Amazon has come a long way since they created their platform in the 1990s. Amazon’s convenience took customers away from the brick and mortar store experience.
Amazons customer obsession has allowed them to capture the online shopping market with brute force when you think Shopping online, you think about Amazon, don’t you.
In this article, I’m going to answer the following question; What type of ebusiness model is Amazon using?
Let’s explore it below.
Which Type of eBusiness Model is Amazon Using?
At its core, Amazon has an eCommerce business model. However, over the years, the brand has diversified and is now made up of a variety of different business models.
I think the below visual by Gary Fox perfectly sums up Amazon’s eBusiness model.
Along with their key content and manufacturing partnerships, they are also service suppliers (SaaS) and product distributors (eCommerce), catering to the demands of different consumer groups.
Then there is the information product and publishing side of the business, which is where Kindle Direct Publishing (KDP) fits in.
The subscription business model houses services such as Amazon Prime, Amazon Music and many more that you’ve probably never heard of.
Let’s take a closer look at Amazon’s revenue streams to give you an idea of how they make their money using these different business models.
Amazon’s Revenue Streams Summarized
- Amazon Marketplace. This is still the core of Amazon’s revenue stream. Over 50% of its revenue stems from their eCommerce business model. A large part of that revenue comes from 3rd party sellers like us!
- Kindle & Audible. Once upon a time, books were at the heart of Amazon’s business. While books are still sold on Amazon, Kindle eBooks and Audible audiobooks are far more popular in this day and age. Amazon continuously adapts in the face of ever-changing customer demand.
- Music, Video & Gaming. IMDB and twitch.tv are just two of the websites that contribute to Amazon’s SaaS revenue stream as does the Digital Game Store.
- Amazon Web Services (AWS) This is Amazons primary profit driver. Amazon web services is one of the most important aspects of their business model; they control more than a third of the cloud market. In 2020 AWS accounted for more than 13% of their $10 billion revenue.
- Amazon Fire. This includes products such as smartphones, tablets, Tv and Mobile OS.
- Amazon Prime. Prime members receive unique benefits for a monthly fee, including access to Prime Video.
- Amazon Tickets. While this is still a work in progress, a small portion of Amazon’s revenue can be attributed to global ticketing.
- Amazon Advertising. Another way that Amazon generates revenue is through display, video, and sponsored advertising. At the time of writing, they don’t make as much as Google or Facebook, but the numbers are still in the billions.
Amazon’s offering is not the sole reason for their success, though, in my opinion, it all comes down to their customer experience obsession!
Jeff Bezo’s Flywheel Concept
The Amazon Flywheel is a concept that Jeff Bezos swears by, and it is fuelled by customer experience.
Amazon’s commitment to customer experience and satisfaction is just one of the reasons why they are this successful.
So, what is the flywheel concept?
In essence, the better the customer experience, the more traffic and third-party sellers it drives to Amazon’s platforms.
When Jeff first applied this concept, it seemed counterintuitive – why would they want to drive competitors, in the form of third-party sellers, to their platform? The simple answer: it enhances the customer experience.
The flywheel concept is a growth strategy that helps Amazon speed up the process of having a more extensive selection.
This rich customer experience also has a knock-on effect. It gives Amazon the ability to lower cost structures, which ensures lower prices for customers. The result? An even better customer experience.
Why the eCommerce Model Works
So, as we’ve established, eCommerce is ultimately still at the heart of what Amazon does, although it isn’t where they make the most profit!
So, what is it about this business model that works so well?
- Inventory is Limitless. With the help of technology, there are no limits to how many products you can sell. Sourcing and shipping products is also easier than ever. Technology and online shopping is convenience at its best, and everyone loves convenience.
- It’s easier to shape the customer experience. From improving your online space to catering content and products to the specifics needs of different customer groups, technology makes it that much easier to create a stellar customer experience.
- Innovation comes more easily. Running an online business means you have access to in-depth data at any given moment. These insights and learnings make it that much easier to innovate and grow your offering.
- Lower operating costs. When overheads are lower, profits are higher, and there is more revenue available for research and development.
The eCommerce model makes a lot of sense, especially considering how prominent technology is in our lives. This is all fascinating, but how can we apply this to you? How do you know whether you are hitting the mark?
Success Criteria for the eCommerce Model (Or Any Business Model)
There are a few signs that indicate a business model is working for you:
- Revenue and profits are growing gradually and consistently
- Successful acquisitions and alliances have been established
- Differentiation is obvious
- The option to expand into new markets is possible
With eCommerce, however, there are a few other factors that contribute to the overall success of the business. Sometimes we make things more complicated than they need to be; life and business are straightforward if you keep things simple.
Here are the main factors:
- Providing users with a satisfying experience
- On-time and reliable delivery
- Adopting industry best practices
- Providing reliable payment methods
- Continuous innovation and introduction of unique product lines
- Use of effective marketing strategies
The more an eCommerce business can automate their processes and provide customers with a personalized experience, the higher the chances of success.
This is why in our business we have spent a lot of time on automation and building systems.
If I had to do it all again, this is how I would have started my Amazon Private Label business differently:
Which eBusiness Model Is Right for You?
I think anyone looking to step into the world of online entrepreneurship can learn a lot from Jeff Bezos’s processes and thinking.
At a glance, it is certainly easy enough to set up an eCommerce brand. However, building that brand, staying ahead of competitors, and implementing ongoing strategies is what takes time and effort.
Your choice of ebusiness model will depend on your strengths and interests, it sounds cliche, but when you are interested in what you do, it doesn’t feel like work. This philosophy allows you to keep going until you have the business that you desire.
When it comes to e-commerce, specific routes are much more straightforward than others, in my opinion. For me, it’s much easier to leverage Amazon to build your brand rather than attempting to drive all of your traffic from scratch.
The eCommerce business model has endless potential, provided you are willing to put in the effort.
If you are interested in Amazon FBA, I recommend signing up for the eBusiness Boss Private Label FBA Course. A shameless plug I know, but we are pretty proud of the training we have put together. I mean it’s changed our lives, why can’t it change yours!
You came here with the question; What type of ebusiness model is Amazon using? Hopefully, this article answers that question!
As always, if you have any questions about this business model, leave me a comment below.