Amazon is the largest e-commerce platform in the world. Over the years of its operations, the company has expanded its business venture to cater to large number of customers. As a result, the firm has been able to secure its market position and strengthen its financial status. At present Amazon operates in multiple industries, including online retail, cloud computing, media streaming, consumer electronics, etc. However, the dominant source of its revenue is its e-commerce platform. Owing to its success and constant growth, Amazon is often studied by business scholars and students. In this article we have presented a thorough discussion on the business model of Amazon, which specifically highlights how the company makes money. This can be really beneficial for you when you are working on your college paper on Amazon. As mentioned earlier, Amazon operates in multiple industries, so for the sake of simplicity we will focus on some of the dominant business ventures of the company.
The online retail of Amazon is the most dominant business venture among others. The company has developed an online e-commerce platform which is used to sell a variety of products to its customers, in the domestic as well as the international markets. Amazon uses its online retail platform to sell products from multiple retail brands, across a wide range of product categories. This allows the company to make profit from selling the goods directly to the consumers. The company also makes money by turning its online retail platform into an online marketplace, where third party sellers are allowed to sell their products. A close look at Amazon’s operations management reveals that apart from the profits earned from selling the good on its online platform, the company earns from the commissions received from the third-party seller.
Let us now look at how much Amazon earns from the third-party sellers. As a part of the Selling Plan, the sellers need to pay USD 0.99 per item sold or USD 39.99 per month (for unlimited products sold). Amazon also charges a referral fee which varies across product categories. Typically, this fee ranges between 8% to 15%. Amazon also charges fulfillment fees, which are shipping charges. The company charges different fees based on whether the seller wants to take advantage of FBA or wants to fulfill the order themselves. Finally, company also takes storage fees from the sellers for long term storage of products, based on the size of the packages.
The Fulfillment by Amazon (FBA) program allows the third-party sellers to store their products with Amazon and sell to a much larger customer base. It allows Amazon to sell a much larger variety of products to its customers, thereby taking advantage of the long tail approach. The long tail approach allows the company to sell large variety ofproducts which are of lower demand.
As highlighted in the diagram above, Amazon sells highly popular products with fewer categories, along with less popular products from more categories. This approach has allowed the company to sell large volume of products to a much larger target customer base. The FBA program, draws in more third-party seller, thereby supporting the long tail approach of the company. So, while preparing your college essay on Amazon, you need to keep in mind that Amazon benefits from higher economies of scale. The larger the inventory, the more revenue the company earns. Moreover, the company also earns from additional services such as Prime delivery, which offers faster delivery of products at an additional subscription fee.
Apart from the online retail sector, Amazon also operates in the media streaming sector. This service is offered under the brand name of Amazon Prime video. The company earns from the subscription fees from the users, which is USD 12.99 per month or USD 119 per year.Users who are subscribed to the Prime Video can access the entire library of Amazon Prime Video containing various, movies, TV series and other entertainment contents. Amazon is constantly updating its library of contents by adding new media contents. In order to differentiate its services from other Amazon competitors, like Netflix, the company has started to add more exclusive content in order to retain its customers. Thus, the primary source of income from the media streaming services comes from the subscription fees paid by the customers.
Amazon holds the leadership position in the cloud computing industry.It operates in this sector under the brand of Amazon Web Service (AWS). The company offers a range of cloud computing products and services to business clients, including virtual machine service, scalable cloud storage, database, developer tools, business applications, blockchain, application integration, AR and VR, among many others. At present, Amazon offers more than 160 cloud computing services which can meet the needs to large scale international enterprises to small and medium sized ventures. The scalable nature of AWS allows its customers to implement its services in any business application, irrespective of its scale. Amazon earns a significant portion of its revenue from AWS. As of 2019, the company earned USD 8.4 billion in revenue from its cloud computing services, which is a 37% increase from the previous year.
Amazon offers a pay-as-you-go payment system to its customers. There is no fixed subscription or onetime payment system for the AWS services. The clients are billed based on their usage of the service, without any long-term contract or commitment. This as a result allows the clients to have great flexibility in their business. They can easily use any tool or service that they want and only pay for the amount of usage. This payment allows Amazon to attract a large number of customers, from large corporations to small start up firms. Due to the pay-as-you-go payment model, even smaller firms can afford the services of AWS, as they will only need to pay the amount proportional to their business.
Before you start your own professional essay writing on Amazon, let us first summarize what we have found about the business model of Amazon. Amazon operates in multiple industries, which allows the company to earn revenue from multiple sources. In case of the online retail, the company earns from selling a variety of goods to the customers and also from the commissions earned from third party sellers who sell their own products on the platform. For the media streaming services, Amazon earns from the subscription fees paid by the users to access the content library. Finally, for the cloud computing services, Amazon offers more than 160 products and services, each of which are scalable, and has a flexible billing system. The pay-as-you-go model allows the customers to make payment for the services based on their usage. This as a result gives them great flexibility. From the organizational standpoint, this model attracts a wide variety of customers, from large enterprises to small scale business ventures.
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