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Amazon.com marketing strategy 2023: E-commerce retail giant business case study

What goes into the Amazon marketing strategy secret sauce? Our business case study explores Amazon's revenue model and culture of customer metrics, history of Amazon.com and marketing objectives

In the final quarter of 2022, Amazon reported net sales of over $149.2 billion. This seasonal spike is typical of Amazon's quarterly reporting , but the growth is undeniable as this was the company's highest quarter ever.

There is no doubt that the e-commerce retail giant continues to lead the way in e-commerce growth. The Amazon marketing strategy we are familiar with today has evolved since it was founded in 1994.

I've highlighted the Amazon marketing strategy case study in my books for nearly 20 years now since I think all types of businesses can learn from their digital business strategy. Their response to the pandemic is impressive but not entirely surprising for a brand that is ' customer obsessed '.

From startups and small businesses to large international businesses, we can all learn from their focus on the customer, particularly at this time, testing market opportunities made available by digital technology, and their focus on testing and analysis to improve results.

Their focus on customer experience put Amazon in the role of a thought leader in e-commerce experience. However, whether due to diminished customer service, or increasing customer expectations, or a mixture of the two, fulled by a global pandemic - notably, 2020 was the first time Amazon's ACSI customer satisfaction rating dropped below 80 since launch, to 65%.

With customer satisfaction now measuring at 79% in 2022 , customer satisfaction in Amazon has risen again, but is still not as high as it once was.

Currently, Forbes gives a consensus recommendation to buy Amazon stock, giving a return on assets (TTM) of 1.73%. The stock performance is not as high as we saw in 2020 and 2021, but it did show some growth in late 2022 - early 2023.

I aim to keep this case study up-to-date for readers of the books and Smart Insights readers who may be interested. In it, we look at Amazon's background, revenue model, and sources for the latest business results.

We can also learn from their digital marketing strategy, since they use digital marketing efficiently across all customer communications touchpoints in our RACE Framework :

• Reach : Amazon's initial business growth based on a detailed approach to SEO and AdWords targeting millions of keywords.
• Act : Creating clear and simple experiences through testing and learning.
• Convert : Using personalization to make relevant recommendations and a clear checkout process that many now imitate.
• Engage : Amazon's customer-centric culture delights customers and keeps them coming back for more.

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Amazon's growth and business model evolution

Forbes credits Amazon's success to 3 rules which it breaks, but we 'probably shouldn't'!

• Strategy is about focus - although Amazon has an incredible number of strands to the business today.
• Don’t throw good money after bad - with criticism in particular of Amazon's investment in groceries.
• Your core competencies determine what you can and can’t do - developing the Kindle with no hardware manufacturing experience.

In this way, Forbes outlines a 'risky' approach to marketing strategy which, for Amazon, paid off in dividends. So, there is plenty to learn from studying this company, even if we decide not to replicate all tactics and strategies.

Amazon.com mission and vision

When it first launched, Amazon’s had a clear and ambitious mission. To offer:

Earth’s biggest selection and to be Earth’s most customer-centric company.

Today, with business users of its Amazon Web Service representing a new type of customer, Amazon says:

this goal continues today, but Amazon’s customers are worldwide now and have grown to include millions of Con-sumers, Sellers, Content Creators, Developers, and Enterprises. Each of these groups has different needs, and we always work to meet those needs, by innovating new solutions to make things easier, faster, better, and more cost-effective.

20 years later, Amazon are still customer-centric, in fact, in the latest Amazon Annual report , 2021, Jeff Bezos of Amazon explains customer obsession.

"We seek to be Earth’s most customer-centric company and believe that our guiding principle of customer obsession is one of our greatest strengths. We seek to offer our customers a comprehensive selection of products, low prices, fast and free delivery, easy-to-use functionality, and timely customer service. By focusing obsessively on customers, we are internally driven to improve our services, add benefits and features, invent new products, lower prices, increase product selection, and speed up shipping times—before we have to."

Amazon business and revenue model

I recommend anyone studying Amazon checks the latest annual reports, proxies, and shareholder letters. The annual filings give a great summary of eBay business and revenue models.

The 2020 report includes a great vision for Digital Agility (reprinted from 1997 in their latest annual report) showing testing of business models that many businesses don't yet have. Amazon explain:

"We will continue to measure our programs and the effectiveness of our investments analytically, to jettison those that do not provide acceptable returns, and to step up our investment in those that work best. We will continue to learn from both our successes and our failures".

They go on to explain that business models are tested from a long-term perspective, showing the mindset of CEO Jeff Bezos:

We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.

The latest example of innovation in their business model is the launch of Amazon Go, a new kind of store with no checkout required. Boasting a "Just Walk Out Shopping experience",the Amazon Go app users enter the store, take the products they want, and go with no lines and no checkout.

More recently, there have been a range of business model innovations focussed on hardware and new services: Kindle e-readers, Fire Tablet, smartphone and TV, Echo (using the Alexa Artificial Intelligence voice-assistant), grocery delivery, Amazon Fashion and expansion to the business-oriented Amazon Web Services (AWS). Amazon Prime, an annual membership program that includes unlimited free shipping and then involved diversification to a media service with access to unlimited instant streaming of thousands of movies and TV episodes.

AWS is less well-known outside of tech people, but Amazon is still pursuing this cloud service aggressively. They now have 10 AWS regions around the world, including the East Coast of the U.S., two on the West Coast, Europe, Singapore, Tokyo, Sydney, Brazil, China, and a government-only region called GovCloud.

Amazon marketing strategy

In their 2008 SEC filing, Amazon describes the vision of their business as to:

“Relentlessly focus on customer experience by offering our customers low prices, convenience, and a wide selection of merchandise.”

The vision is still to consider how the core Amazon marketing strategy value proposition is communicated both on-site and through offline communications.

Of course, achieving customer loyalty and repeat purchases has been key to Amazon’s success. Many dot-coms failed because they succeeded in achieving awareness, but not loyalty. Amazon achieved both. In their SEC filing they stress how they seek to achieve this. They say:

" We work to earn repeat purchases by providing easy-to-use functionality, fast and reliable fulfillment, timely customer service, feature-rich content, and a trusted transaction environment.

Key features of Amazon include:

• editorial and customer reviews;
• manufacturer product information;
• web pages tailored to individual preferences, such as recommendations and notifications; 1-Click® technology;
• secure payment systems;
• image uploads;
• searching on our websites as well as the Internet;
• browsing; and the ability to view selected interior pages and citations, and search the entire contents of many of the books we offer with our “Look Inside the Book” and “Search Inside the Book” features.

The community of online customers also creates feature-rich content, including product reviews, online recommendation lists, wish lists, buying guides, and wedding and baby registries."

In practice, as is the practice for many online retailers, the lowest prices are for the most popular products, with less popular products commanding higher prices and a greater margin for Amazon.

Free shipping offers are used to encourage increase in basket size since customers have to spend over a certain amount to receive free shipping. The level at which free shipping is set is critical to profitability and Amazon has changed it as competition has changed and for promotional reasons.

Amazon communicates the fulfillment promise in several ways including the presentation of the latest inventory availability information, delivery date estimates, and options for expedited delivery, as well as delivery shipment notifications and update facilities.

This focus on customer has translated to excellence in service with the 2004 American Customer Satisfaction Index giving Amazon.com a score of 88 which was at the time, the highest customer satisfaction score ever recorded in any service industry, online or offline.

Round (2004) notes that Amazon focuses on customer satisfaction metrics. Each site is closely monitored with standard service availability monitoring (for example, using Keynote or Mercury Interactive) site availability and download speed. Interestingly it also monitors per minute site revenue upper/lower bounds – Round describes an alarm system rather like a power plant where if revenue on a site falls below $10,000 per minute, alarms go off! There are also internal performance service-level-agreements for web services where T% of the time, different pages must return in X seconds.

The importance of technology and an increased focus on Artificial Intelligence and Machine Learning

According to founder and CEO, Jeff Bezos, technology is very important to supporting this focus on the customer. In their 2010 Annual Report (Amazon, 2011) he said:

“Look inside a current textbook on software architecture, and you’ll find few patterns that we don’t apply at Amazon. We use high-performance transactions systems, complex rendering and object caching, workflow and queuing systems, business intelligence and data analytics, machine learning and pattern recognition, neural networks and probabilistic decision making, and a wide variety of other techniques." And while many of our systems are based on the latest in computer science research, this often hasn’t been sufficient: our architects and engineers have had to advance research in directions that no academic had yet taken. Many of the problems we face have no textbook solutions, and so we — happily — invent new approaches”… All the effort we put into technology might not matter that much if we kept technology off to the side in some sort of R&D department, but we don’t take that approach. Technology infuses all of our teams, all of our processes, our decision-making, and our approach to innovation in each of our businesses. It is deeply integrated into everything we do”.

The quote shows how applying new technologies is used to give Amazon a competitive edge. A good recent example of this is providing the infrastructure to deliver the Kindle “Whispersync” update to ebook readers. Amazon reported in 2011 that Amazon.com is now selling more Kindle books than paperback books. For every 100 paperback books Amazon has sold, the Company sold 115 Kindle books. Kindle apps are now available on Apple iOS, Android devices and on PCs as part of a “ Buy Once, Read Anywhere ” proposition which Amazon has developed.

Some of the more recent applications of AI at Amazon are highly visible, for example, the Amazon Echo assistant and technology in the Amazon Go convenience store that uses machine vision to eliminate checkout lines.

In their 2017 report, they describe the increased use of machine learning and AI ‘behind the scenes’ at Amazon:   "much of what we do with machine learning happens beneath the surface. Machine learning drives our algorithms for demand forecasting, product search ranking, product and deals recommendations, merchandising placements, fraud detection, translations, and much more. Though less visible, much of the impact of machine learning will be of this type – quietly but meaningfully improving core operations".

Amazon Customers

Amazon defines what it refers to as three consumer sets customers, seller customers and developer customers.

There are over 76 million customer accounts, but just 1.3 million active seller customers in it’s marketplaces and Amazon is seeking to increase this. Amazon is unusual for a retailer in that it identifies “developer customers” who use its Amazon Web Services, which provides access to technology infrastructure such as hosting that developers can use to develop their own web services.

Members are also encouraged to join a loyalty program, Amazon Prime, a fee-based membership program in which members receive free or discounted express shipping, in the United States, the United Kingdom, Germany, and Japan.

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As we know, e-commerce marketing is all about the customers. Our RACE Growth System down your customer journeys into a simple 5-step structure of plan - reach - act - convert - engage. Create a winning retail e-commerce marketing strategy with Smart Insights, to acquire and retain more customers, and accelerate your ROI. Get started today.

Competition

In its 2017 SEC filing Amazon describes the environment for our products and services as ‘intensely competitive’. It views its main current and potential competitors as:

• 1) online, offline, and multichannel retailers, publishers, vendors, distributors, manufacturers, and producers of the products we offer and sell to consumers and businesses;
• (2) publishers, producers, and distributors of physical, digital, and interactive media of all types and all distribution channels;
• (3) web search engines, comparison shopping websites, social networks, web portals, and other online and app-based means of discovering, using, or acquiring goods and services, either directly or in collaboration with other retailers;
• (4) companies that provide e-commerce services, including website development, advertising, fulfillment, customer service, and payment processing;
• (5) companies that provide fulfillment and logistics services for themselves or for third parties, whether online or offline;
• (6) companies that provide information technology services or products, including on- premises or cloud-based infrastructure and other services; and
• (7) companies that design, manufacture, market, or sell consumer electronics, telecommunication, and electronic devices.

It believes the main competitive factors in its market segments include "selection, price, availability, convenience, information, discovery, brand recognition, personalized services, accessibility, customer service, reliability, speed of fulfillment, ease of use, and ability to adapt to changing conditions, as well as our customers’ overall experience and trust in transactions with us and facilitated by us on behalf of third-party sellers".

For services offered to business and individual sellers, additional competitive factors include the quality of our services and tools, their ability to generate sales for third parties we serve, and the speed of performance for our services.

From Auctions to marketplaces

Amazon auctions (known as zShops) were launched in March 1999, in large part as a response to the success of eBay. They were promoted heavily from the home page, category pages and individual product pages. Despite this, a year after its launch it had only achieved a 3.2% share of the online auction compared to 58% for eBay and it only declined from this point.

Today, competitive prices of products are available through third-party sellers in the ‘Amazon Marketplace’ which are integrated within the standard product listings. A winning component of the Amazon marketing strategy for marketplaces was the innovation to offer such an auction facility, initially driven by the need to compete with eBay. But now the strategy has been adjusted such that Amazon describe it as part of the approach of low-pricing.

Although it might be thought that Amazon would lose out on enabling its merchants to sell products at lower prices, in fact Amazon makes greater margin on these sales since merchants are charged a commission on each sale and it is the merchant who bears the cost of storing inventory and fulfilling the product to customers. As with eBay, Amazon is just facilitating the exchange of bits and bytes between buyers and sellers without the need to distribute physical products.

Amazon Media sales

You may have noticed that unlike some retailers, Amazon displays relevant Google text ads and banner ads from brands. This seems in conflict with the marketing strategy of focus on experience since it leads to a more cluttered store. However in 2011 Amazon revealed that worldwide media sales accounted for approximately 17% of revenue!

