Amazon Business Models Overview

Amazon Business Model

The Ultimate Overview

Innovationtactics.com
Develop Innovation Ideas You can be Proud of

Amazon Business Model: the Ultimate Overview

I have covered Amazon’s business model in 8 long reports. Now, it’s time for
the ultimate summary (with lots of previously unreleased content on top). This
is what we are going to look at today:
1. Online retail
■ Fulfilment and delivery network
■ Shopping experience
■ Customer value proposition
2. Amazon devices: gateways to magic worlds
■ Kindle
■ Fire Tablet, Phone
■ Fire TV and Prime Video
■ Echo, Alexa and AI
■ Business models: Kindle, Prime Video, Alexa
3. Amazon Web Services
4. Amazon Prime
5. Fundamental business model principles
As always, we are going to look behind the scenes to understand their

business models, the economics, the strategies and what we can learn from it.
Innovationtactics.com - Develop Innovation Ideas You can be Proud of
1

Online retail
Amazon has long surpassed the competition in terms of online sales. They
are getting closer to the top of overall retail (including brick-and-mortar retail).
Amazon revenues
■ In terms of retail revenue, Amazon ranked 6th globally in 2016 in

overall retail f
■ (here is a nice Deloitte pdf report on the state of global retail)
■ But they are still growing at still double-digit rates which none of
the competitors is
■ Walmart still is a class of its own with currently more than 3x of
Amazon’s revenues (2018)
■ Projected revenues for Amazon in 2022 are $356b (Walmart’s
2018 revenues have surpassed half a trillion USD, $500.34b in
2018)
2

Amazon is a class of its own in the online retail space [source: statista]
newer stat here but no significant change in relative positions
3

Delivery and fulfilment network
At the heart of Amazon’s retail business model success is its delivery and
fulfilment network.
A simplified view of how a product travels from manufacturer to the

consumer through various layers of the fulfilment network. Depending
on the product and the customer’s location, there are different delivery
pathways through the system
4

As of 2018, Amazon has over 300 facilities in the US alone. The facilities fall
into a number of categories:
1. Inbound cross dock centre

2. Airport hub
3. Fulfilment centres (with various subtypes / those storing certain
types of goods)
4. Sortation centres
5. Delivery stations
6. Prime now hubs
7. Amazon Fresh (which also has a pick-up option)
8. or brick-and-mortar retail, e..g. Amazon Book, Go, Whole Foods
Market and Amazon 4 star
Each of these fulfilment facilities has its distinct characteristics and functions.
5

All ways lead to the customer: not all products go through Amazon’s
fulfilment and delivery network. The fulfilment network has several
layers that products ordered can go through
Despite massive warehousing space, even Amazon can only hold a fraction of
all the goods they sell. Many products actually never go through Amazon’s
fulfilment and delivery network. Upon order through the Amazon pages, they
will be directly shipped to the customer. In other cases, the ordered goods
could be shipped to Amazon and packaged with goods in the same order and
then sent to the customer. Cost and delivery times will be the determinant
which path the ordered goods flow.
6

Business model economics
The complexity of the network is driven by economics. Given Amazon’s large

customer base and geographical spread, transport costs play a significant
role. Some of the facilities (e.g. sortation centres and delivery stations) serve
the purpose of reducing these. Take sortations centres, they are based on the
same economics as FedEx’s hubs and superhubs (see the video). It is a
proven concept to reduce unit costs.
Transport costs fall as the number of facilities increases. At the same

time, facility costs and inventory costs increase (some inventory
duplication is unavoidable in order to reduce transport costs) [source:
Supply Chain Management]
Optimising for the key cost drivers is no easy feat as these don’t always move
in the same direction, e.g. you can build more facilities closer to the end
customer to reduce transport costs but you obviously increase facility costs as
part of unit costs.
7

Cash conversion cycle
One crucial KPI in the context of order fulfilment is the cash conversion cycle
(explained here)and inventory turnover.
Cash Conversion Cycle = Days Sales Outstanding (DSO) + Days Inventory

(DI) – Days Payable (DP) = -28.7 (Dec 2017)
Negative cash conversion cycles basically mean that Amazon uses their
suppliers’ cash to operate and grow. But it also shows on a macro level that
Amazon’s fulfilment infrastructure is efficient. They are comparing well on this
dimension to the other big players in the retail industry.
8

Fulfilment ($25.2b, 14% of revenues) and delivery ($21.7b or 12% of net

sales) costs are significant [source: Statista]More on the business model
economics of Amazon’s fulfilment and delivery network under this direct link.
Many retailers see their transport and delivery units as cost centres only.
Amazon has a number of business model innovations in place to turn these
traditional cost centres into revenue making units. One way Amazon offsets
high costs is by opening up their capital-intensive infrastructure to external
customers. Here are some of the examples that I have described in more
detail in the above link:
9

Amazon Marketplace
More than 50% of items (in terms of units, not revenues) sold through the
Amazon pages are from 3rd party sellers. One prominent recent seller is Nike
after resisting for a long time. But most 3rd party sellers are much smaller.
Amazon has opened their pages to 3rd party sellers in 2002 and the share of
those sales has increased continuously.
Amazon Marketplace falls under the platform business model that I have
described in many articles. The revenue model is often a transaction fee as a
percentage of the sales. This is often combined with other revenue sources,
e.g. advertising as well as FBA, SWA, etc.
Fulfilment by Amazon (FBA)
Fulfilment by Amazon is a service that offers merchants to store their items in

Amazon fulfilment centres and delivery infrastructure to reach the customer. It
includes checkout and payment options, management of returns and more.
Items can be used to sell through the Amazon pages or through other sales
channels.
10

Shipping with Amazon (SWA)
Amazon has increasingly insourced elements of the delivery network and then
opened it up to external customers as a service. They have started with the
last-mile delivery using Amazon Flex drivers but have increasingly expanded
on this.
Amazon Prime “free” shipping
Amazon offers “free” shipping on millions of eligible items for an annual (or
monthly) subscription fee for Amazon Prime. $8b of these revenues are being
attributed to fulfilment and delivery services. “Free” shipping was at the core of
Amazon Prime and is still being valued highly within the overall Prime
package as we will see a bit later.
11

Growth: expanding categories
Amazon is growing in many directions at the same time. On the one hand,
they are extending their fulfilment and delivery infrastructure and associated
services. On the other hand, they are also expanding into more categories.
Everything is moving to online retail but at a different pace. The items

that are lagging may be the biggest opportunities of the future [source:
statista]
12

While only a fraction of food/groceries are sold online, it is one of the largest
forecasted growth areas for online sales.
Online food and alcohol sales in the US are forecasted to grow by >25%
YOY over the next few years [source: statista]
Here are some of Amazon’s endeavours in the categories that are trailing
have yet to meaningfully shift to online retail.
13

