How does Amazon Work: Insights into Business Model and Revenue Analysis

How does Amazon Work: Insights into Business Model and Revenue Analysis

Do you know Amazon was called “Cadabra” in the beginning? But when the lawyer of Jeff Bezos, founder of Amazon misheard the name as “cadaver”, he changed the name to Amazon. Bezos instead named the site from the name of river reportedly for two reasons. One, to suggest scale (Amazon.com launched with the tagline “Earth’s biggest bookstore”) and two, back then website listings were often alphabetical. One more interesting thing about Amazon is, it’s logo began as an abstract river design. After making few changes in design, in 2000, the logo was re-designed as the Turner Duckworth design we see today. In current logo design, a smile begins under a and ends with z (in the name of Amazon) which means they offer anything from A to Z to their online customers. Here is one more interesting thing which you might not have heard and that is, founder of Amazon, Bezos is currently involved in a project to build a 10,000 Year Clock.

You may also like to read: 5 reasons why Aditya Birla is winding up its eCommerce venture- Abof

Amazon has developed a merited impression for owning the internet shopping market, yet contenders like Walmart are hoping to increase the targeted market. Amazon is a standout among the best sites on the planet; it’s likewise the #6 site most prominent site on the planet. In 2015, by market capitalization, Amazon crossed Walmart as the most valuable retailer in the US. Amazon is the fifth most valuable public company in the world, the largest Internet company by revenue in the world, and the eighth largest employer in the United States. According to industry statistics, Amazon is the leading eCommerce in the United States with close to 136 billion U.S. dollars in 2016 net sales! That is a huge amount of revenue. Amazon acquired Whole Foods Market for $13.4 billion in 2017, which vastly increased Amazon’s presence as a physical retailer. There are a few reasons why Amazon is so effective yet one of the motivations behind why they’re so fruitful is on account of they enable anybody to offer or purchase items on their site.

Amazon Business Model

Frequently touted as the biggest online retailer on the planet, Amazon works under a business model with many moving parts. Above all else, the organization offers products straightforwardly. A level of products are offered to purchasers through Amazon Business Model’s online storefront with a small markup, and the stock is kept within the extensive system of stockrooms. Most customers visit the Amazon’s site accepting its products are more affordable and promptly accessible for buy and dispatching.

Notwithstanding direct deals, Amazon Business Model gives a stage to different retailers to sell products to purchasers. products sold through Amazon’s accomplice retailers are frequently less regular things or those with a higher price tag, enabling Amazon to abstain from holding moderate moving stock that could weaken profits. While Amazon does not charge an expense for its retailer accomplices to list things available to be purchased, the organization retains a segment of the business cost as commission.

Amazon likewise keeps up a membership-based business model through its Amazon Prime administration and a little gadgets product offering. Under a Prime record, clients pay a yearly expense to secure free two-day or same-day dispatching on eligible things and have access to streaming media. Amazon Business Model additionally creates income from offering its e-readers, the Kindle, and the digital book and mobile application.

Amazon Business Model Canvas

Amazon business model canvas

Amazon Business Model clarifies the key accomplices, key partners, key activities, value proposition, customer relationship, customer segment, cost structure and revenue streams of Amazon.

How does Amazon Business Model Affect its Revenue Model?

Once I have read the quote in an article called “Note on Business Model Analysis for the Entrepreneur”. Here I am writing that quote “In order to assess a potential business model, entrepreneurs must uncover the nature of its ‘profit engine’ which is often obscured by ambitious financial and market projections. Entrepreneurs must ask themselves whether their business concept can be translated into a viable, profitable business venture and how much cash it will take to achieve that result.” There are 3 factors which I felt as effective for the revenue model of Amazon.

Factors How does it affect the revenue model
Investment Amazon knows how much does it cost to launch and sustain the business
Cost Drivers Amazon has identified the cost components that have the greatest impact on the cost structure, then disaggregated the cost data to uncover the key drivers
Revenue Sources Amazon has identified the key revenue streams and the size and importance of the different revenue resources, then disaggregated the revenue data to uncover the key revenue drivers
You may also like  The Concept of On Demand: How does On Demand Work?

