerce website on Shopify and turned her $1000 savings to millions in just 2 years. Soon she started different ventures in which she failed and succeeded. And now, she's on a mission to help other entrepreneurs with her life and business lessons.
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