Food/groceries:
■ Amazon Prime Pantry: Groceries (dry goods) and household

goods
■ Amazon Fresh: Includes also perishables and produce and stored
& delivered in a cooled infrastructure chain
■ Amazon Prime Now: The essentials (range of 15,000 products
and restaurant orders, etc) that can be delivered within 2 hours for
free (or 1 hour with surcharge)
■ Whole Foods Markets (WFM): Amazon acquired WFM with their
over 350 physical stores. WFM produce is starting to be delivered
through Amazon’s network
■ Amazon Go: Automated check-out and a range of popular
products
Furniture:

■ Extensive range of Amazon and 3rd party furniture and appliances
choices
■ Dedicated fulfilment facilities specialising on large items, such as
furniture, sports equipment and more (Redsland, CA)
■ In the US, Amazon is already the largest online retailer of furniture
and appliances with almost double the revenue of runner-up
Homedepot
■ Online furniture sales has a projected compound annual growth
rate of 11.9% (CAGR) between 2018-2022
14

Apparel:
■ “Amazon currently claims about 6.6% of the apparel market. That

share is expected to increase to 8.2% by next year and further
expand to 16.2% within five years” by the estimates of one analyst
■ Amazon fashion brands: Amazon launched seven fashion brands
with some observers wondering if Amazon wants to get into the
high margin apparel business at large scale
■ Zappos.com: the famous online shoe and apparel retailer has
been acquired by Amazon in their first foray into apparel but still
running under their own brand (while having moved operations of 2
of their warehouses to Amazon)
■ Prime Wardrobe: accessible to Prime members only. It allows
apparel choices to be sent home for trying them on. Unwanted
items can be returned for free (within one week)
■ Several fulfilment centres dedicated to apparel, like the massive
one in Jeffersonville, IN
■ Amazon has patented clothing manufacturing-as-a-service
■ And they have opened a clothing manufacturing plant in
Norristown, PA
15

Pharmacy/medication:
■ Amazon has already a large set of products in health and personal

care
■ They also have a large assortment of medical, prescription-free
products, supplementsas well as over-the-counter medication
■ Amazon has acquired PillPack in 2017, an online pharmacy that
provides consumers with prescription medication in prepackaged
doses
■ Prescription medication has its own set of regulatory requirements
(that includes transport requirements), with PillPack being licensed
to ship prescription medication to most US states
■ They are also looking into expanding into entering the medical
device market
■ Compared to other categories, Amazon is only in the early stages
within the medical / health care sector and there are a range of
scenarios for their long-term plans
■ Amazon, JPMorgan Chase and Berkshire Hathaway have created
a non-profit health-care venture for their combined 1.1m
employees that aims to introduce technology solutions to simplify
the health-care system
16

The playbook
These are a few examples of retail categories that Amazon is expanding into.
Each category would deserve their own article. But I hope it gives you an
insight into how Amazon enters/grows new product categories:
1. Large choice of product offerings on their pages composed of

Amazon-owned and 3rd party inventory
2. Acquisitions of suitable companies, mostly smaller ones (Whole
Foods Market is the notable exception)
3. Starting a number of “secret” (Amazon-owned) brands within the
category
4. Establishing a fulfilment and delivery structure with respective
warehouses and other infrastructure (e.g. temperature-controlled
delivery chain, bulk item handling, prescription drug management)
5. For some of the categories: integrating a subset of the overall
choice as part of the Prime membership or dedicated subscription
models, etc
A lot of Amazon’s revenue growth will come from these areas (even though
they may not get as much media attention).
With this, we are slowly leaving the world of physical goods.
17

Online shopping experience
Web pages are an obvious contributor to a good online retail experience.

Sure, there are nicer retail pages than Amazon’s pages. Upscale fashion
brands with a limited set of products can afford to have well-crafted, individual
pages. Amazon’s pages, however, tick all of the boxes of a great online
shopping experience while covering hundreds of millions of products.
Amazon ticks all boxes (and sets the benchmark for some of them) when
it comes to online retail experience [source: statista]
18

Let’s look at a few different examples here:
1-click
Amazon has patented their 1-click solution in 1999. It is probably the most
convenient checkout option around. Knowing of its value, Amazon defended it
legally against early competition. They managed to keep large parts protected
under the patent and forced e.g. Barnes & Noble to refrain from copying the
functionality. They licensed it to Apple for use in the iTunes store. The patent
has expired in 2017 which means you will see it spread.
19

Review system
Apart from low prices, reviews are one of the most important factors driving
customer decisions. Would you buy something low-rated just because it’s
cheap? Likely not. Reviews are also one of the most important factors for the
ranking of products on search pages. With this, there is big money at stake for
sellers. And that means there are people trying to rig the system with fake
reviews.
1. The review system is one of the most important decision and

ranking tools
2. It is of significant value for Amazon as well as for 3rd party sellers
on Amazon
3. Amazon has a range of community and review guidelines
4. Amazon encourages reviews, e.g. via the early reviewers program
5. They allow other users to vote on the helpfulness of reviews and
display more helpful ones higher up (but this system has been
used for manipulation itself)
6. Amazon shows the list of top reviewers based on helpful votes and
has even a hall of fame for them
7. They have filters and machine learning tools to weed out fake
reviews
8. Estimates of the number of fake reviews range from 1% according
to Amazon vs 30% stated by fake-review detection sites (both of
which have an incentive to over or understate the problem)
9. I have covered the topic of fake reviews in more detail here
20

Category overview pages
In the earlier days, Amazon’s pages were purely functional (if I may say that)
centred around the search function which is likely still the most-used function.
But with an ever-increasing amount of selection navigability and browseability
have become more important. Here are a few examples of Amazon’s
enhancements in this space:
Browsing by category and sub-categories
21

Filters
Literally dozens of filtering options depending on the product category
22

Navigation
As I hover over a department name a pop-up comes up with

sub-categories for me to select from
23

Browsing
Different ways of browsing: here an example to browse furniture by

room type (or various other ways, e.g. by look, by style, etc – see top)
24

Personalisation
Recommendations are a part of Amazon’s personalisation efforts. And they

are essential to more sales. A 2012 McKinsey report finds that “Already, 35
percent of what consumers purchase on Amazon and 75 percent of what they
watch on Netflix come from product recommendations based on such
algorithms.” Multiply the roughly 400 million products on Amazon with the
hundreds of millions of users and you can easily see that this is a complex
system to pull off.
Recommendations can come in different forms:
1. “Recommended for you”

2. “Frequently bought together”
3. “Your recently viewed items and featured recommendations”
4. “Your browsing history”
5. “Related to items you viewed”
6. “Best selling”
7. Off-site recommendations via email
25

