Today we are going to talk about Amazon Business Model. Amazon is no 1 e-commerce platform.
The CEO of Amazon Jeff Bezos is the world’s first centibillionaire person with net worth of $113 billion. You can learn a lot of business lessons from Jeff Bezos and Amazon business model. So, let’s get started.
How Amazon Makes Money? – Amazon Business Model
Amazon is an American multinational company founded in 1994. The company started its operation from a small garage. Amazon was a small book store company and use to sell books online in the starting. Gradually Amazon has made a lot of changes in the products and services and became a sales and distribution master.
Amazon is making money via online e-commerce stores, physical stores, Amazon AWS, and Advertising.
Also Read – 20 Types of Business Models to Generate Revenue
Amazon is offering multiple products to the customers. Some of the products from where Amazon is earning money are given below.
Kindel, Alexa, and Amazon Firestick are unique (innovative) products of Amazon. Kindle allows users to buy, download, and read e-books, magazines, and other digital media. Kindel is a very popular and widely accepted device. Another unique product is Alexa smart speaker. Alexa Smart Speaker is an internet-enabled speaker which can perform your tasks as well entertain you with music. Amazon Firestick can convert your television into a smart TV. These products are contributing a lot of revenue for Amazon.
Amazon Prime is a subscription-based membership program of Amazon. This program offers unique benefits to the customer. You will get fast & free delivery by becoming a member of Amazon Prime. Prime members will get exclusive deals, early access to deals, and a bigger discount. The membership cost is low but benefits are multifold.
Prime Music & Prime Video
Prime Music & Prime Video are on-demand music & video service offered to prime members. Prime Music and video offer thousands of audio and video entertainment at no cost. It is a very popular product by Amazon.
AWS is amazon web service. It is on-demand cloud platform by Amazon on which 175 different computing services are offered. This includes computing, storage, networking, database, analytics, mobile developer tools etc. AWS is one of the highest revenue generating business for Amazon.
Amazon Business Model
Customer Centric Approach
Amazon’s business model is truly customer centric. Amazon believes that “Customer is King.” Amazon understands what customers likes and what is not liked by the customer.
Customer likes –
- On Time Delivery/Same day delivery
- Tracking facility
- Low cost Product
- More Discount
Amazon takes care of all of the above. On the other hand, Amazon also takes care of customer dislikes such as delay delivery, defective products, and out of stock.
Amazon could able to grow and become No 1 company due to customer-centric approach.
Once a customer purchases the product from the Amazon store, he/she is likely to become a loyal customer of Amazon.
Timely build new Innovative Products
Amazon believes in building new innovative products on a timely basis. It is a value innovation model and not value imitation. By using the value innovation model amazon has launched unique products such as Amazon Prime, Alexa, Fire Sticks. All these products have made amazon a fast mover.
Prime membership was a game changer innovation by Amazon. It has helped amazon to build recurring revenue, loyal customer, and customer retention.
80% Product and 20% Promotion
Amazon’s business model says that you need to build a great product. Spend more on building a product and less on promotion. They believe that if your product is good customers will come back to you and bring more customers. You can draw the attention of few customers by promotion but you can retain and build more customers by launching good products.
Amazon has built a pipeline of multiple products. They have diversified the portfolio by adding multiple innovative products. These products are helping amazon to grow and generate more revenues. All the products are adding more values to amazon’s portfolio. Few examples are given below.
- Prime = Low Cost Acquisition of customer + Repeat Customer
- AWS = Cloud based revenue generation + Consumption based
- Advertising = attention based revenue generation + performance based model
- Third Party Platform = Commission based revenue generation + revenue split model
- Amazon Seller Program = Participation of Small Business + Sharing percentage of sale
- Strategic Partnership = Reduce cost + more discount to customer
Sales & Distribution Excellence
Amazon has become a sales and distribution expert. They have built strong sales and distribution channel for the customer.
Sales – All small or big sellers can join amazon easily. The commission to small sellers is very good. By means of using this strategy, they have built a strong product range. Product is sold at a low cost on amazon which leads to impulsive buying by customers.
Distribution – Logistics and distribution by Amazon are so good. They use a hybrid logistic model. They keep updating customers about the delivery status from time to time. They have involved local people in order to deliver the products on time. They also make use of technologies for improving the process of sales and delivery. They have achieved excellence in same-day delivery and on-time delivery.
Timely Purchased new companies
Amazon has purchased new companies on a timely basis. Few companies acquired by Amazon are audible, Zappos, IMDb, The Washington Post, etc. These acquisitions helped Amazon in building a strong diversified product portfolio. It has also increased the net worth of the company.
Over to you –
Amazon has set an example of how businesses can be built and grown. I hope you have got a complete insight into Amazon Business Model.
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