Whilst it does not reveal much about the Amazon marketing strategy approach in its annual reports, but there seems to be a focus on online marketing channels. Amazon (2011) states “we direct customers to our websites primarily through a number of targeted online marketing channels, such as our Associates program, sponsored search, portal advertising, email marketing campaigns, and other initiatives”.

These other initiatives may include outdoor and TV advertising, but they are not mentioned specifically. In this statement they also highlight the importance of customer loyalty tools. They say: “while costs associated with free shipping are not included in marketing expense, we view free shipping offers and Amazon Prime as effective worldwide marketing tools, and intend to continue offering them indefinitely”.

How ‘The Culture of Metrics’ started

A common theme in Amazon’s development is the drive to use a measured approach to all aspects of the business, beyond the finance. Marcus (2004) describes an occasion at a corporate ‘boot-camp’ in January 1997 when Amazon CEO Jeff Bezos ‘saw the light’. ‘

At Amazon, we will have a Culture of Metrics’, he said while addressing his senior staff. He went on to explain how web-based business gave Amazon an ‘amazing window into human behaviour’.

Marcus says: ‘Gone were the fuzzy approximations of focus groups, the anecdotal fudging and smoke blowing from the marketing department' - the Amazon marketing strategy was reborn!

A company like Amazon could (and did) record every move a visitor made, every last click and twitch of the mouse. As the data piled up into virtual heaps, hummocks and mountain ranges, you could draw all sorts of conclusions about their chimerical nature, the consumer. In this sense, Amazon was not merely a store, but an immense repository of facts. All we needed were the right equations to plug into them’.

James Marcus then goes on to give a fascinating insight into a breakout group discussion of how Amazon could better use measures to improve its performance. Marcus was in the Bezos group, brainstorming customer-centric metrics. Marcus (2004) summarises the dialogue, led by Bezos:

"First, we figure out which things we’d like to measure on the site", he said.

"For example, let’s say we want a metric for customer enjoyment. How could we calculate that?"

"There was silence. Then somebody ventured: "How much time each customer spends on the site?"

"Not specific enough", Jeff said.

"How about the average number of minutes each customer spends on the site per session" someone else suggested. "If that goes up, they’re having a blast".

"But how do we factor in the purchase?" I [Marcus] said feeling proud of myself.

"Is that a measure of enjoyment"?

"I think we need to consider the frequency of visits, too", said a dark-haired woman I didn’t recognize.

“Lot of folks are still accessing the web with those creepy-crawly modems. Four short visits from them might be just as good as one visit from a guy with a T-1. Maybe better’.

"Good point", Jeff said. "And anyway, enjoyment is just the start. In the end, we should be measuring customer ecstasy"

It is interesting that Amazon was having this debate about the elements of RFM analysis (described in Chapter 6 of Internet Marketing), 1997, after already having achieved $16 million of revenue in the previous year. Of course, this is a minuscule amount compared with today’s billions of dollar turnover. The important point was that this was the start of a focus on metrics which can be seen through the description of Matt Pounds work later in this case study.

Amazon marketing strategy experiments!

Amazon have created their own internal experimentation platform called a “Weblab” that they use to evaluate improvements to our websites and products. In 2013, they ran 1,976 Weblabs worldwide, up from 1,092 in 2012, and 546 in 2011. Now many companies use AB testing, but this shows the scale of testing at Amazon.

One example of how these are applied is a new feature called “Ask an owner”.  From a product page, customers can ask any question related to the product, Amazon then route these questions to owners of the product who answer.

From human to software-based recommendations

Amazon marketing strategy has developed internal tools to support this ‘Culture of Metrics’. Marcus (2004) describes how the ‘Creator Metrics’ tool shows content creators how well their product listings and product copy are working. For each content editor such as Marcus, it retrieves all recently posted documents including articles, interviews, booklists and features. For each one it then gives a conversion rate to sale plus the number of page views, adds (added to basket) and repels (content requested, but the back button then used).

In time, the work of editorial reviewers such as Marcus was marginalised since Amazon found that the majority of visitors used the search tools rather than read editorial and they responded to the personalised recommendations as the matching technology improved (Marcus likens early recommendations techniques to ‘going shopping with the village idiot’).

Experimentation and testing at Amazon.com

The ‘Culture of Metrics’ also led to a test-driven approach to improving results at Amazon. Matt Round, speaking at E-metrics 2004 when he was director of personalisation at Amazon describes the philosophy as ‘Data Trumps Intuitions’. He explained how Amazon used to have a lot of arguments about which content and promotion should go on the all important home page or category pages. He described how every category VP wanted top-center and how the Friday meetings about placements for next week were getting ‘too long, too loud, and lacked performance data’.

But today ‘automation replaces intuitions’ and real-time experimentation tests are always run to answer these questions since actual consumer behaviour is the best way to decide upon tactics.

Marcus (2004) also notes that Amazon has a culture of experiments of which A/B tests are key components. Examples where A/B tests are used include new home page design, moving features around the page, different algorithms for recommendations, changing search relevance rankings. These involve testing a new treatment against a previous control for a limited time of a few days or a week. The system will randomly show one or more treatments to visitors and measure a range of parameters such as units sold and revenue by category (and total), session time, session length, etc. The new features will usually be launched if the desired metrics are statistically significantly better.

Statistical tests are a challenge though as distributions are not normal (they have a large mass at zero for example of no purchase) There are other challenges since multiple A/B tests are running every day and A/B tests may overlap and so conflict. There are also longer-term effects where some features are ‘cool’ for the first two weeks and the opposite effect where changing navigation may degrade performance temporarily. Amazon also finds that as its users evolve in their online experience the way they act online has changed. This means that Amazon has to constantly test and evolve its features.

With the latest announcement from Google to sunset their Google Optimize A/B testing , digital marketers will do well to look out for new technology to assist in their testing efforts. We'll keep our members updated with announcements

Amazon.com technology marketing strategy

It follows that the Amazon technology infrastructure must readily support this culture of experimentation and this can be difficult to achieved with standardised content management. Amazon has achieved its competitive advantage through developing its technology internally and with a significant investment in this which may not be available to other organisations without the right focus on the online channels.

As Amazon explains in SEC (2005) ‘using primarily our own proprietary technologies, as well as technology licensed from third parties, we have implemented numerous features and functionality that simplify and improve the customer shopping experience, enable third parties to sell on our platform, and facilitate our fulfillment and customer service operations. Our current strategy is to focus our development efforts on continuous innovation by creating and enhancing the specialized, proprietary software that is unique to our business, and to license or acquire commercially-developed technology for other applications where available and appropriate. We continually invest in several areas of technology, including our seller platform; A9.com, our wholly-owned subsidiary focused on search technology on www.A9.com and other Amazon sites; web services; and digital initiatives.’

Round (2004) describes the technology approach as ‘distributed development and deployment’. Pages such as the home page have a number of content ‘pods’ or ‘slots’ which call web services for features. This makes it relatively easy to change the content in these pods and even change the location of the pods on-screen. Amazon uses a flowable or fluid page design unlike many sites which enables it to make the most of real-estate on-screen.

Technology also supports more standard e-retail facilities. SEC (2005) states: ‘We use a set of applications for accepting and validating customer orders, placing and tracking orders with suppliers, managing and assigning inventory to customer orders, and ensuring proper shipment of products to customers. Our transaction-processing systems handle millions of items, a number of different status inquiries, multiple shipping addresses, gift-wrapping requests, and multiple shipment methods. These systems allow the customer to choose whether to receive single or several shipments based on availability and to track the progress of each order. These applications also manage the process of accepting, authorizing, and charging customer credit cards.’

Data-driven Automation

Round (2004) said that ‘Data is king at Amazon’. He gave many examples of data driven automation including customer channel preferences; managing the way content is displayed to different user types such as new releases and top-sellers, merchandising and recommendation (showing related products and promotions) and also advertising through paid search (automatic ad generation and bidding).

The automated search advertising and bidding system for paid search has had a big impact at Amazon. Sponsored links initially done by humans, but this was unsustainable due to range of products at Amazon. The automated programme generates keywords, writes ad creative, determines best landing page, manages bids, measure conversion rates, profit per converted visitor and updates bids. Again the problem of volume is there, Matt Round described how the book ‘How to Make Love Like a Porn Star’ by Jenna Jameson received tens of thousands of clicks from pornography-related searches, but few actually purchased the book. So the update cycle must be quick to avoid large losses.

There is also an automated email measurement and optimization system. The campaign calendar used to be manually managed with relatively weak measurement and it was costly to schedule and use. A new system:

• Automatically optimizes content to improve customer experience
• Avoids sending an e-mail campaign that has low clickthrough or high unsubscribe rate
• Includes inbox management (avoid sending multiple emails/week)
• Has growing library of automated email programs covering new releases and recommendations

But there are challenges if promotions are too successful if inventory isn’t available.

Your Recommendations

Customers Who Bought X…, also bought Y is Amazon’s signature feature. Round (2004) describes how Amazon relies on acquiring and then crunching a massive amount of data. Every purchase, every page viewed and every search is recorded. So there are now to new version, customers who shopped for X also shopped for… and Customers who searched for X also bought… They also have a system codenamed ‘Goldbox’ which is a cross-sell and awareness raising tool. Items are discounted to encourage purchases in new categories!

See the original more detailed PDF article on Amazon personalization / recommendation collaborative filtering system .

He also describes the challenge of techniques for sifting patterns from noise (sensitivity filtering) and clothing and toy catalogues change frequently so recommendations become out of date. The main challenges though are the massive data size arising from millions of customers, millions of items and recommendations made in real time.

Amazon marketing strategy for partnerships

As Amazon grew, its share price growth enabled partnership or acquisition with a range of companies in different sectors. Marcus (2004) describes how Amazon partnered with Drugstore.com (pharmacy), Living.com (furniture), Pets.com (pet supplies), Wineshopper.com (wines), HomeGrocer.com (groceries), Sothebys.com (auctions) and Kozmo.com (urban home delivery). In most cases, Amazon purchased an equity stake in these partners, so that it would share in their prosperity. It also charged them fees for placements on the Amazon site to promote and drive traffic to their sites.

Similarly, Amazon marketing strategy was to charge publishers for prime-position to promote books on its site which caused an initial hue-and-cry, but this abated when it was realised that paying for prominent placements was widespread in traditional booksellers and supermarkets. Many of these new online companies failed in 1999 and 2000, but Amazon had covered the potential for growth and was not pulled down by these partners, even though for some such as Pets.com it had an investment of 50%.

Analysts sometimes refer to ‘Amazoning a sector’ meaning that one company becomes dominant in an online sector such as book retail such that it becomes very difficult for others to achieve market share. In addition to developing, communicating and delivering a very strong proposition, Amazon has been able to consolidate its strength in different sectors through its partnership arrangements and through using technology to facilitate product promotion and distribution via these partnerships. The Amazon retail platform enables other retailers to sell products online using the Amazon user interface and infrastructure through their ‘Syndicated Stores’ programme.

For example, in the UK, Waterstones (www.waterstones.co.uk) is one of the largest traditional bookstores. It found competition with online so expensive and challenging, that eventually it entered a partnership arrangement where Amazon markets and distributes its books online in return for a commission online. Similarly, in the US, Borders a large book retailer uses the Amazon merchant platform for distributing its products.

Toy retailer Toys R’ Us have a similar arrangement. Such partnerships help Amazon extends its reach into the customer-base of other suppliers, and of course, customers who buy in one category such as books can be encouraged to purchase into other areas such as clothing or electronics.

Another form of partnership referred to above is the Amazon Marketplace which enables Amazon customers and other retailers to sell their new and used books and other goods alongside the regular retail listings. A similar partnership approach is the Amazon ‘Merchants@’ program which enables third party merchants (typically larger than those who sell via the Amazon Marketplace) to sell their products via Amazon. Amazon earn fees either through fixed fees or sales commissions per-unit. This arrangement can help customers who get a wider choice of products from a range of suppliers with the convenience of purchasing them through a single checkout process.

Finally, Amazon marketing strategy has also facilitated formation of partnerships with smaller companies through its affiliates programme. Internet legend records that Jeff Bezos, the creator of Amazon was chatting to someone at a cocktail party who wanted to sell books about divorce via her web site. Subsequently, Amazon.com launched its Associates Program in July 1996 and it is still going strong.

Here, the Amazon marketing strategy has created a tiered performance-based incentives to encourage affiliates to sell more Amazon products.

Amazon Marketing strategy communications

In their SEC filings Amazon state that the aims of their communications strategy are (unsurprisingly) to:

• Increase customer traffic to our websites
• Create awareness of our products and services
• Promote repeat purchases
• Develop incremental product and service revenue opportunities
• Strengthen and broaden the Amazon.com brand name.

Amazon also believes that its most effective marketing communications are a consequence of their focus on continuously improving the customer experience. This then creates word-of-mouth promotion which is effective in acquiring new customers and may also encourage repeat customer visits.

As well as this Marcus (2004) describes how Amazon used the personalisation enabled through technology to reach out to a difficult to reach market which Bezos originally called ‘the hard middle’. Bezos’s view was that it was easy to reach 10 people (you called them on the phone) or the ten million people who bought the most popular products (you placed a superbowl ad), but more difficult to reach those in between. The search facilities in the search engine and on the Amazon site, together with its product recommendation features meant that Amazon could connect its products with the interests of these people.

