The Amazon Business Model

The Amazon Business Model

‘ strives to be Earth's most customer-centric company where people can find and discover virtually anything they want to buy online. By giving customers more of what they want - low prices, vast selection, and convenience - continues to grow and evolve as a world-class e-commerce platform’ (Amazon, 2012).

Amazon has proven to be a constantly evolving company with a business model to match. From its humble beginning as an online book store, it has grown into the largest online retailer in the world (Internetretailer, 2012), selling everything from books to digital music downloads.

The Launch

When was first launched in 1995 it had quite a simple business model which consisted only of selling books online, however over time this business model has constantly changed in ways that have kept the company moving forward, and helped it to stay ahead of its competitors.

Amazon was created 'as a place to buy books because of the unique customer experience the Web could offer book lovers' (Amazon 2012). During its early days Amazon sold books only, unlike the present when books are only one of many items that can be bought. Amazon was created by Jeffrey P. Bezos because he 'believed that only the Internet could offer customers the convenience of browsing a selection of millions of book titles in a single sitting.' (Amazon 2012). What Amazon did to set it self apart from competitors was to offer the lowest prices possible and shopping from the comfort of the home. Unlike a bricks-and-mortar store, Amazon had the advantage of virtually unlimited shelf space which may have been a defining factor in helping them reach the levels of success that they have.

More Than Just a Bookstore

The natural progression for Amazon from being a specialized book store was to branch out and start selling other products. The first additional product that was added to the inventory were music CDs, however over time many other product lines were added, with the priority being products that were easy to ship. These days it is possible to buy a large range of goods on the Amazon website, including perishable products. By adding products other than books Amazon was able to cater for a completely new range of customers, helping them to increase sales and grow the profile of the company.

Used Books

The next major change of the Amazon business model was the introduction of a brokerage service for people to buy and sell used books. For these sales Amazon works as the middle man between the buyer and the seller. The seller uses the Amazon website as a platform for the sale, and potential customers can search for these second hand books in the same way that they would search for any other item for sale on Amazon. Money is made from this method by charging a commission from each sale. This business model was a different direction for a company that had previously made all profits from selling its own goods.

Third Party Sellers

‘Amazon Marketplace offers millions of new and used items offered by a huge selection of sellers. Purchase the product you want and choose the seller with the best price, shipping rate, and service’ (Amazon, 2012).

The Amazon Marketplace was launched in 2000 as a way for third party retailers to sell items using the Amazon interface. Once again, for these transactions Amazon works as the middle man taking a commission from each sale made. The introduction of this service allowed Amazon to make profits from companies that would otherwise be competitors.

Amazon Web Services

‘In 2002 Amazon launched a web services platform. Perhaps it was risky for a young company that had only reached profitability in that same year to invest its innovation resources in new business models rather than stick to its core, but within five years the site used by Amazon's web-services platform had grown into the seventh-largest in the world’ (Johnson, 2010).

Amazon Web Services is Amazon’s cloud computing service. It is comprised of two main products, Amazon EC2 (Elastic Compute Cloud) and Amazon S3 (Simple Storage Service). The introduction of this service took the Amazon business model in yet another completely different direction than it had previously been - service provision. Whereas Amazon's original business model was built upon online retail sales, the Amazon Web Services business model was to rent out server and storage space to other companies for varying prices depending on how much server space or disk space is needed.

The Kindle

The most recent change to the Amazon business model was in 2007 when Amazon released the first Kindle. With the Kindle, Amazon for the first time had moved from being a reseller to becoming an original equipment manufacturer (OEM). Profits from the Kindle are made not only from the purchase of the device itself, but also from the sale of digital books compatible with the Kindle.

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