Amazon’s Business Model & Monetization Strategies: Why Is It a Great Business Idea?
The global e-retail market is enormous, with a total size of more than $13 trillion US dollars. To add to that, these figures are only expected to increase in the near future, as the adaption of digitalization is increasing every day.
Undoubtedly, Amazon is the most popular and widely used e-commerce platform and has secured an irreplaceable position amongst online shoppers. Moreover, considering the rapidly growing popularity of e-retail, Amazon is constantly working on taking its business to newer heights.
Presently, Amazon has diversified its businesses to various streams, apart from e-commerce. This has helped the company not just boost its revenue but also reach a wider audience.
Therefore, to understand the business strategies of Amazon, let’s take a closer look at Amazon’s revenue streams, and find out their individual scope.
Amazon’s Business Model: How Amazon Generates Money
What started as an e-retail business is now diversified into various other sectors and has expanded to become one of the biggest corporations globally. People nowadays use Amazon not just to buy goods online but also for other day-to-day activities.
Each of the revenue streams of Amazon is a part of the company’s business model and has helped the corporate giant to create a distinguished market position. Therefore, let’s find out the potential of each of these revenue streams, to get a clear picture of the company’s business model.
Amazon Marketplace, which is also commonly known as Amazon’s E-Commerce business, is the core of the company’s business model and one of the major revenue-generating segments.
Speaking factually, Amazon generated $600 billion in 2021 through its marketplace model, combining first-party, second-party, and third-party sales. To add to that, as the product listing is increasing on Amazon’s platform, the figures are going higher and higher every day.
Amazon Web Services (AWS)
Amazon’s cloud hosting services, also commonly referred to as Amazon Web Services (AWS) has been a revolution in the technology sector. As cloud hosting has become popular in the tech sector, the demand for AWS has tremendously taken off as well amongst tech companies, developers, and entrepreneurs.
Currently, various well-known companies like Netflix and Uber are some of the major clients of Amazon’s AWS and conduct their complete business operations through this cloud service.
Amazon entered the subscription service market in 2005 and has enormously grown in the segment since then. Amazon Prime, which is Amazon’s subscription service, is highly popular amongst the current generation.
From on-demand video streaming to a faster delivery on e-retail shopping, prime offers various benefits to the users and is currently being used by more than 148 million people worldwide.
This segment is directly connected to the Amazon marketplace and offers brand promotions on the platform. Amazon’s advertisement services has a niche market but is a rapidly growing segment in the company’s business model.
Business owners enlisted on Amazon as ‘sellers’ are the primary users of Amazon’s advertisement services. Since most of the people visit the platform to buy goods, advertising a brand and its products can be a worthwhile investment.
These are the major segments of Amazon’s business model. Apart from these segments, Amazon also engages in other business activities, such as Amazon Fire, Amazon Games, Amazon Tickets, Amazon Patents, and more. However, this blog is about Amazon Marketplace; and therefore, our primary focus here will be to understand Amazon’s e-commerce model in detail.
Amazon’s Business Model: E-commerce Marketplace
Amazon Marketplace has gained massive popularity in the past years and is a highly successful revenue stream for the company. Even though Amazon has expanded its operations to other segments, Amazon Marketplace has proven to be the core of the company’s success.
Amazon’s marketplace model is a platform for buyers and sellers to meet and do business with ease, therefore creating a digital market. The sellers can enlist their products and advertise them on the platform, and the buyers can browse through product listings and buy the one they prefer.
Moreover, in the marketplace model, the inventory of the goods that are displayed on the platform is either managed by the sellers or in the warehouses of the platform. Depending upon who is managing the inventory, the approach is named ‘Managed Marketplace’ and ‘Online Marketplace’.
Amazon follows a hybrid marketplace model and provides the sellers with both the options of storing inventory. It is also crucial to know that Amazon charges sellers a certain fee for managing their goods in its warehouse. Essentially, this option is beneficial for customers as the goods are delivered in a short time span.
To add to that, it is worthwhile knowing that Amazon charges the sellers a certain amount of money on every item sold. This commission-based model is what enables Amazon to earn a high revenue without getting directly involved in the business.
Owing to Amazon’s tremendous success, various other e-commerce platforms are also adapting to the marketplace model and are creating virtual markets in the e-retail segment. This, in turn, is highly beneficial for customers as the options to choose from are more than ever before.
This was it about the marketplace model of Amazon and its success potential in the e-retail sector. However, merely having a business idea isn’t sufficient for massive success. One also needs to undertake thorough planning to ensure return on investment.
In order to implement this e-commerce strategy, Amazon has worked thoroughly on its business planning. This is proven by the company’s extensive and detailed Business Model Canvas.
Amazon’s Business Model Canvas
A Business Model Canvas (BMC) is a highly useful tool that helps break down different business segments into easily understandable portions. Therefore, by understanding the BMC of Amazon, we can thoroughly understand how the company is succeeding from the Marketplace model.
Simply stated, Business Model Canvas is broken down into 9 segments and helps to understand how a business is operating. To demonstrate, here are the 9 elements of Amazon’s BMC.
Each segment of Amazon’s BMC is a vital part of the company’s business practices and core strategies. Therefore, it is practically impossible to create an e-commerce marketplace like Amazon without understanding these 9 segments.
However, there is a lot more to learn from Amazon, apart from the BMC model. The company has secured a distinctive market position owing to its unique and customer-centric approaches and is growing at a rapid pace.
Let’s take a look at what’s there for businesses to learn from Amazon.
What Businesses Can Learn from Amazon Marketplace?