Moreover, Amazons’ business growth, in the beginning, is the based upon a detailed approach to SEO and Adwords targeting millions of keywords. They have worked on test and learn strategy. Their try and error method is beneficial for their revenue model.

Vision and Mission of Amazon Business Model

Amazon has described their vision in 2008 as

“Relentlessly focus on customer experience by offering our customers low prices, convenience, and a wide selection of merchandise.”

And now their vision is to become earth’s most customer-centric company and provide the biggest selection of customers.

These are the visions of Amazon, which clears the concept. Repeat purchase and customers’ loyalty is the key to success of Amazon. They provide easy-to-use functionalities to users, they listen to their customers very well. Feedback and review section is there so they can focus on complains and demands of the customers.

Free shipping policy over some greater bill amount encourages the customers to purchase more. Level of free shipping is critical for profitability but they provide it to give customer satisfaction. And Amazon has proved that customer satisfaction is the utmost priority for them as they proved it in 2004. In that year, American Customer Satisfaction Index has given Amazon.com a score of 88 which was at the time, the highest customer satisfaction score ever recorded in any service industry, online or offline. They update inventory availability on regular basis, delivery date estimates, and options for expedited delivery, as well as delivery shipment notifications and update facilities.

One more idea and you may not know the that which I am going to tell you right here. They work with one fun strategy. To help understand the customer service process, every Amazon.com employee spends two days every two years on the service desk handling calls — even the CEO.

Marketing Strategies of Amazon Business Model

Amazon does not uncover much about its advertising approach in its yearly reports, yet there is by all accounts an emphasis on internet promoting channels. Amazon (2011) states, they drag clients to the sites fundamentally through various focused on internet advertising channels, for example, their associates program, sponsored search, portal promotion, email advertising efforts, and different activities. These different activities may incorporate outdoor and TV publicizing, however they are not said particularly. In this announcement, they likewise feature the significance of client dedication instruments. They say: while costs related to free shipping are excluded in advertising cost, we see free transporting offers and Amazon Prime as powerful overall promoting devices, and plan to keep offering them indefinitely.

Who was Amazon’s First Customer?

John Wainwright, an Australian software engineer based in Sunnyvale, Calif., was the first customer of Amazon. He became Amazon’s first non-company customer on April 3, 1995, when he purchased “Fluid Concepts And Creative Analogies: Computer Models Of The Fundamental Mechanisms Of Thought” by Douglas Hofstadter.

Who are the Competitors of Amazon

Competitors of Amazon

Here is the list of Amazon’s direct competitors in different areas.

eCommerce:

Alibaba is the international name which is the biggest competitor to the Amazon. If we consider only in the USA, then Walmart and Costco are the direct competitors of the Amazon.

Traffic and online advertising:

Google and Facebook. Although, they both help Amazon to drag traffic to the site. But in the case of direct traffic, Google and Facebook are on the top.

Cloud computing:

Microsoft and Google.

Media segment:

eBay, Netflix, Apple, Time Warner Cable and Google.

Amazon Investors

There are two investors in Amazon
Kleiner Perkins Caufield & Byers ( invests globally in internet start-ups and operate an informational website filled with technology news) is the lead investor of Amazon.

You may also like  How does Netflix Make Money? The Key Notes on Netflix

AOL (A global digital media and technology company with four focuses: video, mobile, ad technology and platforms, and open ecosystems) is an investor of Amazon but not a lead investor.