Online advertising techniques include paid search marketing, interactive ads on portals, e-mail campaigns and search engine optimisation. These are automated as far as possible as described earlier in the case study. As previously mentioned, the affiliate programme is also important in driving visitors to Amazon and Amazon offers a wide range of methods of linking to its site to help improve conversion.

For example, affiliates can use straight text links leading direct to a product page and they also offer a range of dynamic banners which feature different content such as books about Internet marketing or a search box. Amazon also use cooperative advertising arrangements, better known as ‘contra-deals’ with some vendors and other third parties. For example, a print advertisement in 2005 for a particular product such as a wireless router with a free wireless laptop card promotion will feature a specific Amazon URL in the ad. In product fulfilment packs, Amazon may include a leaflet for a non-competing online company such as Figleaves.com (lingerie) or Expedia (travel). In return, Amazon leaflets may be included in customer communications from the partner brands.

Our Associates program directs customers to our websites by enabling independent websites to make millions of products available to their audiences with fulfillment performed by us or third parties. We pay commissions to hundreds of thousands of participants in our Associates program when their customer referrals result in product sales.

In addition, we offer everyday free shipping options worldwide and recently announced Amazon.com Prime in the U.S., our first membership program in which members receive free two-day shipping and discounted overnight shipping. Although marketing expenses do not include the costs of our free shipping or promotional offers, we view such offers as effective marketing tools.

Marcus, J. (2004) Amazonia. Five years at the epicentre of the dot-com juggernaut, The New Press, New York, NY.

Round, M. (2004) Presentation to E-metrics, London, May 2005. www.emetrics.org.

By Dave Chaffey

Digital strategist Dr Dave Chaffey is co-founder and Content Director of online marketing training platform and publisher Smart Insights. 'Dr Dave' is known for his strategic, but practical, data-driven advice. He has trained and consulted with many business of all sizes in most sectors. These include large international B2B and B2C brands including 3M, BP, Barclaycard, Dell, Confused.com, HSBC, Mercedes-Benz, Microsoft, M&G Investment, Rentokil Initial, O2, Royal Canin (Mars Group) plus many smaller businesses. Dave is editor of the templates, guides and courses in our digital marketing resource library used by our Business members to plan, manage and optimize their marketing. Free members can access our free sample templates here . Dave is also keynote speaker, trainer and consultant who is author of 5 bestselling books on digital marketing including Digital Marketing Excellence and Digital Marketing: Strategy, Implementation and Practice . In 2004 he was recognised by the Chartered Institute of Marketing as one of 50 marketing ‘gurus’ worldwide who have helped shape the future of marketing. My personal site, DaveChaffey.com, lists my latest Digital marketing and E-commerce books and support materials including a digital marketing glossary . Please connect on LinkedIn to receive updates or ask me a question .

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Amazon Marketing Strategy Case Study for The Curious

According to Statista, Amazon’s net sales revenue went from $61.09 billion to $513.98 billion between 2012 and 2022 – an incredible eight-fold increase. You wonder how much bigger it could get. But, the company certainly has figured out how to do marketing right and keep customers coming back for more.

So, what is it about Amazon’s marketing strategy that makes it so much better than the rest? Well, Amazon closely guards its trade secrets, but if you go through its annual reports over the years, you can glean many nuggets from its marketing playbook – real-world lessons you can apply to your own business. We did exactly that to bring you this comprehensive Amazon marketing strategy case study.

In this blog, we’ll dissect Amazon’s approach to marketing strategy and distill takeaways you can act on right away.

Let’s get started.

Table of Contents

Amazon Business Milestones

We’ve picked out some key milestones from Amazon’s business timeline to provide context on some of its most consequential marketing strategy pivots.

Amazon starts operations as an online bookstore.

The company adds music CDs and DVDs to its product line-up. 

Amazon introduces 1-click ordering allowing customers to save their billing and shipping details and check out with just one click. Amazon Associates takes off. Third-party websites could now place Amazon affiliate links and get a commission on each sale they facilitated.

Amazon launches Marketplace – a hub for third-party sellers to list and sell their products alongside its own. 

Amazon announces the launch of Sponsored Product Ads for sellers to promote their listings. 

Amazon Prime goes live. As an eCommerce loyalty program, it was the first of its kind and created a new revenue stream for the company.

Amazon introduces Marketing Services – a platform for sellers to create custom Amazon product ads and display ads.

Amazon launched the Amazon Demand Side Platform, or Amazon DSP, a platform that extends ad coverage to other websites and platforms.

Amazon’s sponsored product ads are now available for third-party sites.

6 Insightful Amazon Marketing Strategy Case Studies

Here are some examples of how Amazon’s marketing strategy evolved over the years.

1. How Amazon disrupted the market with a fixed-price business model 

The challenge.

In 1999, Amazon launched zShops, an auction platform to compete with market leader eBay. However, it could barely make a dent. Despite heavy promotion across Amazon.com, the results remained below par. 

The solution

Amazon soon realized that the auction model had become saturated. It decided to introduce a new fixed-price marketplace model. In it, each Amazon product page would carry parallel listings from third-party sellers, giving customers more options at the lowest prices.

Used books were the first items to be sold this way. Customers could choose whether to buy from Amazon or a third party. If the customer chooses to buy from a third party, Amazon makes a commission on the sale. 

Today, eBay’s revenue is down to  some $10 billion ,  while Amazon’s is leagues ahead of it.

2. How Amazon leveraged free shipping to increase its average basket size

Amazon had been exploring the idea of providing free shipping on all purchases over $100 to increase sales. The goal was to encourage shoppers to buy more categories of items per visit, but the numbers weren’t adding up. Some executives felt that free shipping could only be justified as an incentive on large orders, not all. 

The solution 

After much deliberation, Amazon decided to let customers decide for themselves based on how soon they wanted their orders delivered. The plan was for customers spending more than a certain dollar amount to be shown options for both regular and express delivery at checkout.

A fee would apply if the customer chose express delivery, while regular delivery was free. On the backend, the company decided to utilize spare capacity with express shippers and the postal service to reduce shipping costs. This approach paid off, and Amazon Free Delivery, as we know it today, was born. Since then, Amazon has added additional qualifiers for free shipping.

The company was able to achieve its goal as most customers didn’t mind spending more to get free shipping.

3. How Amazon Prime turned customers into loyal fans

Building on the same concept, Amazon launched Prime, the first subscription-based loyalty program anywhere in the world. The team at Amazon wanted to use it as a platform for providing value-added services to customers. However, there was no word on whether it would impact customer purchase habits the way they hoped. The cost of the program, too, was a concern.

The company’s data showed that customers generally purchased more if there were incentives like free shipping and easy checkout. There was enough evidence to show that order sizes would increase over time, reducing shipping costs.

This meant Amazon could negotiate better deals with its suppliers – resulting in a self-sustaining cycle of improving margins and further discounts. The company went ahead with the plan, and the rest is history.

Today, Amazon Prime has over  200 million customers, bringing in over $35.22 billion in revenue. 

4. How A/B testing resolved internal conflict over placements at Amazon 

In the absence of performance data, Amazon category managers often fought with each other over which promotion would feature on the home and category pages. This resulted in Amazon.com placements being decided arbitrarily.

The company scrapped the manual process for deciding placements and now uses  A/B testing  extensively to decide placements. The focus is on testing different placement options over a few days and measuring engagement metrics like page views, session time, and conversion rate. This data is used to determine what promotions would be run.

This is an ongoing task as customer preferences change often, and the team knows it needs to evolve the user experience accordingly.

Real-time testing and experimentation are now a part of Amazon’s culture.

Read also: Where to Sell Handmade Items Online Globally

5. How Amazon embraced dynamic web page layouts to capitalize on changing customer preferences

As more sellers started getting on Amazon, changing the site navigation now and then wasn’t going to be enough. The team felt the need to make the website more responsive in terms of featured categories and offers. The existing software solutions on the market didn’t offer the functionality they sought. Amazon needed an in-house solution to improve the user experience. 

Using in-house technology, Amazon implemented dynamic feature sections or ‘blocks’ (on-page) that could pull information from various web servers. This allowed the content in each section to be refreshed rapidly based on specific promotions, optimum use of on-page space, and an improved user experience.

Fluid page design technology is now widely used across Amazon websites and apps.

6. How Amazon adopted automation to optimize ad bidding and management

With Amazon ad volumes going up fast, the manual process Amazon had been using couldn’t keep up. The company wanted to use real-time conversion data to update bids for sponsored products and other ads. 

Following Google’s lead, Amazon decided to implement automated bidding technology. In 2015, the Amazon Advertising Console was launched as an automated tool for sellers to run sponsored ads. It could identify keywords, create ads, update bids, and track real-time ad performance.

This allowed sellers to identify new keyword opportunities and adjust their bids most effectively. 

Read also: What is Amazon FBA? Fees, Requirements, and Optimization

What Is Amazon’s Marketing Mix? 

As Amazon went from targeting specific markets to “selling anything and everything from anywhere,” its digital marketing strategy evolved. It focused mainly on online strategies since starting in 1995 but is now coming full circle with Amazon Go –its retail venture. Let’s take a look at its marketing mix.

Amazon offers a wide range of products, including books, music, electronics, clothing, and more. It includes not just physical products like Kindle and Echo but digital and subscription services like Amazon Prime and Amazon Web Services as well.

However, its main ‘product’ is the website and online infrastructure itself. The highly diversified product lines allow Amazon to benefit from economies of scale and insulate it from revenue fluctuations.

Amazon operates through a network of websites, apps, fulfillment centers, and fully-owned subsidiaries around the world. With Amazon Go, it has now entered the physical retail space. There are now 23 stores across the US  as of November 2023. This enables Amazon to target a wide range of customer demographics and buying motives.

Amazon’s scale allows it to price its products lower than the competition. However, prices for the same product can vary from region to region. This is because the company uses a dynamic pricing strategy that adjusts based on local demand, competition, and availability.

Amazon tracks trending products across categories and then sells them at a discounted price. It also offers additional discounts based on various promotions and loyalty program memberships such as Prime and Amazon Business. An adaptable pricing strategy helps Amazon attract repeat customers and increase average order value. 

4. Promotion

The company uses a combination of online and offline marketing strategies to attract and retain customers. This includes PPC ads, SEO, email marketing , video, website marketing, etc. It also runs annual promotions like Prime Day to drive sales and revenue. 

Read also: How Amazon’s Competitors Are Gaining an Edge Over the Giant

Some More Components of the Amazon Marketing Strategy Playbook

Now, let’s dig a little deeper and look at more pages from the Amazon marketing playbook. 

1. Amazon’s SEO strategy 

Amazon’s search algorithm ranks product listings based on keywords and sales conversions. More sales automatically give you a higher search ranking. A higher page rank increases the chances that the right people will see your ad, increasing the probability of conversion.

The effectiveness of this strategy can be gauged from the fact that  50% of all product searches  today start on Amazon. Lately, the company has been asking sellers to use a built-in AI tool to create product descriptions.

2. Amazon’s content marketing strategy

The typical product listing on Amazon will have product images, demo videos, charts, side-by-side comparisons, and descriptions to cater to different consumer preferences. Sellers also have to comply with specific guidelines in terms of grammar, special characters, image quality, exaggerated claims, etc., to make their pages reader-friendly.

This helps customers make faster buying decisions, and Amazon is often the first place they go to when searching for products.

Read also: How to Sell Handmade Jewelry Online in 7 Easy Steps

3. Amazon’s advertising strategy

Amazon uses a variety of sponsored product ad formats on its platform, Google, and third-party sites to drive traffic and sales. For example, Google Shopping Ads, BuzzFeed, Mashable, etc. This expands its reach and increases revenue potential. It also capitalizes on Amazon-related keywords to ensure higher rankings in search results than other sellers.

In general, most sellers prefer Amazon ads because their targeting capabilities are more conversion-oriented than search engines.

4. Amazon social media marketing strategy

Amazon uses Facebook, Twitter, and other social media platforms to promote products via exclusive deals, contests, influencer campaigns , and live streams. Social media campaigns also retarget customers who may have clicked on a listing but didn’t complete a purchase.

With live streams, the company demonstrates products and engages in Q&A with customers, while the user-generated content (UGC) from the various challenges and contests goes into generating more engagement.

5. Amazon’s email marketing strategy

Order confirmations, updates,  cart abandonment , newsletters, promotions, and product recommendations – Amazon uses email marketing across the eCommerce customer journey. In addition, it also leverages it to request customer reviews and feedback in the post-purchase stage.

This data is used for process improvement. Other than that, Amazon also provides Prime members with account updates via email.  With EngageBay , you can create custom eCommerce email campaigns for each of these touch points and guide customers along the sales funnel.

Read also: Click to Cart — The Art of Crafting Irresistible eCommerce Promotional Emails

5 Marketing Strategies You Can Borrow From Amazon to Grow Your Business 

Amazon may be a trillion-dollar brand, but many of the same strategies can help small and medium businesses (SMBs) drive customer loyalty and revenue growth. Here are a few of them.