Customer value proposition
The value proposition combined the on-page and off-page elements that we
have talked about.
Take for example the first item, prices. You can only offer cheaper prices
sustainably than your competition if you have a lower cost structure. For an
online retailer, that translates into a cheaper-than-competition fulfilment and
delivery infrastructure, sourcing, etc.
All the reasons that people buy on Amazon [source: statista]
This infrastructure also underpins some of the other reasons people purchase
on Amazon, such as fast shipping and selection (selection requires respective
special fulfilment and delivery capabilities as mentioned above).
26

Pricing strategies
Amazon uses many pricing strategies that I have explained in detail here
This concludes Amazon’s online retail overview which is the biggest revenue
generator (but at razor-thin margins). We are moving onto the other
fascinating parts of Amazon which are also starting to make serious revenues.
You can read the whole article on Amazon’s 3 customer value propositions
here …
27

Gateways to magic worlds: Kindle, Fire TV,

Tablet, Echo
The Kindle is a much bigger endeavour than just an ereader. It is not only
disrupting brick-and-mortar bookstores but also the publishing industry. And
there is yet more. Amazon Kindle, Fire TV, Tablet, Echo and Alexa are
gateways to something much more complex on the other side of the screen.
And they have a number of characteristics in common:
1. On the surface, they are a shiny gadget

2. Are the front-end that is connecting to a deeper back-end
infrastructure
3. Connect to and are a part of a marketplace, sales/distribution
channel that is fully owned by Amazon
4. Feed back valuable customer (usage and other) data to Amazon
5. Enable several revenue streams and business models
6. Amazon keeps investing continuously in these infrastructures and
marketplaces
7. And into complementary businesses
8. Enable powerful direct data network effects and indirect network
effects
28

It’s not about the shiny gadget
The revenues made from the sales of the physical units (Kindle reader, Fire
TV stick, Echo Dot) typically seem to cover Amazon’s own costs. We don’t
know this for sure as Amazon doesn’t reveal its numbers. Some experts are
disassembling the respective gadgets and adding up the costs of the
individual parts and their conclusion is that Amazon doesn’t make any profit.
Amazon’s sales of Echo, Fire TV and Kindle made an estimated $305m in the
first half of 2017 according to one analyst’s estimates. While impressive, it’s
still a good 95% lower than Apple’s iPhone sale in the same period.
Amazon electronics sales made $305m in the first half of 2017 according
to one analyst’s estimates
29

It is also not about the razor-and-blade model
This is quite typical where companies want to establish an installed base with
a low base unit price and considerable profit margins for the consumable unit.
Think of razors and blades (the famous razors-and-blades model), inkjet
printers and the cartridge or gaming consoles and the actual games.
A press announcement from 2010 – 2.5 years after launch – gives us a data
point: “We’ve reached a tipping point with the new price of Kindle–the growth
rate of Kindle device unit sales has tripled since we lowered the price from
$259 to $189,” Jeff Bezos, Founder and CEO. A reduction of 27% from the
initial price on the base unit led to a 200% increase in sales of the
consumable units (ebooks).
But this is still all very macro level and we would not be satisfied with an
insight that King Camp Gillette had over 100 years ago (and John D
Rockefeller over 150 years ago). I argue that Amazon’s strategy is different
and the Kindle system offers valuable clues what it all is about.
30

The Kindle system and the data advantage
If it was about the razor-and-blades model Amazon would price the eReader
low just to price the ebooks high. Looking at their pricing structure this is not
the case (benchmarked to the book industry):
■ Amazon incentivises eBooks to be sold for $2.99-$9.99 by paying

70% royalties to the authors for books priced within this band and
35% otherwise
■ This is significantly higher than the 10%-15% royalties paid
traditionally
■ Authors also retain more rights on their work than in traditional
models which they can sell on, e.g. to movie producers or print
publishers
■ Many books are still being published by traditional publishers into
the Kindle platform
■ But the number of independent self-published authors has
significantly increased since Kindle
■ This is important as the Kindle system allows authors to circumvent
the traditional gatekeepers
With this, put 1+1 together:
■ The incentives for readers to join the Kindle system are low prices
on the Kindle reader and books
■ The incentives for authors are independence from traditional
publishers, higher royalties and a broader range of rights on their
work
■ The traditional publishers, too, will not ignore Kindle as an
additional sales channel once there are enough readers
■ With this, the conclusion is clear: Amazon’s low prices for both
sides (creators and consumers) is to stoke indirect network
effects that underpin all platform business models
31

Of course, the traditional low unit profit, high sales volume that underpins
most of mass retail still persists but this model is more sophisticated. It is not
about selling the consumable unit (ebooks) at ridiculous margins (as in the
case of some razor blades or inkjet cartridges).
Disrupting bookstores and publishers
The Kindle platform has already disrupted traditional bookstores who still had
growth in the first ten years after Amazon appeared but then fell off a cliff
when Kindle was introduced.
Traditional publishers are the next domino piece. Not only can authors now
bypass the traditional gatekeepers via self-published eBooks. But they can
now publish paperbacks via Amazon. And it does not have to end there.
Amazon could well enter the higher value-adding functions, such as editing
and illustrations via their professional service marketplace. This would leave
no place to hide for the traditional publishers. What this would mean for
innovation and quality of future books remains everybody’s guess.
32

The data advantage

The most staggering element of the Kindle platform is that we get a glimpse
into the benefits of good data. You hear often that good data translates into a
real competitive advantage. And we know this is true for our own companies.
But it is rare to get good insights into the data space of large companies like
Amazon who are known for not sharing a lot of data.
We get these insights from a smart bunch of guys who have written algorithms
that scan over a million Amazon pages each day to re-engineer daily sales
figures. Comparing these deep insights to the data of traditional analysts
(which is used by many industry participants for their decisions) is
eye-opening.
33

In 2017, 48% of SciFi & Fantasy books were unreported by traditional

analysts. While this percentage will vary across genres it still shows that
most players in the industry make important resource allocation
decisions with poor data visibility [source: Authoreearnings]
There are too many important conclusions (here the direct link to the section
of my Kindle article). I can’t repeat all the points made there. But take as one
highlight that a whole lot of industry investment decisions (which books to
publish, promote, shelf space, franchise investments, etc) are being made
with 50% of the data missing, and worse yet, with the available data telling the
wrong story.
The data above is compiled by scanning over a million Amazon pages daily.
And that means: Amazon has the full picture!
The combination of well-managed indirect network effects and deep

meaningful data (which is so important for managing incentives well and
driving participant behaviour) is one of the most powerful innovation
ingredients that we have discovered in the last 2 decades.
Read my full Kindle article for all the intriguing details (or bookmark to read
later) …
34