Valuation and Statistics of Amazon Business Model

Valuation Measures

Market Cap (intraday) 5 568.19B
Enterprise Value 3 578.81B
Trailing P/E 300.65
Forward P/E 1 147.01
PEG Ratio (5 yr expected) 1 33.68
Price/Sales (ttm) 3.53
Price/Book (mrq) 22.99
Enterprise Value/Revenue 3 3.59
Enterprise Value/EBITDA 6 44.75

Fiscal Year

Fiscal Year Ends Dec 31, 2016
Most Recent Quarter (mrq) Sep 30, 2017

Profitability

Profit Margin 1.20%
Operating Margin (ttm) 2.01%

Management Effectiveness

Return on Assets (ttm) 2.17%
Return on Equity (ttm) 9.07%

Income Statement

Revenue (ttm) 161.15B
Revenue Per Share (ttm) 336.79
Quarterly Revenue Growth (yoy) 33.70%
Gross Profit (ttm) 47.72B
EBITDA 12.93B
Net Income Avi to Common (ttm) 1.92B
Diluted EPS (ttm) 3.92
Quarterly Earnings Growth (yoy) 1.60%

Balance Sheet

Total Cash (mrq) 24.31B
Total Cash Per Share (mrq) 50.45
Total Debt (mrq) 43.19B
Total Debt/Equity (mrq) 175.14
Current Ratio (mrq) 1.03
Book Value Per Share (mrq) 51.16

Cash Flow Statement

Operating Cash Flow (ttm) 16.25B
Levered Free Cash Flow (ttm) 10.67B

Source: https://finance.yahoo.com/quote/AMZN/key-statistics/

How does Amazon Make Money?

General retail:

Amazon buys products from manufacturers directly or from third parties and then sells them at a slight mark up. Note that the keyword there is slight. Items shipped and sold by Amazon itself accounted for roughly 80% of sales.

Third party sellers:

Amazon has decided to makes friends rather than enemies. Amazon signs up merchants for their third-party business and agrees to ship their items faster and cheaper- for a commision of course. Amazon doesn’t reveal how many third-party sellers it has in its marketplace, but some 40% of all goods sold on the site are via third-party sellers, accounting for roughly 12% of Amazon’s total revenue.

Amazon web service:

Amazon Web Services (AWS) is Amazon’s cloud business. AWS offers back-end computing for everyone ranging from government agencies to startups.

Media and content:

The company has already moved into the publishing game, and now it’s producing its own TV shows, including “Alpha House” and the newly released “Betas.” There are lots more on the way, too.

Amazon prime:

Amazon Prime is a customer loyalty program that was originally designed to get shoppers to spend more. According to a report by the market research firm Consumer Intelligence Research Partners (CIRP), as of April 2017, a huge number of people (80 million) in the U.S., had Amazon Prime memberships.

Amazon Kindle family:

The Kindle helps Amazon make money because it tempts users into buying Amazon content and products. Every Kindle Fire comes with a free 30 day Amazon Prime trial. Users get used to awesome 2 day shipping and a host of other perks and end up buying Prime. So, Amazon doesn’t make any money off Kindles directly. But it is the strategy to drive traffic to a prime membership plan. So, Isn’t it great that they just don’t make strategies to make money but they also make strategies to sustain traffic through old ideas?

You may also like to read: How Uber Works? Insights into Business Model & Revenue Analysis

Value Proposition of Amazon

  • Convenience, speed, and choice. These three core benefits make up Amazon’s very unique selling proposition.It’s so easy to buy. A few clicks in the app and you’re done.Moreover, saved payment options, free fast shipping means less hesitation and less likelihood of cart abandonment. This is to maintain convenience of users.
  • If you know exactly what you want you can order it in few minutes. Apart from this, fast delivery of order is also good example of speed.
  • Their wide selection makes them the go-to for nearly everything. This is about choice.

Amazon Business Model’s User Segmentation

Segmentation includes dividing users into groups according to certain characteristics. Amazon segments its users into 3 categories.

Segmentation based on interest:

Amazon collects the data about its users interest so it has powerful segment based on interest.

Segmentation based on engagement:

Customers have a wide array of options in today’s marketplace, and users are likely to abandon your product unless you take proactive steps to understand their needs. At the same time, your continued success depends on loyal, revenue-generating customers. Both of these groups can be tracked using engagement metrics.

You may also like  These 6 EggCorns Will Kill Your Vacation Rental Business if You're not Watchful

Segmentation based on personal information:

Personal information includes basic attributes of each customer, including age, gender, language, geographical region.

How has Amazon evolved over time?