Follow Customer-Centric Approach
Being customer-focused is in the best interest of every business, regardless of the area they operate in. This is because the consumers tend to value businesses that deliver up to their needs.
Amazon is known to be one of the most customer-centric companies and considers this approach to be the essence of its success. As a result, one of the most critical factors to consider while implementing Amazon’s business model is the company’s customer-focused vision.
Launch Products as per Market Demand
Amazon was launched in 1994, in a period when online shopping wasn’t popular. As a result, gaining consumers’ trust and convincing them to buy goods online was a big challenge. However, Amazon has followed the approach of launching products as per the market demand to overcome this hurdle.
The consumer market is highly dynamic, and its needs are constantly changing. Therefore, it is important for an e-retail platform to offer products that are up to date with the latest market demand and satisfy the needs of the consumers.
At the present time, Amazon has expanded its product portfolio to a large variety of goods but still follows this approach to keep the market stable and satisfied. The company believes that consumer preferences are constantly changing, and it is important to keep up with these changing preferences to generate significant returns.
Derive Customer Satisfaction From Market Research
It is a well-known fact that customers are open to providing information on their demands when asked. Moreover, investing in market research to understand customer preferences is vital for a business’s success. Speaking factually, Amazon has spent more than $42 billion in 2019 on research and development.
These figures show how critical Amazon considers customer preferences and views to be. This is because, in the view of Amazon, understanding these preferences and delivering up to customers’ needs is a way to increase the user’s shopping experience and enhance customer satisfaction.
This factor is highly important for businesses that are expanding their scope to new markets. Moreover, a business can even conduct this customer research amongst its own employees. This can help them to gain critical information without incurring a high cost.
Expand as Your Business Grows
Amazon has expanded its boundaries to various new sectors in the last two decades, such as AWS, Kindle, Alexa, and more. To add to that, Amazon Web Services by itself is responsible for generating a hefty sum of revenue.
This only shows how important it is for an e-retail business to discover new growth opportunities and seize them on time to generate high revenue. Moreover, as the technology sector is always evolving, e-retail businesses need to keep a check on not just other sectors but also on their own (i.e., e-commerce) to stay up to date.
Additionally, it is easy for well-established brands to penetrate other markets, owing to their market reputation and consumer trust. Staying informed about the newly rising markets will help you to successfully diversify your business and generate customer loyalty.
Utilize Innovation to Attract Customers
Innovation is the essence of thriving a business and keeping it profitable. The consumer’s need to get value for money is increasing, due to which businesses are implementing innovation in their current practices.
Amazon has come a long way in the past 3 decades and has been exemplary for innovational business practices. This is proven by some of the most well-recognized features that are used by the platform, such as one-click order, prime delivery, AI customer support, drone delivery, and more.
As a matter of fact, customers are quick to abandon platforms that are not up to date with the latest trends and practices. Therefore, it is only fair to say that to retain customers and generate repetitive revenue, businesses must keep up with the latest e-commerce trends and aim for innovation.
One common thread that connects all these factors is that being extensively customer-centric is the key to long-term business success. Amazon is a company that focuses on increasing the customer’s convenience and derives value from it.
Now that you are clear on how your business can learn from Amazon, it is high time to discuss how you can implement these learnings and create a profitable e-retail platform.
Developing an E-commerce Marketplace like Amazon
Amazon marketplace is the benchmark in the e-commerce sector, as many businesses are looking for ways to make a similar platform. However, in order to succeed like Amazon, businesses must make the right choice while selecting a platform.
Generally speaking, businesses either go for website development or application development based upon their business requirements, budget, and time allowance. Let’s find out more about these options in detail.
There are millions, if not billions of websites available on the internet. While it is true that technology has evolved drastically, one thing that has remained popular is websites. To this day, a significant part of the e-retail takes place on websites, making website development for your e-commerce business a great idea.
As a matter of fact, Amazon earns a significant chunk of its total revenue from website sales. This is a result of the high-end UI and easy accessibility that an e-retail website offers to the users. This makes developing a website like Amazon an excellent business idea.
However, if you are looking to deliver a high-end shopping experience to your customers, you can consider developing a mobile app for your e-retail business.
Mobile Application Development
Mobile applications have gained massive popularity in the past few years and are used for a variety of reasons. E-commerce applications are one of the most successful and commonly used types of applications among app categories.
E-commerce applications are preferred for their less load time, seamless performance, and excellent user experience. As a result, most of the e-retail businesses using websites are now opting to develop a mobile application as well.
However, before developing a mobile app for your e-retail business, you must choose the OS market you wish to target. You can either build a native application or a cross-platform one, depending upon your business’s requirements, budget, and time allowance.
To add to that, many businesses are opting for mobile app development as well as website development to get the most out of both platforms. This allows the businesses to target both the app-using and website-using markets and maximize their revenue. However, this option is generally recommended if you have a high time and budget allowance for your digital platform development project.
The Bottom Line
Amazon is undeniably one of the most essential parts of modern-day e-commerce. As a result, being inspired by Amazon’s e-commerce marketplace model and adapting it to one’s own business strategies is becoming common amongst entrepreneurs.
However, it is necessary to thoroughly understand Amazon’s marketplace model, and get familiar with the company’s monetization strategy, to get maximum revenue and reduce the chances of failure.
Nevertheless, once you have understood Amazon’s business model and how it can benefit your business, you can always go ahead and get your e-retail platform developed. Developing a website, an app, or both is a decision to reflect upon in this matter.
In any case, by making careful, well-planned, and strategic decisions, one can easily implement Amazon’s business model and get the most out of it.