1. Personalize the customer journey through activity data

Amazon has leveraged personalization to fuel its growth over time. If you want to understand customer behavior, improve customer experience, and get better ROI on your digital marketing efforts, analyze their activity for clues. It can also help you align processes and systems for improved efficiency and cost savings.

2. Think customer first when it comes to website navigation

As we’ve seen in the Amazon marketing strategy case study above, you want to make it as easy as possible for customers to buy on your website. Optimize the search bar by enabling auto-complete and predictive suggestions and ensure it’s visible to customers on their smartphones.

Draw inspiration from Amazon’s  one-click search functionality and continuously improve the search function to increase engagement and sales.

3. Leverage multichannel marketing to increase reach

Multi-channel marketing can be used to appeal to different buying motives and customer needs. The right strategy can help customers move through the sales funnel faster. The key is integrating data from all channels and paying  attention to touch points with the most traffic.

EngageBay integrates email, social media, video, landing pages, website, and mobile so that you can engage customers across the funnel and drive them to conversion.

Read also: 16 Top Business Movies Every Entrepreneur Must Watch

4. Build relationships with post-purchase emails

Follow up with a thank-you email sequence that includes upsell and cross-sell product recommendations. Set up triggered emails depending on the response; if nothing works, use it to ask for reviews. Since the time window is short, you’ll need to integrate your CRM and email marketing platform for real-time tracking.

5. Let reporting data and analytics lead the way

Very often, customers may have genuine reasons for abandoning their carts. It could be that they have concerns regarding site security, payment modes, or return policy. Integrating a feedback form on your checkout page lets you capture customer sentiments in real-time.

EngageBay’s built-in  form builder syncs all customer submissions to CRM in real-time. This can help you spot patterns in customer activity and take appropriate remedial action. 

Read also: Winning with Amazon Influencers – Tips for Finding the Best

That’s it for now.

If you liked this article, share it so it can reach more people like you.

For more marketing strategies and tips, head over to the EngageBay blog .

About The Author

Calvin Rodrigues

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The Integration of Digital Business Models: The Amazon Case Study

• First Online: 21 May 2022

Cite this chapter

• Carlo Bagnoli 10 ,
• Andrea Albarelli 11 ,
• Stefano Biazzo   ORCID: orcid.org/0000-0003-3373-2964 12 ,
• Gianluca Biotto 13 ,
• Giuseppe Roberto Marseglia 14 ,
• Maurizio Massaro   ORCID: orcid.org/0000-0001-6461-2709 15 ,
• Matilde Messina 13 ,
• Antonella Muraro 16 &
• Luca Troiano 17  

Part of the book series: Future of Business and Finance ((FBF))

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The final chapter involves the description of the Amazon case study. The intention is to reconnect the various categorizations illustrated in the previous chapter to a real-world example for the purpose of presenting a successful case of business disruption as Amazon is known to have disrupted retail. The analysis aims at highlighting the fact that Amazon combines all the business model frameworks described in the preceding chapters as well as investigating their coexistence within a single organization.

The present chapter also explains a few methodologies which have been developed in order to guide companies through the process of disrupting their existing business models and facilitating the shift towards an innovative framework. Digital technologies can ease the above-mentioned transition as firms are required to select the technological advancements enabling them to accomplish particular organizational goals.

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Stone, B. (2014). Vendere tutto. Jeff Bezos e l’era di Amazon . Hoepli.

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Bishop, T. (2013). Bezos: 3D printing “exciting” but not disruptive for Amazon in short term . GeekWire.

Battistella, C., Biotto, G., & De Toni, A. F. (2021). From design driven innovation to meaning strategy. Management Decision, 50 (4), 718–743.

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Carlo Bagnoli

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Bagnoli, C. et al. (2022). The Integration of Digital Business Models: The Amazon Case Study. In: Digital Business Models for Industry 4.0. Future of Business and Finance. Springer, Cham. https://doi.org/10.1007/978-3-030-97284-4_4

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Case study: Amazon

Amazon is a large international company that operates in a number of sectors. Amazon is best-known for its core business of selling goods online (=Amazon Marketplace). But it also offers a very profitable online platform called Amazon Web Services (AWS) which is aimed at developers and other companies. Additionally it earns significant money through “Amazon Advertising”.

In this analysis we focus on Amazon Marketplace only. Let’ have a look at how the business model canvas could be filled out:

1. Customer segments:

As always, we start with the customer segments. Amazon has a variety of customer segments located in different markets. Key customer segments for Amazon could be following:

Consumers: Those are the classical users, that buy good at the webshop. Amazon has a large customer base of consumers who use the platform to purchase products in many different categories, such as electronics, books, clothing, and household goods.

Small Businesses: Amazon also offers solutions for small businesses that want to sell their products on the platform, like: retailers, manufacturers, and wholesalers.

Enterprise Customers: Amazon has enterprise customers that use the platform to streamline their purchasing processes and reduce costs.

Publishers and media companies: Amazon also has partnerships with publishers and media companies to sell content such as books, magazines and movies through its platform. Wide selection: Amazon offers a huge selection of products and services, including its own brands and third-party products. This means that customers can find everything they need in one place.

2. Value proposition:

Next we jump to Amazons Value proposition. Why are you using Amazon?

Convenience: Ohh it is just so much more convenient to sit in front of your computer, tablet or phone and do the shopping. Without the hassle of driving somewhere. Amazon allows customers to easily shop from home and have products delivered quickly and reliably. Customers can also reach the customer service 24/7 via email, phone, or live chat.

Large selection: Of course Amazon has a large palette of products at competitive prices. The company has a wide range of products available for purchase on its website, including books, electronics, clothing, household goods, and more.

Cost efficiency: Amazon often offers lower prices than traditional retailers due to lower costs for rent and personnel. Customers can also benefit from the Prime membership, which offers free shipping and other perks.

Fast delivery: When you want to buy something, you usually want to have it quick. Amazon is also known for its fast and reliable delivery options. The company offers a range of delivery options, including standard shipping, express shipping, and same-day delivery depending on the customer’s location and the product being purchased. Amazon also has a network of fulfillment centers around the world, which helps the company deliver products quickly and efficiently to customers.

Customer is king: Another aspect of Amazon’s value proposition is its commitment to customer satisfaction. The company has a generous return policy and offers excellent customer service through its website and mobile app, as well as phone and email support. Amazon’s focus on customer satisfaction helps strengthen customer loyalty and encourage customers to return.

3. Channels:

Next, lets have a look at Amazon’s key marketing and distribution channels:

Web-shop: Well, it is not just a web-shop, it is a complete e-commerce platform, that Amazon has. This allows you to buy products and offers various functions and tools to make shopping easier for users, such as personalized recommendations and search filter options.

Mobile Apps: “All about apps” - Amazon also offers mobile apps for iOS and Android that allow users to purchase products through their smartphones and tablets.

Partnerships: Amazon has partnerships with other companies to provide its products and services. These include partnerships with retailers that sell Amazon products in their stores and partnerships with logistics companies that help Amazon ship products to customers.

Advertising: Amazon also uses advertising to promote its products and services. This includes ads in online and offline media as well as social media advertising.

Email marketing: Amazon also uses email marketing to send users personalized offers and recommendations and to inform them about new products and services.

4. Customer relations:

Loyal, long-term clients will increase revenue from repeat purchases. So, how does Amazon develop this customer loyalty?

“A brand for a company is like a reputation for a person. You earn reputation by trying to do hard things well.” Jeff Bezos - CEO Amazon

Customer Service: First, Amazon offers a really good customer service. If you have a question or a problem, you can easily contact customer service. Usually they are very helpful, friendly and your problem is fixed very quickly.

Personalized recommendations: Many big companies do it nowadays, but Amazon is one of the industry pioneers in this regard. Amazon uses lots of your data such as previous purchases, reviews, and browsing behavior to create personalized recommendations for each customer. These recommendations appear on the Amazon website and in emails to the customer, and can help customers discover interesting new products. For sure you have seen Amazon products pop up on a completely different website.

Prime membership: Amazon also offers a Prime membership that gives customers access to various benefits, including free shipping, access to streaming services, and more. This membership can help customers remain loyal Amazon customers.

Customer reviews and feedback: Amazon also encourages customers to leave reviews and feedback on products, which can help other customers decide whether to buy a product. This feedback can also help Amazon improve its products and services.

Partnerships and collaborations: Amazon also maintains partnerships and collaborations with other companies and organizations to offer customers a wider choice of products and services. This can help customers stay with Amazon because they can find everything they need in one place.

5. Revenue streams:

Amazon actually has multiple revenue streams. For this case study, however we just focus on the revenue streams of its market place:

Sale of products: Focusing on the Market Place, Amazon’s main revenue stream comes from the sale of products. Amazon sells both its own products and third-party products.

Advertising: What many people do not realize, Amazon also offers advertising for other companies. This advertising can appear in the form of ads or Sponsored Products.

Services: Amazon also offers services such as selling e-books and music, renting movies and TV shows, and access to streaming services like Prime Video.

Prime membership: Amazon heavily promotes its Prime membership that gives customers access to various benefits, including free shipping, access to streaming services, and more. Membership is paid annually or monthly.

Cloud-Computing: Amazon also operates a cloud computing platform called Amazon Web Services (AWS), which provides businesses with access to server capacity and other resources. Companies pay for the use of these resources based on their usage.

6. Key Resources

What are Amazons most important assets needed to make their business model work? Amazon has a broad range of key resources which its business model depends on:

Online platform: The Amazon website is the central platform for selling products and providing services. The platform is also the main source of customer reviews and feedback.

Customer Data: Amazon collects and analyzes customer data to provide personalized recommendations and advertising, and to improve the site’s offerings and usability.

Delivery and Logistics Infrastructure: Amazon operates a comprehensive delivery and logistics infrastructure to deliver products to customers quickly and reliably. This infrastructure includes its own warehouses and logistics centers as well as partnerships with freight forwarders and courier services.

Manufacturer and Retailer Relationships: Amazon maintains relationships with manufacturers and retailers to offer a wide range of products. These relationships enable Amazon to respond quickly to customer needs and introduce new products.

Technology and IT Infrastructure: Amazon relies on advanced technology and IT infrastructure to improve website functionality and user experience and to optimize its delivery and logistics services.

7. Key activities

Again, when we just focus on Amazons market place, then following key activities need to be considered:

Sale of products: The products on its online platform need to be offered to the customer and in the end sold to them. This includes both the sale of its own products and the sale of third-party products.

Marketing: Although Amazon is already very popular and often “the only market place” that people use, it also has a marketing strategy to strengthen the brand. This includes advertising on the Amazon website and social media, Personalized Recommendations and customer reviews.

Customer Service: Customers are King: Therefore Amazon operates a customer service that is available via email, phone, or live chat. Customers can contact customer service if they have questions or problems, or if they need assistance using Amazon products or services.

Logistics and delivery: Amazon operates an extensive delivery and logistics infrastructure to deliver products to customers quickly and reliably. This infrastructure includes its own warehouses and logistics centers, as well as partnerships with freight forwarders and courier services.

8. Key partners:

Amazon has following key partners:

Manufacturers and Retailers: Manufacturers and retailers allow Amazon to offer a wide range of products

Logistic Partner: Amazon works with various freight forwarders and courier services to deliver products to customers quickly and reliably.

Payment Partner: Amazon works with payment service providers such as PayPal and credit card companies to enable customers to conveniently and securely pay for their purchases.

Content Providers: In order to offer e-books, music, and movies Amazons partners with authors, film studios and music labels.

Cloud Computing Partners: Amazon also operates a cloud computing platform called Amazon Web Services (AWS) that provides businesses with access to server capacity and other resources. AWS works with various partners to provide these resources.

9. Cost structure

Following costs occur with operating Amazons business:

Website / Hosting: This includes all costs that are necessary to operate its platform. For example, the cost of developing websites and apps, providing cloud services and maintaining databases.

Marketing and advertising costs: Marketing costs include the cost for search engine advertising, social media advertising and the placement of ads in print and online media.

Staff costs: These include the cost of salaries and wages, the cost of employee training and development, and the cost of human resources management, etc…

General and administrative costs: These include the cost of office equipment and supplies, the cost of travel and lodging, the cost of insurance and taxes, and the cost of general administrative activities.

Financing costs: This means paying back loans

Direct costs include, for example, the cost of procuring, storing, packing, and shipping goods . They also include the payment of commissions to sellers as well as rent and other real estate costs .

Amazon’s indirect costs include, for example, the costs of developing technologies and platforms, marketing and advertising, personnel management and development, and general and administrative tasks

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Amazon Business Model

Defining the Amazon business model can be kind of a curious task, as we observe that this global trade giant increases its reach year by year, both geographically and in terms of products and services offered. To give you an idea of ​​the size of the business we’re talking about, in the time it takes you to read this simple article, Amazon may have added about a million dollars more to its revenue .

A brief history of Amazon

Back in 1994, Jeff Bezos, a former Wall Street hedge fund executive and a visionary who was already aware of the potential of the internet and the e-commerce platforms, took the decision to give the first step in creating an “online everything store” — yes, he knew steroide zu verkaufen from the beginning that this was Amazon’s objective. At first, he thought about naming the company “Cadabra” (from abracadabra ). However, his lawyer, Todd Tarbert, advised him that the name could be seen as kind of obscure. Besides, it sounded like “cadaver”, especially over the phone.

