Businessmodel of Amazon.com

Customer Segments

Amazon appeals to a mass market. Rather than targeting any specific demographics, Amazon’s  accessibility and sheer variety of physical and digital products mean that virtually anyone with an internet connection is a potential customer. Whether it’s physical goods or digital media they are after, Amazon has something to offer most consumers.

Amazon also has a loyal core customer segment, reportedly comprising tens of millions of people globally, in the form of its Amazon Prime subscribers, who pay an annual subscription fee for free express postage and other perks.

Value Proposition

Convenience, competitive pricing, brand recognition, and the sheer range of goods stocked are all central to Amazon’s value.

The ease with which consumers can buy a wide range of goods on Amazon is an important factor in Amazon’s success. Consumers know that Amazon is a well-stocked, competitively priced, safe, reliable and efficient platform for shopping, so they keep coming back. This is illustrated by one survey which found that 44% of American consumers said that, when shopping, they would go straight to Amazon to search for what they want without even looking at other websites. No other online retail platform can boast quite this level of ubiquity, and this is an essential part of Amazon’s value.

Founder Jeff Bezos emphasises that the Amazon brand has been central to the company’s success. Noting that “there’s nothing about our model that can’t be replicated”, he claims that the brand name “Amazon”, connoting ideas of something exotic, diverse and huge, has itself been key to the company’s success. Amazon has many e-commerce rivals, but few enjoy anywhere near the same level of global brand recognition. Everyone has heard of Amazon, and so for many, it is the first place they look when they want to buy something.

As Amazon developed and branched out into digital media streaming and the sale of ebooks, exclusivity has become an increasingly significant value proposition. These days AmazonStudios even creates original TV shows and movies which form a modest, but growing part of Amazon’s total value.

Channels

Amazon’s largest channel is its website *amazon.com. *It also maintains fourteen different versions of its website for customers from various countries across five continents. Products are also purchased through the Amazon smart-phone app, which functions as an increasingly important sales channel.

Many third-party electronics stores stock Amazon’s Kindle range of consumer electronics, providing an additional channel.

Customer Relationships

Making online shopping and the purchase of digital content easier for consumers has long been a focus of Amazon. Because of this, Amazon enjoys long-term relationships with millions of consumers worldwide who keep returning to Amazon time and time again to buy more products. They enjoy a particularly close relationship with their Amazon Prime subscribers, who, having paid their annual subscription fee, are likely to consistently use Amazon as their first port of call for online shopping.

Amazon.com offers a high degree of user interactivity. Shoppers may review purchases and place comments on nearly every page. Because of this, Amazon is sometimes referred to as not only the world’s largest retailer, but also the largest online community.

Amazon invests heavily in customer service. To ensure higher levels of customer satisfaction, they offer 24-hour customer service via email, phone or web-chat, as well as providing help forums where users may seek advice from the community.

Key Activities

Merchandising – of physical and digital goods, is clearly a key activity, but in the last decade, Amazon has invested substantially in production of digital content through Amazon Studios, and consumer electronics under the Kindle brand.

Key Resources

Amazon owns numerous physical resources such as warehouses and film studios, but Amazon’s technological infrastructure is also a key resource. In addition to owning many digital content streaming platforms they are also the world’s largest provider of cloud infrastructure services via their subsidiary, Amazon Web Services.

Amazon’s sophisticated technological infrastructure is a valuable key resources that is essential for the day-to-day functioning of its business. For example, Amazon operates some of the largest databases in the world, which they use to, among other things, keep records on customers’ consumption habits in order to engage in more efficient merchandising. In the era of “big data”, this is not an asset to be underestimated.

Key Partners

Manufacturers, third-party sellers, publishers and digital content producers are all key partners in Amazon’s operations.

Manufacturers of the physical goods that are stocked in Amazon’s warehouses are the obvious key partners. However, not all physical goods sold on Amazon are stored in their own warehouses, and a substantial percentage of revenue comes from third party sellers who Amazon allows to operate on their online platform.

The people who own the intellectual property that Amazon sells via the Kindle ecosystem and streaming platforms are also key partners.

Cost Structure

Amazon’s main online retail activities are cost-driven, meaning that they operate on a model whereby economy of scale is important. Warehousing and distribution comprise Amazon’s most significant cost drivers as the company operates a large number of massive warehouses globally. Amazon is working on driving these costs down by automating warehouse processing and delivery where possible. Other significant cost drivers include the running of numerous software development centres and customer service centres around the world.

Another key cost driver is the initial cost of purchasing the goods they sell, however they are able to stay competitive in this field by economies of scale.

Amazon’s intellectual property assets are value-driven, with the kindle ecosystem and Amazon’s various streaming services operating on the principle of creating value rather than minimizing costs.

Revenue Streams

Online retail remains Amazon’s largest revenue stream. Amazon stocks a huge range of physical products, the online sale of which still accounts for most of their revenue. Further revenue is made by taking commission from third-party retailers who use the Amazon platform.

Sale of E-books and streaming of digital content has been a growing source of revenue for Amazon over the last decade.

Other, smaller revenue streams include the Amazon Prime subscribers’ fee, and the sale of Amazon’s own Kindle range of electronics.