Fire TV and Prime Video

Prime Video and Fire TV is another one of those gadget + content platform
combinations. Similar to the Kindle platform, the main story plays behind the
scenes. There are 10 business models enabled by the Kindle system and 10
enabled by Prime Video. (There may be even more but I stopped looking for
more once I identified 10). Most are similar, a few are different.
Prime Video is a tightly controlled platform business with the consumers on

one side and the producers on the other. The various Fire TV devices are just
one way to display Prime Video content. Apple and Android devices, Amazon
Tablet, Smart TVs, game consoles, etc are others.
Amazon Prime TV business models and layers
35

Content
For most of the content, which is not exclusive to Prime, Prime Video also is
only one distribution channel. It offers various types of content:
1. Amazon Originals (TV series and movies)

2. Non-Amazon movies and TV shows
3. There is a total of >20,000 items to buy or rent (no subscription
required)
4. Prime subscribers can access a large subselection of >6,000
5. Amazon Original TV series are only available through Prime Video
6. You can subscribe to entire channels, such as CBS, HBO,
Cinemax and many others for additional fees per channel (known
as over-the-top media services)
7. Fire TV also can be used to access ones Netflix, Hulu and other
streaming accounts
8. Prime Video does not feature user-generated content like YouTube
which is why Prime TV is a closely controlled platform (B2C only,
no C2C)
9. User-generated content is available on Amazon’s Twitch which is a
separate platform (specialising on certain content, see below)
Importance of original (exclusive) content

While it is important to have a large selection of content studies show that
having original (=exclusive) content is crucial to attracting subscribers. “Our
results indicate that if a streaming service wants to attract subscribers,
offering content from TV channels is not a sufficient strategy. Building on this
insight, we found that offering original content can be one important way that
streaming services can differentiate their offerings from competitors,” reads a
recent study published on Harvard Business Review, HBR.
36

Creation of Amazon Original content
Amazon Originals are an important way to differentiate their offering and get
subscribers:
1. Amazon Video has a long list of Amazon Originals which are

exclusive on Prime Video. Many seem to have been canned after
the first season which indicates data-driven experimentation
2. They produce their exclusive shows and movies in one of their
many studios
3. One remarkable way of sourcing scripts is for independent
creators to submit their story to Amazon via a dedicated portal.
From there it becomes a commercial process owned by Amazon
(this is different to Kindle). It includes early prototyping and testing
at their premises with small audiences to determine the prospects
of the script. Amazon Studios pays successful writers progressing
levels of royalties
4. Additionally, they have also purchased exclusive rights on
existing shows to exclusively air them in other countries (and with
some gap re-stream them in the originating country)
5. Originals come at a price totalling $5b per year for original and
licensed content with examples:
■ The production costs for the 2 seasons of “Man in the
high castle” seem to have surpassed $150m
■ Amazon has bought the global television adaptation
rights for “Lord of the Rings” for $1b – this is before any
production or any other costs
37

Exclusive content, Prime Video and Prime

The whole point of exclusive content is to use it to funnel people into an
Amazon Prime Video or Amazon Prime subscription:
1. The original content can be accessed only through a Prime Video
2. In some countries, Prime Video is only available through the
overall Prime subscription
3. Where Prime Video can be subscribed to individually, the pricing
tactic is to make it notmuch cheaper than the overall Prime bundle
4. Amazon assesses the success of individual shows in bringing in
new subscribers with an internal metric called cost per first stream
(chart below), i.e. the cost of the show divided by the number of
new subscribers who streamed the show first
5. It shows considerable customer acquisition costs for many of their
shows ranging from $500-$1500 cost per first stream (equal to
4-12.5 years of Prime membership fees)
6. Without knowing the lifetime value of the customers coming
through this channel (which Amazon doesn’t share) we can’t
assess its success
7. There are some indications that Prime Video consuming
subscribers have a higher propensity to renew their Prime
subscriptions and generate revenues through Amazon’s other
offerings
The cost of customer acquisition via Prime Video is high … but …
38

… it likely brings in young subscribers with a propensity many years of

future revenues (though requiring continuously updated content) and …
[source: statista]
39

… an audience that overall is satisfied (and that should translate to more

consumption) [source: statista] but also quite fickle
Whether or not the hypothesis of getting young affluent customers into the
Prime/Amazon system via Prime Video and Amazon Originals is one of the
experiments that Amazon will be tracking closely with the data they are
capturing. And it is an experiment worth keeping an eye on over the next
years.
Check out the full article on Amazon Prime Video’s innovative business
models …
40

Amazon Fire Tablet and Fire Phone
Amazon has also entered the phone and tablet space with varying success.
Fire phone
The Fire phone ended unsuccessfully. Fire phone 1G introduced in June 2014
was never followed by another generation of phones due to the commercial
failure of the initial phone. Fire phone was discontinued from August 2015.
Fire tablet
Amazon had more success with its own line of tablet, called Fire Tablet. The
latest line is the Fire 8G released in 2017. The later generations are available
as HD or HDX (being the high-end model) with higher resolution, faster
processor, etc. As of earlier this year (2018), Fire tablet was the second best
selling tablet after Apple’s tablets, however, at significantly higher growth rates
than Apple’s devices.
41

Fire OS
Amazon has its own operating system (OS) which is based on Android. They
have forked Android and customised the user interface to feature their own
ecosystems. Amazon’s apps, such as Amazon Appstore, Prime Video,
Amazon Music, Audible, and Kindle Store come with their Fire OS.
Android offers two (free) licensing models, the Android Open Source Project
(AOSP) and the Google Mobile Services (GMS). GMS is the more advanced
version but comes preinstalled with Google’s apps.
AOSP is more basic and most importantly does not have the Google Play
store and with that not way to access the >2m Android apps. Not many
companies have the resources to build their own app store hence will use
GMS.
Not so Amazon. They have built their own app store most likely based on the
fact they can promote their own apps and other strategic considerations.
42

Amazon Appstore
Launched in 2011 at the time of the Amazon Tablet introduction, Amazon’s
App store came with a mere 3,800 apps available. This confined ecosystem is
a significant limitation to the customer value proposition. Over the years, more
developers have made their apps available on Amazon Appstore. The sales
success of their tablet helped to increase the installed base which incentivised
developers to make their apps available on Amazon Appstore.
Amazon keeps 30% of revenues of each app sales and passes the remaining
70% onto the developer. The low price of the tablet was essential to trigger
the virtuous cycle of hardware sales and an increasing amount of apps
becoming available (similar to the Kindle).
Amazon Appstore is catching up in terms of available apps [source:

statista]
43

Twitch
In 2014, Amazon acquired a video streaming platform renamed to Twitch.