After the new name was decided, the next decision would be about the product to be sold on the e-commerce platform. Bezos found that the most logical option would be to sell books. Going against financial journalists and analysts, that just couldn’t see the growth of the internet as Bezos did, Amazon.com reached 180,000 accounts in its first year. In May 1997, Amazon.com became a public company, with $54 million on NASDAQ.

At the end of the same year, there were 1 million accounts and $148 million in revenues (what would become $610 million the following year). The company expanded rapidly and began selling music, videos, electronics, video games, software, houseware, toys, games, and more. Moreover, what attracted customers were its personalized recommendation tools and customers reviews, thus developing a community of consumers. In 2000, Amazon opened room for small companies and individuals to sell their goods through the platform.

Two years later, Amazon Web Services (AWS) was launched, confirming what Bezos claimed from the start: Amazon was not a retailer, but a technology company. From that year on, AWS has encompassed statistics on the internet for developers and marketers, its Elastic Compute Cloud that rents out computer processing power, and its Simple Storage Service, for renting data storage. Kindle e-readers appeared in 2007, fostering the e-book market.

In 2009, the company launched Amazon Encore, its first publishing line, which would also allow individuals to publish their own e-books. Two years later, it would become Amazon Publishing, aiming to develop its own titles. Well, Amazon went from a bookstore to an “everything store” and then to a worldwide e-commerce giant. But the brand definitely didn’t stop there — and its potential never seems to end. Perhaps what keeps its audience so close is its profit margin, which remains low on any product/service offered by the company.

For the buyer, it is comfortable to know that Amazon will always bring a reasonable and competitive price in all fields and products. And for sellers who use the multisided platform , it’s convenient to be sure they can easily display their products on the website and make sales on all continents on Earth. Nowadays, Amazon is recognized as the largest retailer on the planet, a brand for which not even the sky seems to be the limit .

Who Owns Amazon

Since Amazon is a publicly traded company, it is owned by a number of institutional and individual shareholders . However, Jeff Bezos, its founder, still holds a major part of the company (about 10%), making him one of the most influential shareholders in the company. However, in July 2021, Bezos stepped down as CEO to become Executive Chairman, leaving Andy Jassy for the president and CEO positions nowadays. Differently from Google x Alphabet and Facebook x Meta relations, Amazon is actually the official name of the holding group, which includes all of its arising services, such as Amazon Music, Amazon Prime Video, Kindle and Alexa devices, Amazon Web Services (AWS), among many others.

Amazon’s Mission Statement

How Amazon makes money

To understand how Amazon makes money, we need to take a look at each of the different operations that are under this big corporate umbrella. These operations have successfully helped the company achieve year-on-year profitability , which has fueled its growth. They are:

• Amazon Marketplace : The company’s first revenue stream, Amazon.com, accounts for more than 42% ($220 billion of $513.98 billion revenue in 2022 from its online stores) of the income. Third-party sellers accounted for an additional $117.71 billion of revenue. Basically, Amazon asks for a fee from its sellers to promote and advertise their products;
• Amazon Prime : It is Amazon’s subscription business model and has been vital to the brand’s growth. In exchange for a monthly fee, subscribers have access to the platform’s video and music streaming catalog, free two-day shipping, unlimited photo storage, etc. Prime currently has more than 150 million members ;
• Amazon Web Services : It is a low-cost complete IT structure platform, whose services are contracted by companies, organizations, and institutions around the world. It’s not the main source of revenue, but it is certainly the most profitable one;
• Amazon Kindle : It is Amazon’s e-reading service, where users can buy, browse and download books, magazines, and newspapers, that are available at Kindle Store . Amazon doesn’t make much money from Kindle itself, but by attracting traffic to the Prime membership plan. Besides, the platform allows independent authors to publish their info-products and e-books, charging something between 30 to 70% of royalty fees from the sales;
• Amazon Patents: The company has more than 17,600 patents , several of which are licensed by other companies. Just in 2022, the U.S. Patent & Trademark Office granted them about 2,051 patents;
• Amazon Advertising : Amazon Ad platform offers sponsored ads and videos. It is a very efficient marketing channel, since the audience that accesses the platform already intends to buy something.

Amazon’s Business Model Canvas

The Amazon Business Model can be seen in the business model canvas below:

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Amazon’s Customer Segments

The customer segments of Amazon can be divided into basically three groups: sellers, buyers, and developers.

• Sellers are all the companies that use Amazon’s e-commerce platform to sell their products to its wide audience.
• Developers are all the community involved with Amazon Web Services (AWS) — Amazon’s cloud computing platform. As its own website states , they are customers and partners “across virtually every industry and of every size, including startups, enterprises, and public sector organizations”.
• And the buyers are the millions of people across the world who acquire products and services through Amazon’s channels. Amazon tracks its customers based on some characteristics, such as interest, engagement, and personal information (age, gender, geographical space, language, among others).

Amazon’s Value Propositions

Jeff Bezos defines that Amazon’s business model is based on three value propositions : low price, fast delivery, and a wide selection of products. However, looking at these three consumer benefits, we can say that Amazon’s greatest value proposition is convenience because the audience understands that, with just the help of a device connected to the internet, they have access to the product catalog of the largest retailer in the world, with a reasonable price and an agile, safe and reliable delivery service.

Amazon’s Channels

Certainly, the Amazon website is its largest and most important channel. But important channels also include the brand’s app, Amazon Prime (its streaming, entertainment, and subscription platform), and its affiliate program. As an internet-based company, Amazon marketing strategy is basically digital, including advertisements, sponsored publications, and e-mail marketing. Overall, the company invested over $20 billion in media in 2022.

Amazon’s Customer Relationships

Amazon’s focus, no doubt, is to have a healthy and long-lasting relationship with its customers. For this reason, they maintain several communication channels open with their consumers — such as reviews and comments on the platform, telephone, online chat, and e-mail contact. Plus, they don’t usually take a lot of days to give feedback.

Amazon’s Revenue Streams

Amazon’s  revenue streams  consist of:

• One-Time Sales
• Commission on Sales
• Advertising
• Subscriptions (Amazon Prime)
• Web Services (AWS)
• Delivery Services
• Pay-Per-Use & Support Subscription

Amazon’s Key Resources

Hands down, “the one” Key Resource of Amazon is its technological infrastructure, which needs to be broad and very secure, in order to keep the whole chain running without interruption or losses ( back in 2013, Amazon was down for about 40 minutes, which resulted in a loss of more than US$ 5 million in sales ). Aside from that, other key resources include physical spaces of the company, such as offices, warehouses, supply chain structure, and automation, among others. And, of course, human resources are essential for Amazon, which needs to guarantee A-players among its designers, engineers, developers, etc.

Amazon’s Key Activities

Amazon’s key activities are all about the development, maintenance, and expansion of its gigantic platform. Therefore, the brand invests in website and app development and management, management of the entire supply chain, storage and logistics, information security on all platforms (including e-commerce, streaming, cloud computing, etc.), production of films, series, and other products for its video platform, as well as marketing for all of its products and services.

Amazon’s Key Partners

Amazon’s  key partners  consist of:

• Sellers : Certainly the most important partners of the brand, since they are the generators of Amazon’s first source of revenue. There are approximately 8 million worldwide, which guarantees more than half of the company’s revenue;
• Affiliates : Bloggers who earn a commission for any referrals that lead to a sale. In addition to helping with sales, they promote traffic to the platform;
• Developers : They are the partners of the AWS segment, or, as Amazon itself defines, “thousands of systems integrators who specialize in AWS services and tens of thousands of independent software vendors (ISVs) who adapt their technology to work on AWS”;
• Content creators : Independent authors who can publish their works through Kindle Direct Publishing ;
• Subsidiaries : They include companies that provide storage spaces, stores, and systems, in addition to brands and products developed by Amazon itself , such as Amazon Essentials , Amazon Elements , Amazon Elements, Kindle, Alexa, etc.

Amazon’s Cost Structure

The cost structure of Amazon includes its complete IT structure, customer service center, software development and maintenance, information security, and marketing, as well as all expenses involved in maintaining its physical spaces, such as fulfillment centers, sortation centers, and delivery stations.

Amazon’s Competitors

• Online stores : It’s estimated that there are over 24 million online stores nowadays. Especially regarding knowledge and quality, smaller niche shops can be “stronger” than Amazon in their fields;
• Walmart : Although a large percentage of Walmart sales comes from brick-and-mortar stores, this is another global giant with a significant presence online, being the second most popular online store in the U.S.;
• Alibaba : A China-based online retailer , specialized in wholesale selling online. It splits into separate businesses. Alibaba is focused on B2B, Taobao on B2C, and Tmall on multinational brands;
• Otto : A European online retailer, that sells products from other brands on its platform. With a user-friendly interface, some top categories include fashion, electronics, housewares, and sports;
• Jingdong (JD): Another Chinese e-commerce, and a direct competitor of Tmall (from Alibaba). It also has an English language version, Joybuy.com, which ships to more than 200 countries;
• eBay : eBay is the pioneer in C2C online selling and has evolved to offer B2C sales. Regarding visits, it only loses to Amazon and stands for about 20% of the market share;
• Flipkart : The largest online retailer in India, founded in 2007. In 2018, Walmart acquired 77% of Flipkart’s shares. Nowadays, there are more than 100 million accounts registered on the platform;
• Rakuten : Japanese e-commerce company, controlling over 14% of the total global e-commerce market. It has bought some other companies around the globe to expand its online presence;
• Newegg : The global leader in selling electronics (computers, TVs, cameras, phones, etc.) — consider that electronics is Amazon’s most popular category.
• Microsoft: With a 21% market share in the cloud services industry, Microsoft Azure is hot on the heels of Amazon’s 34% market share (2022 Q3). Since its launch in 2010, Azure has been steadily gaining market share and has proven to be a force to be reckoned with in the cloud business.
• Google : While Google still maintains a modest market share compared to the other cloud behemoths, its 11% market share in the industry serves as a foot in the door toward becoming a fierce industry competitor.

Amazon’s SWOT Analysis

Below, there is a detailed  SWOT Analysis  of Amazon:

Amazon’s Strengths

• Brand : Being an e-commerce giant, Amazon has a strong brand image in the market, and it’s ranked second in brand valuation , only behind Apple ;
• Customer orientation : Reasonable prices, personalized suggestions, and reviews make a loyal consumer community;
• Innovation : Amazon is always developing new products and services while improving its regular business;
• Cost : As Amazon does not maintain physical stores and has little inventory, it is able to keep a low-cost structure, which enables low margins;
• Large selection : The company owns an extensive product mix, allowing customers to buy everything on the same platform;
• Partners : There are more than 2 billion items available from third-party sellers. Besides, Amazon makes partnerships with local supply chain companies, to understand and meet local needs per country;
• Logistics : Amazon uses a highly efficient distribution system, and it is known for its short and reliable delivery time periods.

Amazon’s Weaknesses

• Imitable business model : Online retail businesses have become more and more common, and Amazon has been facing some strong competitors;
• Flops and failures : The Fire Phone was a big failure and Kindle Fire didn’t grow as expected;
• Workplace conditions : There have been some negative reports regarding employees’ treatment, which have affected its reputation;
• Dependence on distributors : It exposes Amazon to a wide range of issues, especially considering the renegotiation of terms.

Amazon’s Opportunities

• Expansion : Amazon can expand its operations in developing countries;
• Physical stores : More brick-and-mortar operations may engage customers and compete more strongly against box retailers;
• Acquisitions : Amazon has made some big purchases, such as Zappos, and that can increase market share and reduce competition.

Amazon’s Threats

• Regulations : Some government regulations can threaten Amazon distribution inside some countries;
• Exploitative labor : Amazon faced scrutiny from the U.S. for allegedly maintaining partnerships with sources associated with human rights abuses;
• Cybercrime : It can threaten the security of the platform and its users;
• Competition : In addition to big retail companies, Amazon also faces strong competitors in video streaming services, such as Netflix, Apple TV+, HBO Max, Hulu, Disney+, etc.;
• Recession : Online stores are not immune to economic recession, and uncertainty can impact Amazon’s sales;
• Fake reviews : Customers rely on reviews to make purchases, and the company has already deleted thousands of fake reviews from its platform.

-> Read More About Amazon’s SWOT Analysis .

Think about it: Amazon isn’t just a part of today’s business landscape, it’s shaping it. Everywhere you look—whether it’s globally or in the digital space—Amazon’s footprint is undeniable. Its rapid adaptation to market changes is impressive, but what really sets it apart? It’s their rock-solid multisided platform business model. This isn’t just a lucky break; it’s strategic genius. Now, if you’ve ever found yourself wondering just how Amazon ticks, or what’s under the hood of their roaring engine of success, I’ve got some great news for you. We’ve rolled up our sleeves and put together an in-depth guide all about Amazon’s business model. Curious? Dive in and check it out here .

Who is Daniel Pereira ?

I love understanding strategy and innovation using the business model canvas tool so much that I decided to share my analysis by creating a website focused on this topic.

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Case Study: Should a Direct-to-Consumer Company Start Selling on Amazon?

• Thales S. Teixeira

An e-bike maker weighs the trade-offs.