Here you can take a look how Amazon has groomed itself time by time.

amazon_1998

In 1998 there was simple list view in the listing of products. The left side of the Screen is full of categories of product in a vertical panel. And right side shows the advertisement.

amazon_2005

In 2005, there is just a small difference in design from the design of 1998 and that is grid view rather than list view of products.

amazon_2012

In 2012, there was a drastic change from 2005 on Amazon’s site. Festival offers is displayed at the top rather than just simple listing of products. Many new categories have been added in menu. Social media icons are there with the link to Amazon’s page on particular social media.

amazon_2017

In 2017, the design of the site has been changed, it is extremely attractive and easy going. Banner of the deals has been added at the top. Categories of the products have been listed with the name called department (in a drop-down list). Many new features have been added to the last-minute deal, options for browsing language etc.

Source: https://archive.org/web/

How to Start an eCommerce Business Like Amazon?

This course shows you the right directions on how you as well, can fabricate your realm simply like Jeff Bezos (Amazon organizer). You don’t need to be a coder and won’t compose any codes for this. You’ll perceive how basic and simple it is for anybody to dispatch their own particular fruitful multi-seller store that enables anybody to offer their product(s) specifically on your site.

Here is the part of the features your store can have:

Creation of multiple stores:

creation_of_multiple_stores

A merchant/seller can make more than 1 stores on the site. The administrator can control the quantity of stores a merchant/seller can make by setting a breaking point for them. For instance, the same merchant can have a jewellery store and additionally a shoe store on your site.

Expense Configuration:

expense_configurations

Taxation is a standout among the most critical elements while buying a product, special consideration has been given to this component to make it up to the mark. Zones can be made to assemble the nations and districts with comparative taxation rules. Taxation profiles can be made to club numerous duties charged on a product.

Transportation Configuration:

tranportation_configurations

 With regards to web-based shopping shipping is a focused part of it. Delivery for both single and multi-merchant modes. Setting up zones is obligatory. Delivery strategies can be chosen in view of the transportation supplier. Making shipping profiles to join various delivery techniques making it less demanding for the store proprietor keep a track.

If you don’t want to bother with transportation of your product then you can disable that from the backend. As straightforward as that!

Numerous Product Attributes:

numerous_product_attributes

Characterize any number of item properties with positive/negative price impact. Get more prominent adaptability in characterizing items. Eg: Size, Color, Storage Capacity and so on.

Stock Management:

stock_management

– Ability to indicate in stock amounts for items and naturally subtract amounts on fruitful deals.

– Out of stock delivery supports alternatively gives you a chance to purchase an item in an out of stock circumstance.

Least and Maximum Order Quantity:

You can control the amounts per product by alternatively setting least and most extreme requested quantity per item.

Who is the target audience group?

target_audience

This article is for individuals who get a kick out of the chance to offer physical or downloadable products on the web. It’s likewise for individuals who need to make a multi-merchant store with income sharing. Entrepreneurs who are occupied with making automated revenue from home.

Are you planning to build your own multi-vendor, multi-brand and multi-store website like Amazon? Our custom solution for your startup may be a good start.

This research case study is part of the startup business models series.

pixelstats trackingpixel

Specialized in eCommerce, marketplace, on-demand, startup, peer-to-peer, business model

Related Posts
7 Comments
  1. Pingback: OYO Business Model, Economics of OYO Rooms, How OYO Rooms Work | NCrypted Websites Blog

  2. Pingback: How does Alibaba Work: Insights into Business Model and Revenue Analysis | NCrypted Websites Blog

  3. Pingback: Uber Business Model - Insights into How Uber Works & Revenue Analysis | NCrypted Websites Blog

  4. VERY IN DEPTH STUDY AND KNOWLEDGE PRESENTATION HELP STARTUPS LIKE ME. ALTHOUGH I JUST TOOK A GLIMPSE AND MY FIRST IMPRESSION IS ‘WOW’. I WILL FOLLOW THROUGH. THANK YOU AND APPRECIATE.

  5. This is awesome, just reading the first paragraph makes me eager to reach the end. This is definitely a genuine information. Thank you for sharing this with us.

Leave a Reply


*