This platform is mainly focusing on live streaming of video gaming events.
Within this segment, Twitch is by far the largest player outsizing YouTube
Gaming by a large margin. Twitch is very popular in the segment of 16-34
year old males and offers additional features for Prime subscribers.
It will be interesting to see if Amazon will expand Twitch to a broader

streaming that competes with YouTube.
Amazon has done remarkably well in the space of these type of personal
electronic devices. However, strategically, they are an early follower in this
space rather than the leading innovator.
44

Amazon Alexa, Echo and AI
Now we are getting to one of Amazon’s biggest bets; one that promises to
change how humans interact with machines. Amazon’s AI-based voice
recognition system Alexa that underpins their Echo home pod devices.
Amazon has taken the lead among such powerful competition as Apple,
Microsoft and Google in terms of smart speaker shipments (but Apple’s Siri
leads on the dimension of most frequent usage). Amazon has also taken a
somewhat different approach than the other giants in the architecture of their
smart speakers:
1. The other three have initially used their respective smart assistants
(Microsoft: Cortana; Apple: Siri; Google Assistant) to control their
ecosystem of devices and services
2. E.g. Cortana can be used to control Windows, Siri can be used to
control one’s iPhone
3. Amazon has done that too, e.g. you can control Fire TV through
Alexa or Alexa can read your Kindle book (and will pick up where
you last stopped)
4. But they immediately took the next step. They have initiated an
ecosystem of Alexa-controllable 3rd party devices
5. The others will undoubtedly ramp up their efforts to catch up on
Amazon’s lead on this dimension, here is what Apple does
45

Alexa has over 50,000 skills (=dedicated apps for Alexa), over 20,000
products across 3,500 brands. While Apple, for example, is playing catch-up
they are not exactly starting from scratch. Through the introduction of SiriKit,
they are tapping into their over 2m apps. These don’t yet have Siri integration
but the install base of iPhones is obviously an attractive interface for all
app/device developers to get connected to.
With over 20,000 devices controllable through Alexa Amazon is leading

the smart speaker race in terms of extensions. And, conveniently, you
can buy many through Amazon
46

Indirect network effects
Powerful indirect network effects are one of the most prevailing benefits that
connects device manufacturers, users and the smart assistant platform. One
research paper (based on Amazon data) states “According to data cited by
Rausch, businesses saw a 43 percent lift in business in the nine months after
launching an Alexa-enabled product… Rausch, again citing Amazon’s data,
said that when a company … Works With Alexa capabilities into their product
(meaning you could ask Alexa to control that device) businesses on average
see a 53 percent boost to their business almost immediately.”
This is one aspect but there are other valuable network effects that come with
smart assistants.
47

Use cases and customer value propositions
Use cases are important to the customer value proposition. Here is a brief list
of what Alexa and connected devices can do at this stage.
1. Entertainment: Voice control Amazon Prime Video, music

streaming, get books read or play audiobooks
2. Communication: Use Alexa devices as an intercom; call others,
voice message or SMS
3. Smart home: Voice control lights, smart plugs to turn on/off
electrical appliances, Thermostats, air conditioners, etc, (Security)
cameras or video devices; Define routines of several actions
combined, e.g. morning routine
4. Laptops & PCs: Alexa-enabled PCs and laptops can save some
typing and be used as an interface to control other Alexa devices
5. Vehicle entertainment systems controlled via Alexa
6. Shopping: Reordering items through Prime Now (mainly
groceries), likely an area that Amazon will further expand
7. Other: Weather, traffic, News, information, sports updates, etc;
To-do lists, shopping lists, reminders, alarms; Local search:
restaurants, shops(!), etc
8. Skill Blueprints: personalisable templates, e.g.: workout routines;
inspirational quotes; weekly household to do list and thousands
more
Amazon has been working secretly for years to be one of the early/first
movers on this new value proposition and platform.
48

The most frequent use cases are simple but smartphones, too, started
with a bunch of simple apps in the early days just to conquer the world.
What is the trajectory of smart assistants going to look like?
49

Integration

The way Amazon has integrated Alexa services is important and different to
smartphone apps.
1. A large part of the Alexa skills run on the cloud on Amazon Web
Services (to be paid for on a pay-per-use model)
2. There are APIs for various sets of functionalities that 3rd party
developers have access to
3. This is essential to making any Alexa-enabled device controllable
through any Alexa-input device
4. There is some configuration to be done which happens through the
Alexa app
5. This makes Alexa very powerful, e.g. control your lights and
thermostat from your car as you drive into the garage or the Alexa
app on your phone
Smart home devices are expected to grow fast [source: statista]
There is a whole more interesting stuff to know about Alexa that I have
covered previously.
Read the whole piece on Amazon’s AI-powered Alexa and Echo devices here
50

Business models: Prime TV, Alexa, Kindle

platforms
By now you know that Amazon’s gadgets are not really about generating
profits through sales of the gadgets themselves. The truth is much more
intriguing.
Here is a sample list of business models used in conjunction with the

gadget-connected platforms:
1. Razor-and-blade model v2.0: The required hardware is sold at

low/no margin, the consumable content is sold at varying margins:
1. Kindle: content is created by authors and the published
by themselves or publishers
2. Prime: Sales/rent of movies/TV shows (produced by
other studios)
3. Amazon Originals: are expensive content given away
for “free” to Prime subscribers (in order to get people to
sign up to Prime)
4. Alexa: expand the installed base through sales of
low-priced speakers, capture data that improves the
voice recognition through machine learning and attract
demand-side actors for the platform business model
2. Online retail business model: Sales/rent of individual titles, such
as movies, TV series, books, audiobooks that are not available as
part of one of the various subscription models; or to those people
who just want to pay for what they consume rather than taking up
subscription services
3. Subscription business model: Subscription to individual
channels, Kindle Unlimited, audiobooks, magazines, music, Prime
Video. Prime give access to a lot of titles (but it is a small sliver of
each respective subscription service)
4. Platform business model: a multi-sided platform consisting of
Amazon customers on the demand-side and various types of
suppl-side actors:
51

1. Prime Video: various supply-side actors providing

content (studios, channels, Amazon original, etc) and
various demand-side segments
2. Kindle: authors, publishing houses, magazine and
audiobook publishers
3. Alexa: skills developers, device manufacturers,
5. Bundling/cross-/up-sell: all sorts of bundling, cross- and
up-selling of individual items/titles: video, book bundles, bundles of
Echo with other hardware or more premium versions of items
6. Bundling & subscription business model: bundling of many
dozens/thousands of titles into one subscription:
1. Prime video: subscription to channels
2. Kindle: Subscription to magazines, Kindle Unlimited, KU
(>1m books), Audible (audiobooks)
3. Amazon music: access to all songs on Amazon
4. Alexa: cloud security cam subscription that unlocks
additional features and surveillance alerts
5. Amazon Prime: the master subscription that
incorporated a selection of the above
subscriptions/bundles (e.g. a changing selection of
1,000 books out of over 1m books available in KU)
7. And more: direct links to the business model section of each of my
previous articles:
1. Kindle business models
2. Alexa business models
3. Prime Video business models
52