Sitting in his office, Mark Ellinas frowned at his computer screen. It was filled with row after row of electric bikes, from expensive models to cheap knockoffs that seemed held together by spit and a prayer. Though they varied in style and price, the bikes did have one thing in common: where they were being sold. The website he was looking at, flush with options, was Amazon.

• TT Thales  S. Teixeira  is the co-founder of Decoupling.co, a digital disruption and transformation consulting firm. He is the author of  Unlocking the Customer Value Chain: How Decoupling Drives Consumer Disruption  and a panel judge in CNBC’s Disruptor 50 annual startup competition. Previously he was a professor at Harvard Business School for ten years and now teaches at the University of California.

Partner Center

Amazon Business Strategy to Overthrow Walmart from Fortune 500 Throne

The study was first published on February 24, 2018, and then updated on February 13, 2020, February 4, 2021, February 18, 2022, February 15, 2023, and recently on April 2024 .

In 1994, Jeff Bezos was stunned after discovering the 2300% growth rate of the Internet, which eventually led him to think about starting an online business.

“ You know, things just don’t grow that fast. It’s highly unusual, and that started me about thinking, ‘What kind of business plan might make sense in the context of that growth?’.” – Jeff Bezos

When he asked his parents for money after sharing his idea, his dad’s first question was, “What’s the Internet?” This vividly indicates that people weren’t very aware of the Internet then.

Surely, selling things would be a problem for the young entrepreneur, but somehow, he found low-cost products that could be easily sold on the web.

With his parents’ financial help of $245,573, Bezos started Amazon in his garage. Fortunately, their investment is worth more than $30 billion – a 12,000,000% ROI.

In 1997, three years after its launch and post-IPO, Amazon’s estimated worth was $438 Million. The startup gradually evolved into a multinational corporation and now is worth a marvelous $1.6 Trillion. The E-commerce giant is the second US company to cross a trillion-dollar valuation after Apple when its stock price reached an all-time high ($2050.50) on September 4, 2018.

The Internet was surely a huge part of Amazon’s growth, but technological innovation, marketing strategy, and, most importantly, its business model are what make Amazon the most innovative company in the current era.

Amazon has grown significantly since its inception as a book-selling website and spread its wings to other areas like logistics, consumer technology, cloud computing, and most recently, media and entertainment – domains that did and would help Amazon tread the path to emerge as a trillion-dollar corporation.

This Amazon business strategy study compiles the ideas, innovations, technological research, partnerships, and, most importantly, the strategies responsible for growing Amazon to such heights. You will also find their sales numbers in every segment and a brief summary of their stock prices for the past few years.

Amazon has used and benefited from the strategies over the years. But wouldn’t this information have been immensely helpful to Amazon’s competitors a few years prior? It turns out they could have known Amazon’s moves beforehand.

In 2020, Amazon acquired Zoox, but one could have foreseen this decision had they been closely following the trail of patents that Amazon had created. One can find numerous patents on autonomous logistics in Amazon’s Portfolio.

It has been forecasted that this recent acquisition can heavily affect companies in the logistics, ride-hailing, and food delivery domains. Amazon’s patent portfolio held a tell-tale sign of its interest in these domains. Possessing this information before Amazon’s acquisition could have saved these companies from this now-present threat looming over their businesses.

If you wish to know about Amazon’s future plans and strategize your business moves accordingly, then going through Amazon’s patent portfolio is quintessential.

Fill out the form below to know which areas Amazon has been focusing on, the tech areas in which Amazon is working, which countries they are securing their IP in, and their acquisitions in various nodes in the form of an interactive dashboard.

While this study will give you more information about Amazon’s business strategy, it will also help you acquire some basic principles that could be applied to any kind of business.

Table of Contents

Why is Amazon believed to be the most successful company in the Future?

Milestones after milestones, on the path to striving towards its personal zenith, Amazon has been recognized as one of the most successful companies. This statement is not a mere theory but purely supported by facts. Let’s have a look at some of them.

Amazon’s Achievements

FastCompany magazine listed Amazon as the most innovative company of 2017. Further, Amazon also ranked 3rd in MIT’ s Smart Companies 2017 listing, following Nvidia and SpaceX.

BCG placed Amazon as the 3rd most innovative company in 2022, while Forbes placed Amazon 5th in 2022.

Source: Fortune

That’s not it.

Amazon ranked 8th on the Fortune 500 2018 list, 5th in 2019, and 2nd in the 2021, 2022, and 2023 lists. Since then, the company has been continuously listed on the coveted list, each with a rank better than the previous year.

Growing Revenue

Amazon’s revenue increased by 105% in the last five years—from $280 billion in 2019 to $574 billion in 2023. Finally, in 2023 alone, the revenue grew by 11% compared to 2022, touching the half-trillion mark second time.

The chart below portrays Amazon’s revenue for the past five years. In Billions. Mighty numbers, Amazon!

Launching its services to more markets and expanding horizons, Amazon—due to its eCommerce business model—increased its sales numbers, customers, and Revenue. Besides, its AWS business contributes hugely to Amazon’s revenue stream.

Amazon is expanding its operations for its three segments—North America, International, and AWS—where it offers its products and services to consumers, sellers, developers, enterprises, and content creators.

Below is the revenue distribution of Amazon in 3 major segments.

Unsurprisingly, a big part of Amazon’s revenue comes from North America. Internationally, the company’s revenue had decreased from $127.7 billion in 2021 to $118.0 billion in 2022 as it faces tough competition in big markets like India. But 2023 saw a growth in yearly comparison.

Further, AWS brings significant revenue every year as it becomes the biggest cloud service provider on the planet. In 2017, the company rendered over 90 cloud computing services with the Internet of Things (IoT) tools. Big shots, comprising Netflix, Unilever, GE, and NASA, form some consumer bases that use AWS for better web services.

With this pace, AWS revenue is expected to reach $100 billion in 2024.

Investors’ Expectations

Amazon is worth over 1.5 trillion dollars, yet it makes little profit. In 2022, Amazon was at a loss; in 2023, its profit grew to $36 billion, which is a huge improvement.

The reason for its huge market cap is investments. Investors took a huge interest in Amazon and bet a huge amount as they believed that Amazon could grow faster, longer, and bigger than almost any other firm.

Even though in 2022, Amazon stocks performed badly, the investor’s hope suggests Amazon be the most profitable firm than any other, at least in America. And they are expecting big profits in the future. Its sales already crossed the half-a-trillion-dollar mark. 2023 was a good year in terms of stock performance and revenue. But it still failed to surpass Walmart in revenue.

However, 2024 seems like a favorable year for Amazon to surpass Walmart in revenue.

These are some potential pinpoints that force us to believe that it would.

What is Amazon’s Business Strategy?

“We’ve changed, again, the automation, the size, the scale many times, and we continue to learn and grow there.” – Brian Olsavsky, CFO, Amazon

Amazon’s business strategy consists of investing in technologies, enhancing its logistics applications, improving its web services by fulfillment capacity, M&A strategy, R&D activities in logistics, experimenting with Fintech, and securing its inventions using patents.

Let’s have a brief look at some of those.

Amazon’s Diversified Patent Portfolio

Amazon’s patent history is as old as the company itself. With the first patent filed in 1995, it is easy to guess that the company now owns thousands of patents. Amazon gradually increased its patent filing activities in the company’s early years. 

The major increase in filing activity can be noticed from 2010 when Amazon became more than an online retailer. 

By 2011, Amazon had filed patents for multiple technologies, such as Cloud Computing , which was Amazon’s third biggest source of revenue. Amazon has also started filing patent applications for Augmented Reality, Speech Analysis (Alexa).

Amazon’s biggest patent share is in Logistics and Artificial Intelligence. In addition, Media Entertainment and E-commerce applications hold a fair share of the Amazon Patent Portfolio.

Amazon is a very diversified company, so the range of its patents can be very vast. 

However, it is clear that in some sectors, Amazon wants to be at the top.

In Logistics, Amazon now competes with traditional logistics companies such as FedEx and DHL. 

During the Pandemic, when all businesses were down, Amazon had something else to plan to make the global crisis an opportunity. 

Amazon leased 12 Boeing 767-300 cargo aircraft, bringing its air fleet above 80 jets. According to an industry consultant, it added 220 package facilities since the start of the year, ranging from urban delivery stations to giant warehouses.

The company is close to building a logistic system to deliver one-day packages for customers and overtake its logistics rivals.

Amazon has been filing patents for logistics for a long time, but the increase in activity can be seen after 2010.

In 2016, Amazon filed a record of 268 patents alone for Logistics. Amazon has been filing logistics patents for a long time, but in 2016, it went for big numbers. 

Amazon has covered almost everything for logistics, whether air, land, sea, or underground. Amazon has filed patents to deliver a shipment from any medium.

Amazon has hundreds of fulfillment centers all over the world. Also, Amazon wishes to be flying fulfillment centers that house drones to deliver packages. 

In Dec 2014, Amazon filed a patent for an Airborne Fulfillment center with drones for package deliveries. 

The idea seems futuristic, but it’s one of Amazon’s pillars: long-term thinking. This idea could become a mainstream medium for package delivery in the future. The important thing is that it shows how innovative Amazon can be when making item delivery as simple as it is . 

Further, Amazon filed for other fulfillment centers that house drones and cargo trucks. 

Besides Amazon’s Logistics , its AWS arm is significantly bigger than many big corporations, as it generated $90 billion in revenue with a $24 billion Operating Income in 2023. 

Amazon has been filing patents for Cloud Computing since 2010. In terms of revenue, Amazon is probably the biggest cloud computing company compared to Microsoft.

Also, Amazon is one of the top companies in Edge computing . With enough resources to build an edge portfolio, Amazon also owns tens of patents in Edge computing .

Further, Amazon’s Alexa Everywhere strategy seems to work, as the company is adding more features for its assistant and Alexa-enabled devices. Amazon has filed significant patents on Speech Recognition. 

They even filed an Alexa patent that can recognize your physical and emotional states and suggest relevant solutions.

For more Amazon Alexa Patents, Click here . 

Amazon is not just dependent on in-house patent filing but also acquires patents. The famous Zoox acquisition is said to have made Amazon enter the self-driving vehicle market. However, besides Zoox’s position in the market, Amazon found its patent portfolio amazing . 

IAM also says that Zoox patents are the fifth most cited patent for self-driving technology by others. Further, it owns two of the three most-cited grants by other levels 4 and 5 patent owners.

“ Amazon’s plans to put a fleet of autonomous taxis as well as delivery vehicles on the road, the acquisition appears to have handed it a powerful stockpile of IP to secure freedom to operate in what is only going to become a more crowded field. ”, says IAM. 

Amazon Patent Prosecution Stats

We looked at Amazon’s pending patent applications in the US patent office. Below are our findings on how their patents perform in the patent office and their prosecution process.

Amazon has an impressive 97.26% grant rate for its patents.

Amazon has filed 14316 patent applications at USPTO so far (Excluding Design and PCT applications). Out of these 12764 have been granted leading to the grant rate of 97.26%. Not only this, the application Abandonment/Rejection rate of Amazon is meager at 2.47% and only 299 applications have faced abandonment or rejection. – Insights;Gate by GreyB

The data below is a bird’s eye view of Amazon’s pending patent applications at the US Patent Office. Our in-house prosecution intelligence tool – FIT – was used to perform this analysis. You can explore more about FIT from here.

Currently, Amazon has 1108 patent applications pending at USPTO. Under the lens, 654 patent applications are on the right track to a smooth grant; however, the rest of the 454 applications are facing great difficulty at the office. Some of them are already in the danger zone.

These patent applications are getting more than an average number of rejections or taking longer than the average time than other applications in similar tech areas. We segregated all these applications into 3 categories:

• SOS  – Facing High difficulty at USPTO
• At-Risk  – Applications that were running smoothly but of late have started displaying high probabilities of turning into an SOS application.
• On-Track  – Running smooth as butter

Below are the patent applications based on their group art units, how many of them are on the right track, and which ones need intervention:

These are the Top 4 tech areas where Amazon’s maximum number of applications is currently pending at the USPTO. The applications under the SOS column need immediate intervention from Amazon’s IP team.

This overviewed Amazon’s patent applications and their performance at USPTO. As mentioned above, the insights here were extracted from our in-house FIT tool. FIT also suggests the actions Amazon or any applicant can take to help their patent application get granted smoothly.

Fill the form below to know which areas amazon has been showering its attention on, the tech areas in which Amazon is researching , which countries they are securing their Patents in , and their acquisitions in various nodes in the form of an interactive dashboard .

Amazon’s Investment in Different Technologies

Amazon robotics.

For the past decade, Amazon has been investing considerably in robotic and drone technologies and has acquired many patents on them. Its warehouses alone house more than 45,000 robots.

In 2012, Amazon acquired Kiva Systems – a company that designs robots for picking and packing – for $775 million. By 2014, the company had 14,000 robots for its 10 warehouses. The following year, the count increased by 114% to 30,000 robots, and in 2017, the number increased by 50% to 45,000 robots across 20 warehouses.

In addition to acquisitions, Amazon also organizes challenges in different universities and institutes worldwide, offering a large sum of money for inventing a next-generation robot. In 2017, the prize money was $250,000.

