Amazon, a brand known worldwide, is an American multinational company and a part of Information Technology’s (I.T.’s) Big Five company, among Apple, Microsoft, Google, and Facebook. It started with its internet-based e-commerce business and soon expanded in cloud computing, digital wellbeing and automation, and artificial intelligence. In general terms, Amazon is the largest online retailer.
Amazon Inc. was started in 1994 by Jeff Bezos, a hedge fund executive at wall street. It began with an idea of an online book store initiated from its garage. Sooner, Jeff and his small team became the seller of the world’s most extensive collection of books, and Amazon provided the service online. The idea became so big that in 1997 Amazon went public. It was 1999 when the whole business for Amazon changed; they allowed the third-party seller from the general market to move to use Amazon as an online market and sell their products through this website.
The idea changed the whole structure of amazon, and the company moved to new heights. The basic concept behind the money-making of amazon is its diversification of various services. The majority of business comes from e-commerce and makes most of the money by selling products, followed by the subscription services known as AWS, physical stores, and advertising services. In addition to it, amazon now owns various brands, which uplift the money-making for them.
Business Model of Amazon
Amazon became one of the tech giants all over the world in the previous few years. However, there should be some reason, as a company became so big by starting with just e-commerce, but amazon’s business model is much more than that. Servies that Amazon provides are:
The central part of amazon is its First-Party Platform, which was the e-commerce platform. The company used the market entering strategy that amazon used for its initial growth to test whether the internet is viable for e-Commerce. They started an online book store and began to expand many more products; today, amazon is also known as the everything store. The expansion didn’t stop here, and Amazon moved next to the third-party platform.
The Company provided Amazon e-commerce to third-party stores. This part is one of the fundamental money-making concepts of Amazon. Today, when Amazon is looked at, the products offered by the brand of Amazon are lesser than the products provided by third-party brands. Over the year, Amazon itself has tried to increase the third-party platform.
This helped Amazon grow and uplift third parties’ ability to sell their product more efficiently through the online platform. The model worked so successfully as making and managing an online forum by small retailers was very difficult, as Amazon provided the online Infrastructure to the retailers. This made more and more consumers flow towards the Amazon e-commerce platform.
Third-Party Seller Services
The business model was so developed that Amazon makes money by selling other sellers’ products and providing services to third parties called third-party seller service. The vendors send their products and inventory to Amazon, and it is them, not the vendor, who then controls the pricing and the discounts. This provides sellers with the guarantee and satisfaction of selling their product as they are titled Amazon trusted sellers. In return, the third-party seller only has to manage marketing and sales activities.
Amazon Web Services (AWS)
In 2006, then another subsidiary of Amazon was born called Amazon Web Service (AWS). It is the cloud-based Infrastructure that Amazon has built over the years. As the third-party platform was based on e-commerce, AWS is an enterprise platform, primarily built on the concept of Infrastructure as a Service. Amazon sells its AWS solution cloud to other enterprise companies and provides a pay-as-you-go solution. Here, AWS is running entirely on a different business model compared to its e-commerce sector.
AWS is Amazon’s cloud computing division comprises a massive network of servers providing processing and storage solutions for companies, government agencies, and individuals. The primary known customers of AWS are Expedia, General Electric (G.E.), Kellogs, Philips, Netflix, and Airbnb. Though is one of the Amazon’s most independent unit, over the years has become one of the most profitable units for Amazon, which has generated an excellent revenue for the company.
Over many years, Amazon also experimented on another program, which turned out to be one of the successful revenue-generating businesses of Amazon, is Amazon Prime. Also, the fact that Amazon started to offer much faster delivery, even a single-day delivery, to the prime members of Amazon. Also, accessing the content, including movies, web series, and music, became a competition to its rival Netflix. This way Amazon prime, was successfully able to facilitate their repeat buyers. Now, become one of the most prominent OTT platforms known all over the world
Amazon Advertising is the second most important and revenue-generating service; it helps grow any business, maybe minor or large scale, and brands of all sizes. It doesn’t matter if you are an Amazon seller; Amazon advertising helps build brand awareness among the people as the advertising is done by Amazon, which also creates a trustable image of the advertised brand.
More than 300 million-plus satisfied customers now use this service and can connect with the appropriate audience. Amazon Advertising provides complete customer solutions and a unique shopping insight, seen in the relevant results and an increase in sales. Some analysts have also said, if Advertising is continued to grow at this rate, sooner it will be a more revenue-generating service than AWS of Amazon.
The business model is so designed that now, almost every sector works independently and can generate good revenues for Amazon Inc.
Advantages of Amazon Business Model
The advantages of Amazon’s business model make its model superior to any of its competitors. There are three significant advantages of Amazon:
There are more than millions of products ordered daily via millions of different accounts by different users. Amazon knows which area uses what type of products and agrees to pay what amount for a specific product. Using this significant data advantage, Amazon launches that particular product under their brand as well. For example, Amazon launched its clothing brand Symbol and a consumer electronic brand named Amazon Basics. Studying the data of past years, Amazon created the brands; then, they only pile up the inventory according to their demand in specific areas.