Amazon Web Services (AWS)

I doubt there were too many industry experts who would have predicted the
success of AWS about 10 years ago when it became available as a
commercial offering. Amazon started with the efforts that lead to AWS as early
as 2004 for their internal use. From there, it has become one of the most
profitable business areas within Amazon.
But what is AWS for starters? Most of AWS’ services fall under into what is
called Infrastructure as a Service. When setting up an IT architecture firms
have various options from fully in-house, on-premises to fully outsourced.
Here are the key categories:
1. On-premises: this is the traditional architecture where the

in-house team manages everything (though there are again
differences depending on in-house servers or usage of data
centres). Most AWS clients would have a hybrid solution of some
on-premises and AWS
2. IaaS (Infrastructure as a Service): This type of service is the one
closest to the hardware level without giving access to the hardware
itself. It gives access to the operating system layer (in AWS you
can choose between Windows or Linux OS) and take care of the
layers between the OS and your applications
3. PaaS (Platform as a Service): With PaaS, users can focus on the
application and data layer only. AWS beanstalk is one of the few
AWS services that falls under this category. It allows users to
easily deploy and manage their applications on AWS without
worrying about the layers below
4. SaaS (Software as a Service): SaaS has become increasingly
popular, e.g. Microsoft Office 365 is the SaaS version of
Microsoft’s traditional Office applications. Other well-known
examples are Google office apps, Slack, Zendesk, Dropbox,
Salesforce, etc. AWS itself is not an SaaS service but they have
offer solutions for SaaS providers to build their services on AWS
53

AWS is mostly an Infrastructure-as-a-Service model
54

Architectures for common problems

How the individual blocks can be put together to solve for common problems
is part of the architectural design. The diagram below shows Amazon’s
recommendation for a media sharing functionality that could, for example, be
part of a social media platform.
These architectures can help save tens of thousands of development

manhours of building similar functionality in-house.
Always wanted to create your own social media platform? This is how
you could set up the media sharing functionality of your social platform
in AWS [Source: AWS, pdf]
55

Netflix: 100% on AWS
Netflix is to 100% on AWS – this is amazing given they use up 15% of internet
bandwidth (as always, there is a small caveat: recently Netflix started to
explore Google Cloud as well – but to such a small degree that we can
comfortably say that Netflix is 100% hosted on AWS which also hosts Amazon
Prime Video to 100%). Both together make 18.7% of global internet traffic.
What are the benefits?
Here is what Amazon states to be the benefits of using AWS. But instead of
using their claims, let’s look at what the Vice President, Cloud and Platform
Engineering of their largest customers, Netflix, says about their migration to
the cloud. This is a credible account from an independent super-user
perspective – I am inserting Amazon’s advertised benefits [black font]into the
excerpts of what Netflix says [blue italics font]:
1. Our journey to the cloud at Netflix began in August of 2008, when

we experienced a major database corruption and for three days
could not ship DVDs to our members. That is when we realized
that we had to move […] towards highly reliable, horizontally
scalable, distributed systems in the cloud […]
2. We chose Amazon Web Services (AWS) as our cloud provider
because it provided us with the greatest scale and the broadest
set of services and features
3. The Netflix product itself has continued to evolve rapidly,
incorporating many new resource-hungry features and relying on
ever-growing volumes of data. Supporting such rapid growth
would have been extremely difficult out of our own data
56

centers; we simply could not have racked the servers fast enough.
[Go global in minutes] Elasticity of the cloud allows us to add
thousands of virtual servers and petabytes of storage within
minutes, making such an expansion possible [Increase speed
and agility]
4. We rely on the cloud for all of our scalable computing and storage
needs — our business logic, distributed databases and big
data processing/analytics, recommendations, transcoding,
and hundreds of other functions that make up the Netflix
application […]
5. The cloud also allowed us to significantly increase our service
availability […] it is possible to survive failures in the cloud
infrastructure and within our own systems without impacting the
member experience […]
6. Cost reduction was not the main reason we decided to move to
the cloud. However, our cloud costs per streaming start ended
up being a fraction of those in the data center— a welcome
side benefit. [ Trade capital expense for variable expense] This
is possible due to the elasticity of the cloud, enabling us to
continuously optimize instance type mix and to grow and shrink
our footprint near-instantaneously without the need to
maintain large capacity buffers. [ Stop guessing capacity] We
can also benefit from the economies of scale that are only
possible in a large cloud ecosystem [ Benefit from massive
economies of scale]
7. Arguably, the easiest way to move to the cloud is to forklift all of
the systems, unchanged, out of the data center and drop them in
AWS. But in doing so, you end up moving all the problems and
limitations of the data center along with it. [ Stop spending money
on running and maintaining data centers] Instead, w e chose
the cloud-native approach, rebuilding virtually all of our
technology and fundamentally changing the way we operate
the company.“
57

Business & pricing models
One of the most important considerations of the AWS business model is to get
to maximum utilisation while retaining optimal revenues and profits. This is
very similar to Amazon’s transport and fulfilment infrastructure. Both divisions
are capital-intensive and high fixed cost. Utilisation is key to achieve
profitability and self-funded growth. Therefore, the business model economics
is quite similar.
The global footprint of AWS server locations in 57 Availability Zones

(yellow circles) within 19 geographic regions with announced plans for
15 more Availability Zones and five more AWS Regions (green circles)
58

Computing capacity is a perishable commodity like hotel rooms, aircraft seats,

food or unused shelf space in a warehouse. Idle sitting processor or memory
capacity makes no money to offset the initial capital costs, the ongoing
operating or overhead costs. If it was a pure on-demand model, AWS would
risk spikes, bullwhip effects and underutilised capacity in the long term.
AWS’ business and pricing model are closely linked with Amazon offering
strong incentives to customers to get to high utilisation on their data servers.
Here is the direct link to the section where I have covered Amazon’s pricing
strategies to incentivise usage in detail.
59

Market share
Amazon has managed to translate their first-mover advantage into market

share compared ahead of the early followers. Among the competitors, Google
is said to be investing heavily in their cloud business to catch-up. Microsoft is
stated as the only competitor with a comparable comprehensive offering in
Gartner’s comparative study (magic quadrant) with Google having some (and
IBM a lot of) catching up to do.
Amazon is leading the Cloud competition but surely not lacking some
heavy-hitting competition [source: statista]
Read the whole article on AWS here …
60

