Amazon Business Model

Defining the Amazon business model can be a curious task, as this global trade giant increases its reach yearly, geographically, and in terms of products and services. To give you an idea of ​​the size of the business we’re talking about, in the time it takes you to read this simple article, Amazon may have added about a million dollars more to its revenue.

A brief history of Amazon

Back in 1994, Jeff Bezos, a former Wall Street hedge fund executive and visionary who was already aware of the potential of the Internet and e-commerce platforms, decided to take the first step in creating an “online everything store” — yes, he knew from the beginning that this was Amazon’s objective.

At first, he thought about naming the company “Cadabra” (from Abracadabra). However, his lawyer, Todd Tarbert, advised him that the name could be considered obscure. Besides, it sounded like a “cadaver,” especially over the phone.

After the new name was decided, the next decision was about selling the product on the e-commerce platform. Bezos found that the most logical option would be to sell books. Going against financial journalists and analysts who just couldn’t see the growth of the internet as Bezos did, Amazon.com reached 180,000 accounts in its first year. In May 1997, Amazon.com became a public company, raising capital with $54 million on NASDAQ.

At the end of the same year, there were 1 million accounts and $148 million in revenues (what would become $610 million the following year). The company expanded rapidly and began selling music, videos, electronics, video games, software, houseware, toys, games, and more. 

One significant way it attracted customers was through its personalized recommendation tools and customer reviews, thus developing a community of consumers. In 2000, Amazon opened its platform to small businesses and suppliers, providing them with an easy way to reach customers globally. 

 Two years later, Amazon Web Services (AWS) launched, reinforcing Bezos’s vision: Amazon was more than a retailer — it was a generator of technological innovation. From that year on, AWS has encompassed statistics on the Internet for developers and marketers, its Elastic Compute Cloud, which rents out computer processing power, and its Simple Storage Service, which rents data storage. Kindle e-readers appeared in 2007, fostering the e-book market.

In 2009, the company launched Amazon Encore, its first publishing line, allowing individuals to publish e-books. Two years later, it became Amazon Publishing, aiming to develop its titles. Amazon went from a bookstore to an “everything store” and then to a worldwide e-commerce giant. But the brand didn’t stop there — and its potential never seems to end. Perhaps what keeps its audience so close is its profit margin, which remains low on any product/service the company offers.

For the buyer, it is comforting to know that Amazon provides easy access to reasonable and competitive prices across various fields and products, including food and household essentials. Sellers and suppliers who use the multisided platform can look forward to enjoying seamless sales and payment options worldwide. Amazon’s growth has spanned continents, including America and North markets, solidifying its position as the most significant global retailer. It is a brand for which not even the sky seems to be the limit.

The fact remains that Amazon’s influence is unparalleled, bolstered by innovation and a strong focus on consumer trust. From cash-efficient pricing to optimized logistics, the company continues redefining how people shop and do business. Amazon’s inclusion of credit systems for sellers and customers alike further enhances accessibility and convenience.

While some critics may warn of an economic bubble, Amazon’s operating strategies have shown remarkable resilience. Its ability to manage payment systems, scale globally, and adapt swiftly makes it a model for the future of commerce.

Who Owns Amazon

Since Amazon is a publicly traded company, it is owned by several institutional and individual shareholders. However, Jeff Bezos, the company’s founder, still holds a significant part of the company (about 10%), making him one of the most influential shareholders. In July 2021, Bezos stepped down from CEO to Executive Chairman, leaving Andy Jassy for the president and CEO positions.

Differently from Google x Alphabet and Facebook x Meta relations, Amazon is the official name of the holding group, which includes all of its arising services, such as Amazon Music, Amazon Prime Video, Kindle and Alexa devices, and Amazon Web Services (AWS), among many others.

Amazon Mission Statement

Amazon is guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking. Amazon strives to be Earth’s most customer-centric company, Earth’s best employer, and Earth’s safest place to work.

How Amazon makes money

To understand how Amazon makes money, we need to look at each of the different operations under this big corporate umbrella. These operations have helped the company achieve year-on-year profitability, which has fueled its growth. They are:

• Amazon Marketplace: The company’s first revenue stream, Amazon.com, accounts for more than 42% ($220 billion of $513.98 billion revenue in 2022 from its online stores) of the income. Third-party sellers accounted for an additional $117.71 billion of revenue. Amazon asks for a fee from its sellers to promote and advertise their products;
• Amazon Prime: Amazon’s subscription business model is vital to the brand’s growth. In exchange for a monthly fee, subscribers can access the platform’s video and music streaming catalog, free two-day shipping, unlimited photo storage, etc. Prime currently has more than 150 million members;
• Amazon Web Services: Amazon Web Services is a low-cost, complete IT structure platform whose services are contracted by companies, organizations, and institutions worldwide. It’s not the primary source of revenue, but it is undoubtedly the most profitable one;
• Amazon Kindle: Amazon’s e-reading service allows users to buy, browse, and download books, magazines, and newspapers available at the Kindle Store. Amazon doesn’t make much money from Kindle, but it attracts traffic to the Prime membership plan. Besides, the platform allows independent authors to publish their info-products and e-books, charging something between 30 to 70% of royalty fees from the sales;
• Amazon Patents: The company has more than 17,600 patents, several licensed by other companies. Just in 2022, the U.S. Patent & Trademark Office granted them about 2,051 patents;
• Amazon Advertising: The Amazon Ad platform offers sponsored ads and videos. It is a very efficient marketing channel since the audience that accesses the platform already intends to buy something.

Amazon Business Model Canvas

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Amazon Customer Segments

Amazon’s customer segments can be divided into sellers, buyers, and developers.

• Sellers are all the companies that use Amazon’s e-commerce platform to sell their products to its broad audience;
• Developers are all the community members involved with Amazon Web Services (AWS), Amazon’s cloud computing platform. As its website states, they are customers and partners “across virtually every industry and of every size, including startups, enterprises, and public sector organizations;”
• Buyers are the millions of people worldwide who acquire products and services through Amazon’s channels. Amazon tracks its customers based on interests, engagement, and personal information (age, gender, geographical space, and language).

Amazon Value Propositions

Jeff Bezos defines that Amazon’s business model is based on three value propositions: low price, fast delivery, and a wide selection of products. However, looking at these three consumer benefits, we can say that Amazon’s most significant value proposition is convenience because the audience understands that, with just the help of a device connected to the internet, they have access to the product catalog of the largest retailer in the world, with a reasonable price and an agile, safe and reliable delivery service.

Amazon Channels

Indeed, the Amazon website is its largest and most important channel. However, essential channels include the brand’s app, Amazon Prime (its streaming, entertainment, and subscription platform), and affiliate program. As an internet-based company, Amazon’s digital marketing strategy includes advertisements, sponsored publications, and e-mail marketing. Overall, the company invested over $20 billion in media in 2022.

Amazon Customer Relationships

Amazon focuses on having a healthy and long-lasting relationship with its customers. For this reason, they maintain several communication channels open with their consumers — such as reviews and comments on the platform, telephone, online chat, and e-mail contact. Plus, they don’t usually take many days to give feedback.

Amazon Revenue Streams

Amazon’s revenue streams consist of:

• One-Time Sales
• Commission on Sales
• Advertising
• Subscriptions (Amazon Prime)
• Web Services (AWS)
• Licenses
• Delivery Services
• Patents
• Pay-Per-Use & Support Subscription

Amazon Key Resources

Hands down, Amazon’s” Key Resource” is its technological infrastructure, which needs to be broad and very secure to keep the whole chain running without interruption or losses (back in 2013, Amazon was down for about 40 minutes, which resulted in a loss of more than US$5 million in sales).

Other key resources include the company’s physical spaces, such as offices, warehouses, supply chain structure, and automation. Of course, human resources are essential for Amazon, and it needs to guarantee A-players among its designers, engineers, developers, etc.

Amazon Key Activities

Amazon’s key activities are developing, maintaining, and expanding its platform. Therefore, the brand invests in website and app development and management, management of the entire supply chain, storage and logistics, information security on all platforms (including e-commerce, streaming, cloud computing, etc.), production of films, series, and other products for its video platform, and marketing for all of its products and services.

An Amazon value chain analysis reveals how these activities align with its strategic goals to enhance convenience, competitive pricing, and customer satisfaction.

Amazon Key Partners

Amazon’s key partners consist of:

• Sellers: Certainly the most important partners of the brand, since they are the generators of Amazon’s first source of revenue. There are approximately 8 million worldwide, which guarantees more than half of the company’s revenue;
• Affiliates: Bloggers who earn a commission for any referrals that lead to a sale. In addition to helping with sales, they promote traffic to the platform;
• Developers: They are the partners of the AWS segment, or, as Amazon itself defines, “thousands of systems’ integrators who specialize in AWS services and tens of thousands of independent software vendors (ISVs) who adapt their technology to work on AWS”;
• Content creators: Independent authors who can publish their works through Kindle Direct Publishing;
• Subsidiaries: These include companies that provide storage spaces, stores, and systems, as well as brands and products developed by Amazon itself, such as Amazon Essentials, Amazon Elements, Kindle, Alexa, etc.

Amazon Cost Structure

Amazon’s cost structure includes its complete IT structure, customer service center, software development and maintenance, information security, marketing, and all expenses involved in maintaining its physical spaces, such as fulfillment centers, sortation centers, and delivery stations.