Amazon Drones

Amazon is also researching drones for its initiative and future drone delivery service. In Britain, Amazon started its drone delivery service under Amazon Prime Air.

In October 2017, the US Federal Government also approved a drone delivery program. The administration stated that it wanted to open new opportunities and commercial uses for drones to create jobs.

Amazon recently filed numerous drone patents on package delivery, a parachute, and a floating airship warehouse. Also, it has patents on drone design for better maneuvering, secure landing, and long flights.

On an advanced level, they got a patent for a method to charge electric vehicles through drones. This shows their interest in automobiles as the future will require many methods to charge an EV. Further, there would be no surprise if Amazon ventures into the automobile domain.

But in Aug 2021, Amazon shut down the drone delivery program Prime Air in the UK as it removed more than 100 employees from the program, according to a report by Wired .

Five years ago, it was a big deal for Amazon, but the focus slowly shifted to autonomous vehicles, which saw Amazon make a huge acquisition. According to Amazon, people are still working on the project, but it is unclear and less likely that Amazon is giving priority to drone delivery.

Amazon Alexa

“These big trends are not that hard to spot (they get talked and written about a lot), but they can be strangely hard for large organizations to embrace. We’re in the middle of an obvious one right now: machine learning and artificial intelligence .”  – Jeff Bezos 

Artificial intelligence is one tough area in which, despite having many competitors, Amazon got a big draw. It’s continuously focusing on AI and machine learning to enhance the customer experience. The segment AWS and its venture Alexa Internet is a big part of their investment in AI.

In October 2017, the company announced a  new research center in Germany focused on developing AI. During the same month, the company and Microsoft partnered to roll out new tools to make it easier for developers to use open-source artificial intelligence software. Developers can use Gluon, a Python-based application programming interface, to easily work with MXNet, the AI framework backed by public cloud market leader Amazon Web Services.

Amazon’s partnership with Microsoft also ensures collaboration in researching AI, where their personal assistants Cortana and Alexa would communicate with each other and offer services to the users.

“Ensuring Cortana is available for our customers everywhere and across any device is a key priority for us. Bringing Cortana’s knowledge, Office 365 integration, commitments, and reminders to Alexa are a great step toward that goal.” – Satya Nadella, CEO, Microsoft

In Jan 2021, Amazon announced Alexa Custom Assistant , a new service that lets device makers, automakers, and service providers create custom-branded voice assistants that are powered by and work in cooperation with Alexa. The Alexa Custom Assistant can be built into automobiles and consumer electronics, including smart displays, speakers, set-top boxes, fitness devices, and more, providing a complete, managed voice solution that substantially reduces cost, complexity, and time to market.

Alexa Everywhere – Strategy

Amazon announced its Alexa Everywhere strategy in 2017, and surprisingly, it became a huge success despite the presence of other top personal assistants in the market.

Alexa, Amazon’s AI-infused voice assistant, was first released with the original Amazon Echo smart speaker in November 2014. Since then, it’s been giving head-to-head competition to its rival Google Home, and now Apple has also joined the race with its Siri-enabled speaker, Homepod.

In 2017, Amazon announced that it would install Alexa (AI) in every Echo device and launched a number of new products. Currently, Amazon Echo and Echo Dot hold 2/3 market share of smart speakers, beating Google Home and Apple Homepod by a great margin. Amazon also announced two major Alexa integrations for non-Echo devices. Amazon further revealed that Alexa would be supported in BMW cars beginning next year.

Further, the Fire TV set-top box was launched with microphones embedded so consumers can shout Alexa commands across their homes.

Alexa, Play The Boys.

If that was not it, Alexa-based in-house drones were released, which could be called from anywhere around the house.

Alexa, Where’s my drone?

Alexa became more multilingual, allowing household members to interact with Alexa in two languages without changing the settings. In the U.S., the multilingual mode allows bilingual customers to code-switch from English to Spanish and vice versa. Amazon also launched a multilingual mode in new languages and countries, including Germany, Spain, France, Italy, and Japan.

Further, Amazon added new Alexa features that make customers’ daily lives more convenient, including sharing a shopping list with Alexa contacts by voice, video calling on Fire TV, and new Alexa Routines on Fire TV.

In Dec 2016, Amazon demonstrated the world’s most advanced physical store . In 2018, Amazon officially opened the store  to the public and showed the world that its machine-learning research could eliminate jobs.

In Feb 2020, Amazon opened the first cashier-less grocery store using “Just Walk Out” technology that powered 25 Amazon Go stores.

The store has no checkout point and, therefore, has no cashier to make payments for your purchases. The payment can be added automatically to the cart whenever you take a product from the shelves. After the purchase, the payment is automatically deducted from your account or digital wallet.

Amazon Web Services (AWS)

Amazon has recently acquired companies in the cloud computing space and invested in businesses based on the cloud. In early 2017, the company acquired many companies to strengthen its AWS Cloud business. Some of these include GameSparks, Thinkbox Software, and Harvest.ai. Additionally, Amazon invested in Grail, which is a potential future customer of Amazon’s cloud services.

To increase the usage of its cloud technology, Amazon Web Services (AWS) is investing some of its money in opening data centers in Britain and France.

In 2020, Amazon’s cloud segment, AWS, accounted for 58.9% of the company’s overall operating income.

Autonomous Vehicles

The tech and automotive industries are abuzz with the news that Amazon is acquiring Zoox, a California-based startup that develops autonomous driving technology, in a deal estimated to be worth over $1.3 billion.

Amazon announced in late June that they are acquiring Zoox “to help bring their vision of autonomous ride-hailing to reality”.

Although it was Amazon’s first strong move to participate in autonomous vehicles, certain pieces suggest the company’s interest in driverless vehicles before this deal.

The company has invested in Aurora, one of the top autonomous driving startups, and it has tested self-driving trucks powered by Embark, a self-driving freight startup. 

Amazon has been aggressively investing and researching in the domain of autonomous vehicles and various automated delivery methods.

In December 2020, Zoox revealed the first look at its fully functional, electric, autonomous vehicle, which features bidirectional driving and can reach speeds of up to 75 miles per hour.

Want to know about Zoox Patent Portfolio? Here is a glimpse: Zoox Patent Portfolio .

Amazon In the Entertainment Sector

Amazon prime video.

Amazon has been investing in TV series and movies, either through acquisition or production, as it strives to compete with streaming rivals Netflix, HBO, Hulu, and Disney. In 2022, Amazon bought MGM and acquired the rights to big franchises like James Bond.

Though Amazon Prime members can enjoy their streaming service as part of the membership, Amazon also launched a video-only plan for non-prime members at $8.99/month.

“Amazon planned to triple the amount of original content over the rest of the year, and it’s probably safe to assume that its torrid investment pace will continue into 2017.” –  Amazon CFO, Brian Olsavsky ,

In 2017, Amazon acquired many TV shows and movies. Amazon acquired Marvel’s Inhumans and Runaways to give good competition to Netflix, which also owns the right to stream some of Marvel’s shows.

Amazon also spent a large amount on some small-budget movies with excellent reviews. They paid $12 million for ‘The Big Sick’ even before its theatrical release. The amazing reviews—98% Rotten Tomatoes—made Amazon pay the price.

Amazon has over 126 million Prime members in the U.S., while Netflix has 73.94 million subscribers . After the success of Prime in the U.S., Amazon is pushing the same playbook in Europe.

Prime Video continues to launch Amazon Original series and movies globally. Amazon’s Original movie Borat Subsequent Moviefilm , starring Sacha Baron Cohen, generated tens of millions of customer streams globally on opening weekend.

In 2022, Amazon released the most expensive TV series, Lord of the Rings: The Rings of Power . Its superhero series, The Boys , is also regarded as the best superhero show of the year despite having big competition from Marvel and DC franchises.

Recently, its Fallout series, a video game adaption, is getting favorable reviews from the audience.

Amazon MGM Studios

Creating a video-streaming service alone will not help; that’s why Amazon created its own film and TV series production distributor, Amazon Studios, now Amazon MGM Studios. Amazon’s original content is too low compared to other services such as Netflix, Hulu, and HBO. But Amazon has planned to produce its own content with a great number.

The Studio focuses not only on English content but also on content related to a particular geography.

Much of Amazon’s original content has won major awards. For example, Manchester By the Sea, nominated for six Academy Awards, made Amazon Studios the first streaming service to nominate for the Academy Award for Best Picture. The Marvelous Mrs. Maisel and Fleabag are some top-performing and award-winning TV series created by Amazon.

Amazon Studios announced deals for upcoming Prime Video series and movies, including the Eddie Murphy comedy Coming 2 America , which premieres in March 2021 on Prime Video globally, and an unscripted docuseries and new coming-of-age series based on Jessica Simpson’s best-selling memoir Open Book .

On May 26, 2021, Amazon acquired MGM for $8.45 billion. With this acquisition, Amazon also acquired MGM’s vast content library of 4000 films, including classics such as 12 Angry Men, Basic Instinct, Legally Blonde, Silence of the Lamb, Rocky, and the James Bond franchise, as well as 17000 TV shows – including Fargo, Vikings, and The Handmaid’s Tale .

Prime Music

Amazon is not limited to providing video streaming; the company also has its own music streaming platform—tough competition for Spotify, YouTube Music, Apple Music, etc. Amazon has millions of songs in its library, which it offers to its Prime members. Prime Music is a gift for its prime members, as the company isn’t charging any extra cost for this music platform.

It’s cool, isn’t it?

Even for a better experience, Amazon integrated Alexa into its music app, which can help you find the songs you are searching for.

Further, Amazon Music signed an agreement to acquire an innovative podcast publisher, Wondery. Through this acquisition, Amazon Music aims to accelerate the growth and evolution of podcasts by bringing creators, hosts, and immersive experiences to even more listeners across the globe.

Becoming A Logistics Powerhouse

Amazon is opening small warehouses to support its grocery delivery service, Prime Now and Amazon Fresh. In Germany, where a rapid expansion in online grocery delivery is expected , Amazon has been running warehouse purchase plans to tap into the market opportunity.

Amazon Fulfillment Centers

In Jan 2020, Amazon said it had 110 active fulfillment centers in the US and 200+ globally.

Its plans include investing heavily in expanding fulfillment centers and other logistics capabilities. A key focus is driving further growth in sellers and packages through Fulfilled by Amazon (FBA).

Amazon Logistics App

To strengthen its logistics and delivery network, Amazon announced the development of an app to help truck drivers. Amazon aggressively hired for the project and announced its launch in 2017. In November 2017, they secretly launched the app Relay. The app makes it easier for truck drivers to pick up and drop off packages at Amazon warehouses. Besides, Amazon is also working on a second app that could connect truck drivers with cargo.

Amazon Prime Air

In March 2016, Amazon gave a public demo of its Prime Air delivery drones in the US. The concept has multiple regulatory barriers. However, the situation may improve, as in October 2017, the Trump Government issued an order giving local governments more authority to conduct tests of such new technologies.

Amazon is experimenting with a new delivery service that offers more products with free two-day delivery and relieves overcrowding in its warehouses.

The service, Seller Flex, began two years ago in India, and Amazon has been slowly marketing it to US merchants in preparation for national expansion. The trial began on the West Coast this year, with a broader rollout planned in 2018.

Amazon will oversee the pickup of packages from warehouses of third-party merchants selling goods on Amazon.com and their delivery to customers’ homes. Handling more deliveries is expected to provide Amazon greater flexibility and control over the last mile to shoppers’ doorsteps.

In October 2023, Amazon announced that it would expand its drone delivery service, Prime Air, to new locations. In addition to the existing locations, they plan to begin service in the UK, Italy, and a third US city by the end of 2024. The rollout will be gradual, starting in one location in each country and expanding over time.

Logistics Partnership

In October 2017, Amazon approached French supermarket operator Leclerc about a possible logistics partnership. This probable collaboration shows Amazon’s intentions to expand in the supermarket sector.

The partnership and other logistic investments became an immediate reason for the fall of other services as companies like UPS and FedEx’s share prices dropped drastically. UPS shares fell as much as 2.1% to $116.52, trading down 1.3% in New York on October 4th, 2017. FedEx dipped by 1.6% to $217.77 before recovering somewhat to $220.09 on October 4th, 2017.

Amazon Acquisition Strategy

Amazon has aggressively harnessed its merger and acquisition strategy, closing 35+ deals in the past 7 years. But the trend has been on the downward side since 2017, especially after COVID-19.

The chart below summarizes Amazon’s M&As from 2017 to 2023.

2020 saw a big drop in M&A activity, but it was also when Amazon surprised the world by acquiring Zoox for more than $1 billion, making it the company’s biggest acquisition. With it, Amazon entered the self-driving industry as well.

2021 saw the second-biggest acquisition of Amazon when it acquired MGM for $8.45 billion to boost its streaming service Prime Video. MGM owns 4000 movie titles and 17000 TV series, enough to attract customers to its streaming platform to binge on some classic movies such as 12 Angry Men, Basic Instinct, Legally Blonde, Rocky , and the evergreen James Bond movies.

Over the last few years, Amazon has made multiple acquisitions to strengthen its core e-commerce operations. It has also invested in technology companies such as Harvest.ai, a cybersecurity player, and Do.com, which are software for meeting productivity needs.