Amazon Prime
Amazon has a number of subscription businesses models for their various

types of media/content and consumer products. HEre some examples:
■ Kindle Unlimited: Over 1 million books for the Kindle eReader

and 1,000s of audiobooks for a monthly subscription
■ Audible: Subscription to over 200,000 audiobooks
■ Subscribe & Save: Subscribe to get delivery of your favourite
grocery items at a repeat schedule (diapers, anyone?), associated
with savings but also price variations
■ Prime Video: is available to be subscribed to separately (in some
countries) but the difference in price to the overall Prime is so little
that only a few people would be taking up Prime Video by itself
■ Different types of subscription boxes of various consumer
products
61

Amazon Prime
Prime is Amazon’s master subscription model and has now over 100m
subscribers. It is an unlikely bundle composed of heterogeneous offerings that
seems to have a great appeal to household consumers.
Reasons to subscribe to Amazon Prime according to one survey

[source: statista]
62

It started with “free shipping” on millions of items (large, bulky items are
excluded). Over the years more elements have been added to this
subscription. Here some highlights:
■ Free shipping on a lot of items, 2-day shipping in many areas,
lower incremental pricing on priority/international shipping
■ Prime Video: the only way to watch Amazon Originals is to
subscribe to Prime. Also includes access to many of the popular
shows
■ Prime Music: 2 million songs (but limited to 40 hours / month)
■ Kindle: Access to a monthly changing selection of 1,000 books
■ Exclusive access to various types of deals as well as access to
media on release day
■ Prime Wardrobe: A try-before-you-buy offer for clothing with free
delivery and return
■ Rewards in conjunction with Amazon credit card
■ and lots more with additional stuff being included over time
Prime: a kind of “there is something for everyone” [Source: Statista]
Prime is not just the icing on the cake. With over 100 million subscribers it has
become one of Amazon’s most important pillars and a source of predictable
revenues.
63

Overall
Phew, we are getting towards the end. Let us now look at a high level of the
key business model ingredients.
Amazon quarterly revenue by segment [source: statista]
64

Revenues (FY 17)
From their Annual Report 2017 (pdf):
1. Online stores: $108b

2. Physical stores: $5.8b
3. Third-party seller services: $31.9b
4. Subscription services: $9.7b
5. AWS: $17.4b
6. Other: $4.7b
65

Fundamental business model principles
Throughout my articles on Amazon, I have listed dozens of business models

that Amazon applies to their various offerings/segments. But a few higher
order business principles are at the heart of these dozens of business models.
66

(1) Economies of scale

One of the most important economic principles of reaching a competitive
advantage is to get to lower unit cost by leveraging economies of scale. This
can be said of any large company. Within brick-and-mortar retail, Walmart is
the largest fish in the ocean. Amazon tries to reach this on the online retail
space:
■ Amazon is investing heavily into scaling up their fulfilment and

delivery network
■ At the same time, they are ramping up customer acquisition
through razor-sharp profits which utilises their assets better thus
reaches lower unit costs
■ They are opening up their capital-intensive infrastructure to 3rd
parties to achieve yet higher utilisation and to increase revenues
■ Fulfilment by Amazon (FBA) opens up their fulfilment infrastructure
(i.e. warehousing) to 3rd parties
■ Shipping with Amazon (SWA) opens up their delivery infrastructure
to 3rd parties
■ Some critics believe they have not reached economies of scale
■ But this is not certain as Amazon may have already invested in
future infrastructure that initially comes at low utilisation (i.e. it has
the full cost burden but not yet the offsetting revenues), Prime Air,
Amazon Cargo, new warehouses could all fall into this category
■ Time will tell (though Amazon would not be the first company to
discover that costs stay even in times volatile revenues)
■ I have explained the underlying business model economics here
■ Amazon has applied the same principles for their IT infrastructure
which sow the seeds of AWS
■ One example is Amazon Cloud Front which is their content delivery
network (CDN) that does the heavy lifting of video streaming
through a network of over 100 servers across various countries
(close to high-density population)
■ Opening their own infrastructure to others is not a 5-minute task. It
requires significant development efforts
67

(2) Platform business model

Amazon uses the platform business model heavily. In my view, this is the
most revolutionary business model of the last 2 decades
■ Kindle is not just an eReader. It is a platform through which

multi-sided actors interact with each other with little cost impact to
Amazon but revenues on each transaction. Publishers/authors
publish, readers buy and consume and Amazon expands their
offerings (such as paperback printing)
■ Prime Video is not just a streaming on demand. It connects media
producers with consumers. Though the big difference is the degree
of control that Amazon exerts over the curated content in the case
of Prime Video. Kindle is very open to anyone publishing (it doesn’t
mean they can publish anything). Prime content is sourced by
Amazon
■ Alexa is probably the most versatile platform business model that
Amazon has introduced. It has many use cases and a vast amount
of devices controllable by the voice recognition system. And it is
growing fast
■ Amazon Marketplace connects 3rd party sellers with customers
■ Amazon Services Marketplace connects 3rd party service
providers with service seekers
■ Some of the key principles that these platforms use are the
creation of marketplaces that others use to interact. Amazon
makes revenue on each transaction typically charging a
percentage fee for each transaction.
■ Indirect networks amplify the value of the platform as participants
join the platform
■ Reduced search and transaction costs reduce the efforts of
purchasing and consuming, lowering risks and enhancing the
customer experience
■ and more (read the article that I have linked to above if you are
interested in this business model
68

(3) Bundling
You may be surprised that I call bundling out as a key principle among
Amazon’s business models. In my mind, it’s a crucial element that is not
sufficiently covered
■ Amazon recommendations often entail a bundling element, e.g.

“Frequently bought together”, “Related to items you viewed” –
recommendations and bundling contribute to up to 30% of sales
■ Subscription business models are typically based on bundling
within the same product category: Kindle Unlimited, Audible, Prime
Video, Music, etc
■ Amazon Prime: is the most successful example within Amazon’s
bundles and the prime (no pun intended) example of a
heterogeneous bundle
■ Who would have thought that bundling “free” delivery with Video
and music streaming plus some ebooks and parts of other
offerings would become an underpinning part of Amazon’s
business
■ Product bundling within the same product group or across several
products is fascinating as is its underlying economics
69

(4) Data network effects
Data effects deserve a dedicated call out even if they are not yet extremely
well understood in their business model economics. But practitioners know of
its importance
■ On a most basic level, the analysis of purchase behaviours,

preferences, recommendations help Amazon sell more
■ A business that is entirely built on data is a totally different one
that has to rely on the cumbersome collection of data bits. In this
BCG framework, many of Amazon’s businesses would fall under
category 5) Data-centric business creation where the entire
business and revenue generation is guided by data
■ This is in particular true for platform business models as the
platform is the marketplace through which the demand and
supply side make exchanges with each other (e.g. Amazon
Marketplace, Kindle)
■ And this is then even more pronounced where digital products are
exchanged via digital marketplaces and consumed on digital
devices that give feedback to Amazon about usage patterns
(Kindle, Prime Video)
■ And even more pronounced where the code is executed on
Amazon’s web servers and the devices are being controlled by
server-side algorithms that interpret user commands (Alexa)
■ I have explained in my Kindle article how entire business
investment and resource allocation decisions are being made
based on vastly incomplete data by traditional businesses where
Amazon has the full picture to guide their decisions on
70