Amazon Competitors

• Online stores: There are an estimated over 24 million online stores nowadays. Especially regarding knowledge and quality, smaller niche shops can be “stronger” than Amazon in their fields;
• Walmart: Although a large percentage of Walmart sales comes from brick-and-mortar stores, this is another global giant with a significant presence online, being the second most popular online store in the U.S.;
• Alibaba: Alibaba is a China-based online retailer specializing in wholesale online selling. It splits into separate businesses. Alibaba is focused on B2B, Taobao on B2C, and Tmall on multinational brands;
• Otto: A European online retailer that sells products from other brands on its platform. With a user-friendly interface, some top categories include fashion, electronics, housewares, and sports;
• Jingdong (JD): Another Chinese e-commerce company and a direct competitor of Tmall (from Alibaba). It also has an English language version, Joybuy.com, which ships to more than 200 countries;
• eBay: eBay is the pioneer in C2C online selling and has evolved to offer B2C sales. Regarding visits, it only loses to Amazon and stands for about 20% of the market share;
• Flipkart: The largest online retailer in India, founded in 2007. In 2018, Walmart acquired 77% of Flipkart’s shares. Nowadays, there are more than 100 million accounts registered on the platform;
• Rakuten is a Japanese e-commerce company, controlling over 14% of the global e-commerce market. It has bought some other companies around the globe to expand its online presence;
• Newegg: The global leader in selling electronics (computers, TVs, cameras, phones, etc.), considers electronics to be Amazon’s most popular category.
• Microsoft: With a 21% market share in the cloud services industry, Microsoft Azure is hot on the heels of Amazon’s 34% market share (2022 Q3). Since its launch in 2010, Azure has been steadily gaining market share and has proven to be a force reckoned with in the cloud business.
• Google: While Google still maintains a modest market share compared to the other cloud behemoths, its 11% market share in the industry indicates that it is on the path to becoming a fierce competitor.

Amazon SWOT Analysis

Below, there is a detailed SWOT Analysis of Amazon:

Amazon Strengths

• Brand: Being an e-commerce giant, Amazon has a strong brand image in the market, and it’s ranked second in brand valuation, only behind Apple;
• Customer orientation: Reasonable prices, personalized suggestions, and reviews make a loyal consumer community;
• Innovation: Amazon is constantly developing new products and services while improving its regular business;
• Cost: As Amazon does not maintain physical stores and has little inventory, it can keep a low-cost structure, which enables low margins;
• Large selection: The company owns an extensive product mix, allowing customers to buy everything on the same platform;
• Partners: There are more than 2 billion items available from third-party sellers. Besides, Amazon makes partnerships with local supply chain companies to understand and meet local needs per country;
• Logistics: Amazon uses a highly efficient distribution system and is known for its short and reliable delivery times.

Amazon Weaknesses

• Imitable business model: Online retail businesses have become more and more common, and Amazon has been facing some strong competitors;
• Flops and failures: The Fire Phone was a big failure, and the Kindle Fire didn’t grow as expected;
• Workplace conditions: There have been some adverse reports regarding employees’ treatment, which have affected its reputation;
• Dependence on distributors significantly exposes Amazon to various issues when terms are renegotiated.

Amazon Opportunities

• Expansion: Amazon can expand its operations in developing countries;
• Physical stores: More brick-and-mortar operations may engage customers and compete more strongly against box retailers;
• Acquisitions: Amazon has made significant purchases, such as Zappos, that can increase market share and reduce competition.

Amazon Threats

• Regulations: Some government regulations can threaten Amazon distribution inside some countries;
• Exploitative labor: Amazon faced scrutiny from the U.S. for allegedly maintaining partnerships with sources associated with human rights abuses;
• Cybercrime: It can threaten the security of the platform and its users;
• Competition: In addition to big retail companies, Amazon also faces strong competitors in video streaming services, such as Netflix, Apple TV+, HBO Max, Hulu, Disney+, etc.;
• Recession: Online stores are not immune to economic recession, and uncertainty can impact Amazon’s sales;
• Fake reviews: Customers rely on reviews to make purchases, and the company has already deleted thousands of fake reviews from its platform.

-> Read More About Amazon’s SWOT Analysis.

Conclusion

Consider it: Amazon isn’t just a part of today’s business landscape — it’s shaping it. Amazon’s footprint is undeniable everywhere you look — whether globally or in the digital space. Its rapid adaptation to market changes is impressive, but what sets it apart? Other innovative approaches like subscription services, cloud computing, and logistics complement their rock-solid multisided platform business model.

Together, these Amazon business models create a robust ecosystem that continues to redefine industries. This isn’t just a lucky break; it’s strategic genius. Now, if you’ve ever wondered just how Amazon ticks or what’s under the hood of its roaring engine of success, I’ve got some excellent news for you. We’ve rolled our sleeves and compiled an in-depth guide to Amazon’s business models. Curious? Dive in and check it out here.