Amazon Inc.

Companies with digital business models, such as Apple, Facebook, Google and Amazon have managed to create and maintain large profit margins and exponential growth, redefining the competitive landscape for businesses globally. The major point of difference between these businesses and their more ‘traditional’ counterparts is the following. In industries that are regulated or limited in terms of product offerings, value will be defined by product features and prices. Digital business is expansive in the choice space, absorbing other market incumbents’ market base, as well as adding new facets to the value proposition on offer, in terms of customer, company and partner value (Keen & Williams, 2013, p 643). The defining characteristic of digital businesses is that innovation is focused on its interface with various stakeholders, such as clients, customers, suppliers etc. In general, the value proposition and monetization are defined by how technology is leveraged to enhance existing business models and capitalize on opportunities available to businesses based on traditional business models.

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Amazon is a cloud computing and e-commerce company, often referred to as the world’s largest online retailer. Its business model has evolved to include several physical stores as well. In recent years it has made many strategic acquisitions, which has increased revenues over 30 percent. Most of these function within the e-commerce space. Notable among these are Zappos, an online apparel and footwear website, PillPack Inc., an online pharmacy, which ships medications all over the US, Twitch Interactive, one of the most popular video-game streaming platforms in the world, and CloudEndure, a cloud computing company.

In addition, Amazon also owns Amazon Prime, an online subscription service, which gives users additional benefits such as accelerated delivery options and allows access to a host of other services such as music and video streaming, encouraging customer loyalty through repeat purchases, generating a crucial revenue stream for the company as whole.

Amazon Web Services (AWS), is a subsidiary of Amazon, that offers cloud computing platforms and programming interfaces to customers, on a low pay-as-you-go pricing model without upfront expenses or long-term commitments. In 2019 AWS reported a revenue of $35 billion, which is 12.5 percent of the company’s total 2019 revenue, up from 11 percent in the preceding year. Earnings numbers show that revenue from AWS is growing much faster than for rest of the company. AWS’s profitability arises from the fact that businesses providing cloud infrastructures are fundamentally scalable after initial capital investments. In addition, by offering a pay-as-you-go model for customers it has managed to capture large swathes of the market share.

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In business, a ‘flywheel’ is used to denote a strategy in business, whereby output or revenue is increased without increasing input or cost. Amazon exemplifies this in how its varied businesses, most of which are based online, use the ‘flywheel effect’ not only to increase traffic to its existing platforms, but also enter into completely different industries. Amazon Prime attracts people who want a wide range of products quickly. They enjoy ancillary services like Amazon Prime Video thereby increasing time spent on the platform. The magnitude of people using the platform make it more attractive to advertisers, this leads to more products, which leads to more purchases, which leads to greater investment in the business. Amazon Media Group is the third largest advertiser in the world.

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Amazon leverages its multiple online businesses to create value, further avenues for investment and multiple sources of revenue. Its competitive advantage stems from the interconnectedness of all its businesses/ revenue streams and the resulting synergies. This has resulted in the cannibalization of the market share of many competitors and made it virtually impossible for new entrants to compete with an intimidating behemoth.

References:

Amazon Web Services. (2019, November 30). What is AWS? Retrieved from https://youtu.be/a9__D53WsUs

AWS. (n.d.). About AWS. Retrieved from https://aws.amazon.com/about-aws/

Business Strategy Hub. (n.d.). Business Model Canvass of Amazon. Retrieved from https://bstrategyhub.com/how-does-amazon-makes-money/

CNBC. (2019, February 18). How Amazon Makes Money Retrieved from https://youtu.be/3nGAQWyzY94

Cuofano, G. (n.d.). Amazon Flywheel: Amazon Virtuous Cycle In A Nutshell. Retrieved from https://fourweekmba.com/amazon-flywheel/

Cuofano, G. (n.d.). How Amazon Makes Money: Amazon Business Model in a Nutshell. [Weblog]. Retrieved from https://fourweekmba.com/amazon-business-model/

Galloway, S. (2020, February 14). Land of the Undead. Retrieved from https://www.profgalloway.com/land-of-the-undead

Keen, P., & Williams, R. (2013). Value Architectures for Digital Business: Beyond the Business Model. MIS Quarterly, 37(2), 643-647. Retrieved February 15, 2020, from www.jstor.org/stable/43825929

Mohsin, M. (2019, August 29). 10 Amazon Statistics You Need to Know in 2020 [Amazon Stats Infographic]. Retrieved from https://www.oberlo.com/blog/amazon-statistics

Niu, E. (2015, October 25). Amazon Web Services Is Amazon.com’s Shining Profitable Star. Retrieved from https://www.fool.com/investing/general/2015/10/25/amazon-web-services-is-amazoncoms-shining-profitab.aspx

Reiff, N. (2019, June 25). Top 7 Companies Owned by Amazon. Retrieved from https://www.investopedia.com/articles/markets/102115/top-10-companies-owned-amazon.asp

Sparks, D. (2020, February 6). Amazon’s Record 2019 in 7 Metrics. Retrieved from https://www.fool.com/investing/2020/02/06/amazons-record-2019-in-7-metrics.aspx