Amazon is using this big data to improve their products and learn the purchasing psychology of the people. Also, the big data helped Amazon in predictive shipping, as by this, they already know which type of products people of the particular area needs. Also, it provides a logistic partner service to small-scale businesses, where Amazon plays the role of courier partner. Amazon gets to know what new and recent trends are being established in the area. The idea helps make Amazon more optimized and to generate more money.
Cutting Edge Technology
Amazon has also started various technological stores, including Amazon Go, a convenience store chain, and AWS. The store is partially automated, where human interference is at least. Using this technology, Amazon has minimized its various expenses and cut out the cost of running a convenience store. As this deals with consumer data, Amazon also benefits from its cutting-edge technology and helps make money for Amazon.
The low-cost advantage enjoyed by Amazon is because of market place model. For example, various sellers for the same branded product create competition between every retailer. Due to the competition, the price of that particular product decreases drastically, which in turn increases the customers of Amazon.
Seeing tremendous customers purchasing from Amazon, which increases retailer’s sales, motivates them to use the Amazon platform and maintain the prices. Thus, the cost advantage to Amazon gives more and more business to them and generates good revenue.
Amazon each year makes more record-breaking profits. Seeing the growth prospect of the company and the trust that is built in the eyes of people, Amazon stock rocketed on wall street as well.
With the help of Big Data technology, Amazon successfully created brands of various products that most people use. As of now, Amazon owns almost 80 brands and more than 800 trademarks. Some of the popular Amazon brands are:
- Amazon Basics
- Amazon Robotics
- Amazon Elements
- Amazon Essentials
- Core 10
These few brands have made a place in the market and made trust in their customers. As a result, these brands help gain Amazon’s business model more money.
Famous Money Making Products of Amazon
Amazon has not left any stone unturned in the field of Artificial Intelligence (A.I), automation, education, and entertainment. They are also focused on innovating affordable home automation technology for their customers. A few favorite money-making products of amazon are:
Amazon Alexa is Amazon manufactured first cloud-based voice assistant. Alexa is an artificially intelligent device that can be used for home automation by linking various devices. The technology was first used in Amazon Echo brilliant speakers and then introduced in almost every Amazon device. According to different articles, People primarily used Alexa in the holiday season and most in the recent Covid-19 pandemic.
During this time, Echo Dot became one of the highest-selling voice assistants globally. This helped Amazon jump its revenue by more than 48% and became one of the crucial money-making products for amazon.
Amazon Prime Videos
A great competitor of a platform like Netflix, Amazon Prime Video is a subscription-based video on demand platform by Amazon inc. It has around 117 million subscribers worldwide, and the global revenue generated is 25 billion dollars. Prime video became successful in creating a position in the market. They mainly earn on the subscription fee charged from the users. The yearly membership fees for prime videos are 119 dollars per year, excluding taxes, and 8.99 dollars every month.
Amazon audible is a famous audiobook service by Amazon. Audible type presents almost every book in audio format and original podcasts. There are various plans for Audible, which grants the members number of benefits
The plan is charged at 7.95 dollars per month, and no credits are provided in this plan.
Audible Premium Plus
The plan is charged at 14.95 dollars per month, and one credit is given per month.
Audible Premium Plus- 2 Credit
As the credit increase, the cost of the plan also increases; the plan’s fee is 22.95 dollars per month.
Audible Premium Plus- 12 Credit
The cost of this plan is 149.50 dollars per month, having 12 credits.
Audible Premium Plus- 24 Credit
This plan is 229.50 dollars per month, having 24 credits.
Amazon also moved towards education and started Amazon education. The idea was to build a healthy and effective learning environment to support educators as well as students. Amazon saw online education as the massive beneficiary of the Covid-19 pandemic. Millions of students and classrooms were conducted online using platforms like Google Meet, Zoom, and Microsoft Team, leaving amazon behind.
So, the e-commerce giant started Amazon Education and worked on Amazon Academy. This will also be an excellent revenue-generating idea for amazon. Amazon ignites, amazon education publishing, AWS educate, LMS integrated store, amazon business, prime student, and amazon catalyst will all be the subsidiary of amazon education.
Amazon Inc. is one of the most diversified companies, which started from e-commerce but now gives intense competition to its rivals by revenue numbers and the added customers. There are various money-making services of amazon, but most of the revenue is generated from AWS and Advertising. The trust in the business model of Amazon has pushed their investors hard to invest in the company more and more, as the company is making a good amount of money every year.
Frequently Asked Questions
Which business did Amazon initially start?
Initially, Amazon entered into the business as an online bookseller.
What is the net worth of Amazon?
Amazon has a market value of more than 1.7 trillion dollars.
Do Amazon Audible and Prime Videos come in a single subscription?
No, they both are entirely different services provided by Amazon and have other subscription plans.