(5) Small margins with most profits reinvested into growth
■ Constant reinvestment into growth and new opportunities

■ They are growing the customer base through razor-thin margins
■ Investing in infrastructure to improve their customer value
proposition on existing offerings
■ Growing in verticals (e.g. expanding into food, groceries, apparel,
medicals, etc)
■ Profits and free cash flows are always low even as revenues grow
at double-digit rates
■ Critics say that accrual-based accounting factors out capex
investment impact on earnings. While this is true, it does not factor
in low utilisation of new infrastructure in the early months or even
years. AWS, Amazon Marketplace, e.g. have been long-term bets
that have taken several years to unfold
■ This type of growth will, of course, be challenged in time of an
economic downturn, such as recessions when revenues take a hit
■ Some of Amazon’s businesses have their starting point in
acquisitions. But with the exception of Whole Foods Market
Amazon has been a conservative buyer of early start-ups rather
pursuing mega-mergers/acquisitions
These are my insights into Amazon’s fundamental business model principles.

If you have not found them anywhere else then it is because this is the result
of my own analysis.
I hope you have enjoyed this epically long and hopefully as epically
informative article as I did!
71

Learned anything new?
Help me in my mission to share valuable

knowledge for free – please share
72

Learn more about Amazon's innovations and

business models
Amazon Web Services has become one of

Amazon's most significant offerings and business
models. Netflix, a remarkable innovator in its own
right, is fully hosted on AWS. Considering Netflix
consumes 15% of global internet bandwidth as
reported recently this shows the remarkable
capabilities of AWS.
Amazon's smart speakers are the gateway to the

voice-controlled Alexa platform that promises to
change how humans interact with machines.
73

Amazon Prime Video has 10 business models with

six having their equivalent in Amazon Kindle and
four being different. My focus today will be on the
Prime Video business models that are different to
those of the Kindle platform.
The latest: The 10 Business Models of Amazon

Kindle: The Amazon Kindle is a fascinating
platform that has allowed Amazon to disrupt
traditional industries (bookstores and publishers).
Understand the power of the 10 business models it
has enabled.
Amazon's 3 key customer value propositions: How

Amazon made their 3 key value propositions work
at scale.
74

Amazon's fulfilment network and innovations:

Amazon's speed of delivery is one of their
competitive advantages. Understand the business
models and economics behind their innovative
delivery network.
Amazon Prime: Earths biggest subscription

business: Learn how Amazon's unique bundling
became the most compelling subscription offer in
the world.
21 Easy ways to deliver customer experience

without human touchpoints.
75

What does this mean for you?
Amazon is an innovation factory. They started as an online book retailer but

never stuck to this tag. They have brought innovations to light that barely had
anything to do with their industry.
You too can do this. Whether in your field, adjacent to it or something totally
different. You can develop great ideas that you can be proud of!
One important ingredient to such endeavours is deep innovation knowledge.

This is what I aim to help you with!
Please help to spread the word and share our site and if you wish this ebook
with others. When doing so, please do not modify the content and refer to us!
If you haven’t joined InnovationTactics.com, join now for free to receive

high-quality innovation articles in your inbox.
I promise that you will only receive high-quality content like this report that will
improve your innovation knowledge. We focus on real-world examples and the
details that others don’t share with you.
Author: Dr Murat Uenlue, PgMP, PMP; Managing projects >$1b
76

Amazon Business Models Overview

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Amazon Business Models Overview

Hochgeladen von

Copyright:

Verfügbare Formate

Amazon Business Model

Amazon Business Model: the Ultimate Overview

As always, we are going to look behind the scenes to understand their

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

■ In terms of retail revenue, Amazon ranked 6th globally in 2016 in

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Delivery and fulfilment network

A simplified view of how a product travels from manufacturer to the

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

1. Inbound cross dock centre

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Business model economics

The complexity of the network is driven by economics. Given Amazon’s large

Transport costs fall as the number of facilities increases. At the same

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Cash conversion cycle

Cash Conversion Cycle​ = Days Sales Outstanding (DSO) + Days Inventory

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Fulfilment ($25.2b, 14% of revenues) and delivery ($21.7b or 12% of net

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Fulfilment by Amazon (FBA)

Fulfilment by Amazon​ is a service that offers merchants to store their items in

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Shipping with Amazon (SWA)

Amazon Prime “free” shipping

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Growth: expanding categories

Everything is moving to online retail but at a different pace. The items

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

■ Amazon Prime Pantry:​​ Groceries (dry goods) and household

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

■ “Amazon currently claims about 6.6% of the apparel market. That

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

■ Amazon has already a large set of ​products in health and personal

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

1. Large choice of product offerings on their pages composed of

With this, we are slowly leaving the world of physical goods.

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Online shopping experience

Web pages are an obvious contributor to a good online retail experience.

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Let’s look at a few different examples here:

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

1. The review system is one of the most important decision and

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Category overview pages

Browsing by category and sub-categories

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Literally dozens of filtering options depending on the product category

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

As I hover over a department name a pop-up comes up with

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Different ways of browsing: here an example to browse furniture by

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Recommendations are a part of Amazon’s personalisation efforts. And they

Recommendations​ can come in different forms:

1. “Recommended for you”

Innovationtactics.com - Develop Innovation Ideas You can be Proud of

Customer value proposition

All the reasons that people buy on Amazon [source: ​statista​​]

Cash Conversion Cycle = Days Sales Outstanding (DSO) + Days Inventory

Fulfilment by Amazon is a service that offers merchants to store their items in

■ Amazon Prime Pantry: Groceries (dry goods) and household

■ Amazon has already a large set of products in health and personal

Recommendations can come in different forms:

All the reasons that people buy on Amazon [source: statista]

■ Amazon incentivises eBooks to be sold for $2.99-$9.99 by paying

Prime Video is a tightly controlled platform business with the consumers on

1. Amazon Video has a long list of Amazon Originals which are

The cost of customer acquisition via Prime Video is high … but …

1. Entertainment: Voice control Amazon Prime Video, music

Smart home devices are expected to grow fast [source: statista]

1. Razor-and-blade model v2.0: The required hardware is sold at

1. Prime Video: various supply-side actors providing

1. On-premises: this is the traditional architecture where the

AWS is mostly an Infrastructure-as-a-Service model