In June 2017, Amazon acquired grocery giant  Whole Foods for a whopping $13.7 billion. This was a big step forward for Amazon, strengthening its grocery e-commerce segment and opening doors to new opportunities.

Internationally, Amazon expanded its operations by acquiring other businesses , such as Souq.com, in the Middle East to grow e-commerce in the region.

Amazon made its first acquisition of 2018—its second-biggest ever—in a deal valued more than $1 billion, purchasing Ring, a video doorbell maker. This shows its interest in robust home security to flourish its Amazon Key service .

In 2022, Amazon announced two big acquisitions, i.e., One Medical and iRobot, both billion-dollar acquisitions. With One Medical, Amazon could create a healthcare ecosystem that it could include in its retail store, prime memberships, etc. Consider it similar to what Amazon has done with Whole Foods.

With iRobot, the company could potentially collect data from people’s homes, such as mapping and layout, thus raising concerns for privacy by the FTC. Eventually, the deal failed.

Here are the 10 biggest acquisitions of Amazon:

New Businesses and Emerging Markets

Amazon has been experimenting with fintech initiatives and intends to become a prominent player in the segment. In 2016, Amazon nearly lent out $1 billion in small loans.

In India, the company has been offering thousands of loans to e-sellers so suppliers can expand their operations and manage seasonal spikes.

Amazon expanded its financial reach by launching Amazon Cash, which allows users to add to their Amazon.com balance by showing barcodes at brick-and-mortar checkout locations.

“Amazon is the most formidable. If Amazon can get you lower-debt payments or give you a bank account, you’ll buy more stuff on Amazon.” –   Alex Rampell, Partner, Andreessen Horowitz

Amazon also makes big moves in emerging markets. One of the key international markets targeted by Amazon is India, which is perceived to be one of the fastest-growing e-commerce markets globally in the near future.

In Late 2016, Amazon’s CEO, Jeff Bezos, announced an additional investment of $3 billion in India, taking its net investment to over $5 billion in the country. This is more than the company’s total capital expenditure of $4.5 billion in 2016. It looks like Amazon sees huge potential in India.

In October 2017, Amazon announced an expansion in Brazil to enter the electronics and appliances marketplace. Amazon also expanded its operations in the Middle East, one of the fastest-growing e-commerce markets in the world. It acquired Souq in the UAE to serve the local market. In September, Amazon-owned Souq acquired Wing.ae, a startup building a network for Prime-style same-day and next-day deliveries for various e-commerce marketplaces.

On May 21, 2020, in the midst of a pandemic, Amazon launched a food delivery service in India. The service, known as Amazon Food, is currently available in Bangalore, but with top players having a setback, the company has enough resources to go big and be a worthy competitor.

In Nov 2020, Amazon opened another venture called Amazon Pharmacy that could disrupt US healthcare. With the service, the company offers prescription medications to customers’ doorsteps. Customers can now browse medications, create a secure pharmacy profile, and request or manage prescriptions on Amazon.com. Like other services, Amazon offers Prime members unlimited, free two-day delivery on Amazon Pharmacy orders with their membership.

Amazon Investment Landscape

Amazon is investing in a wider variety of industries. During the period of 2011-2013, Amazon slowed down its investment activities as it invested mostly in internet companies.

During 2014-2016, the company changed its investment strategies and started channeling investment in other industries like Media, Auto & Transport, and Mobile. Amazon also made a few other big investments, as they invested in the UK-based Yodel Delivery Network to expand its logistics network in the UK.

2016 Amazon partnered with Twilio to strengthen its text and voice messaging communication platform.

In 2017, Amazon invested in Grail , a healthcare startup that specializes in genomics for cancer diagnostics. This is Amazon’s first investment in the life science segment.

In the last few years, Amazon focused on late-stage deals where most of the investment amount fell into the $10M-$20M range.

Amazon founded the investment venture in 2015. The Alexa Fund provides up to $200 million in venture capital funding to fuel voice technology innovation.

As of Feb 4, 2021, Alexa Fund has made 102 investments in startups of different industries such as AI/ML, Education, Fintech, Gaming, Hardware, Health, Mobility, Robotics, Smart Home, and Voice Developer Tools. 

The maximum number of investments can be seen in Artificial Intelligence (10 startups), Healthcare (13 startups), and Smart Home (11 startups) sectors.

Here are the last 10 investments made by Alexa Fund:

Amazon Financial Analysis

Amazon revenue analysis.

In Feb 2024, Amazon announced its revenue for the 4th quarter of 2023 , and with that, we found its overall revenue for 2023. AWS arm was the most profitable segment, raking in $24 billion operating income alone, leading to record-breaking sales in 2023.

There are several reasons for Amazon’s immense revenue growth. While its online shopping business is the major source of revenue, its physical stores didn’t generate many sales due to the pandemic.

The subscription service also grew, but a significant growth happened due to third-party sellers, which accounted for 117.71 billion dollars, crossing the 100-billion mark for the first time. Amazon is a huge marketplace, and one can sell their products via Amazon, for which the company takes a margin of 15 to 20%.

Its online stores also achieved a record of crossing the 200-billion mark for the first time. Amazon now has two divisions with more than $100 billion in revenue.

Furthermore, advertising on Amazon is also increasing faster and accounted for $40 billion in 2023 . The potential of Amazon’s advertising business is such that analysts have affirmed that it could surpass AWS revenue by 2021. Naturally, it didn’t surpass AWS revenue, but it saw immense growth. Considering the AWS revenue, it’s highly unlikely that Advertisement can surpass AWS in the next 5 years.

From the revenue perspective, Amazon operations can be divided into three major segments: North America, International, and AWS .

North America Segment

The segment includes earnings from retail sales of consumer products (including sellers) and subscriptions through North America-focused websites. The major competitors in the North American region are Best Buy, Target, eBay, Peapod, and Netflix.

The chart above shows Amazon’s sales and operating income in North America over the last three years.

The segment is responsible for 61.2% of the total revenue.

North America has three sub-segments: Media, Electronics, and other general merchandise. Electronics and other general merchandise represent North America’s highest share of sales and have consistently grown.

International Segment

The international segment includes earnings from retail sales of consumer products and subscriptions through internationally-focused websites. The chief challengers are Alibaba Group in China, Woolworths in Australia, Rakuten in Japan, Flipkart in India, and JD.com in the United Kingdom.

Amazon International Segment Revenue increased to $131 billion in 2023,  with an operating loss of $2.6 billion . The segment has yet to become profitable, and it might take three or more years to become profitable.

The sales growth was due to increased unit sales, including sales by marketplace sellers. Changes in foreign currency exchange rates impacted International net sales. Increased unit sales were driven largely by continued efforts to reduce prices.

Amazon hosts the three major sub-segments, i.e., Media, Electronics, and other merchandise, internationally. With Prime Services, Electronics and other general merchandise successfully increased sales in the International segment, more than $30 billion.

AWS Segment

Like every year, AWS was the most profitable segment in 2023, thanks to the Amazon B2B strategy, which generated $24.6 billion in operating income .

The AWS segment is earning from global sales of computing, storage, database, and other service offerings for startups, enterprises, government agencies, and academic institutions. The major rivals in this segment are Microsoft, Google, Oracle, and IBM.

Amazon Stock Analysis

The year 2022 was generally bad for Amazon’s stock price. The company split its stock 20 to 1 in June 2022. Further, Amazon is one of the worst-performing stocks of 2022, as it declined more than 50% in 2022.

However, the market was in favor of Amazon in 2023.

After comparing the 52-week low and high, Amazon stock shows growth of almost 100%.

Amazon has 10.24 billion shares, or 60% of the total. Institutional holders hold 6.13 billion shares, or $1.1 Trillion.

Undoubtedly, the world’s richest man holds the most shares—937 billion—which makes his net worth $192 Billion. His net worth surpassed the $100 billion mark for the first time on November 24, 2017, when share prices increased by 2.5%. In November, he sold 1 million shares when the price reached an all-time high of $1100/share, which helped him make $1.1 billion.

With 233 billion shares, Mackenzie is the 2nd largest individual shareholder of Amazon making her net worth more than $27 billion. .

Amazon’s Business and Research Partnerships

• Amazon and Microsoft partnered to integrate Alexa and Cortana

In August 2017, Amazon and Microsoft partnered to integrate their Alexa and Cortana digital assistants better. This cross-platform integration would allow Alexa users to access some unique aspects of Cortana and vice-versa.

• Amazon and Ford partnered to access cars from a distance

Ford and Amazon teamed up to allow consumers to access their cars from a distance. This is done by bringing Amazon Echo into Ford’s cars. With the help of Alexa – Amazon’s cloud-based voice service, the car lets you control functions such as lighting, security systems, garage doors, and other Alexa smart home devices.

• Dish Network and Amazon Wireless Collaboration

Dish Network is looking to use an e-commerce platform, streaming service, home assistant (Amazon Echo), and proposed drone delivery services in collaboration with Amazon and T-Mobile USA. According to the deal, Dish will utilize its spectrum for wireless service in collaboration with Amazon and T-Mobile USA.

• Cognizant is a Premier Consulting Partner for AWS

Cognizant, in partnership with AWS , provides services like migration competency, big data, workspaces, healthcare and life sciences, financial services, and SharePoint. The AWS Cognizant Team (ACT) delivers the differentiating integration strategy and creates industry-specific and horizontal solutions for their mutual customers.

• Amazon and Accenture united

Amazon and Accenture combined to precipitate real innovation by combining AI tools into a contact center running from the cloud. Amazon offers Amazon Connect, a fully hosted, customizable, cloud-based contact center service. The collab structures such that Accenture would help its clients rapidly deploy Amazon Connect at scale and build vertical industry applications that use AWS AI services. The partnership will focus on delivering cloud transformation projects.

• Nokia announces a Strategic collaboration with Amazon Web Services

Nokia and Amazon Web Services (AWS) collaborated , given the rising need for “tighter integration” between networking and IT infrastructure. The partnership will improve cloud migration and software-defined wide-area networking (SD-WAN) services for enterprises, along with working across the development of 5G and Internet of Things (IoT) use cases.

• 2nd Watch Named AWS Management Tools Service Delivery Launch Partner

2nd Watch achieved AWS Service Delivery Launch Partner status for three Amazon Web Services (AWS) Management Tools in the AWS Service Delivery Program. The Partner Program is designed for those skilled at cloud infrastructure and application migration. It delivers value to customers by offering proactive monitoring, automation, and management of its customers’ environment.

• Ericsson wants a presence in Cloud Computing by merging with AWS

Ericsson, one of the top companies working on 5G, also wants to strengthen its position in cloud computing. In 2016, the Swiss giant worked with AWS to enhance its infrastructure for developing and deploying mobile apps.

For quite some time, Amazon has been focusing its efforts on cloud services and its personal assistant, Alexa, for which it has raised millions in Funding. Further, it is also trying to make Alexa a smarter assistant by hiring more AI talents .

The increase in AWS sales suggests it might become a favorite choice for corporations in the future. After record-breaking sales, Prime is getting bigger in India and the Middle East. Further, the company is trying to get a hold of the Indian Fintech market, for which, in December 2017, it funded a digital lending startup, Capital Float.

Last year, Jeff Bezos also announced its $1 billion investment in India for the next five years.

The company has hit $457 billion in revenue and has more than $1.6 Trillion in market capitalization.

Such huge sources could allow Amazon to enter any kind of business they want, which could be a problem for players in different domains. Zoox acquisition is a solid example as it could make other autonomous vehicle companies a run for the money.

However, when discussing Amazon’s most noteworthy competitor, Walmart is the prime choice.

Even though Amazon is way ahead of Walmart regarding market capitalization and revenue, it’s still behind Walmart. Sources predict that Amazon will overtake Walmart’s revenue by 2022, but it would take another year or two for Amazon to overthrow Walmart from Fortune 500 rank 1.

Amazon already surpassed Walmart as the world’s largest retailer in 2019, and in the coming one or two years, it will surpass Walmart’s revenue, too.

However, after its downfall, Walmart took new steps to become more than a retail company and collected resources to give Amazon tough competition. Walmart now understands the value of technology, as the company has started investing in technologies and patents to take on Amazon.

Related Study: Airbnb expanding into social media? A peek into Airbnb’s expansion plan

Authored by: Vipin Singh , Market Research.

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Amazon has been notoriously secretive about its business strategy, but thanks to some diligence on the part of analysts and reporters, we have a pretty good idea of what the company is up to.Amazon’s business strategy can be summed up as follows:1. Focus on investing in technologies that will give it a competitive advantage.2. Enhance its logistic applications to further improve its web services.3. Improve its fulfillment capacity to keep up with customer demand.4. pursue a mergers and acquisitions strategy to acquire companies that can complement its core competencies.5. Increase its R&D budget to continue to innovate and staying ahead of the competition.

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The Leading Source of Insights On Business Model Strategy & Tech Business Models

How Amazon Makes Money: Amazon Business Model (2024 Update)

Amazon has a diversified  business model . In 2023, Amazon generated nearly $575 billion in revenues while it posted a net profit of over $30 billion. Online stores contributed over 40% of Amazon revenues. Third-party Seller Services and Physical Stores generated the remaining.  Amazon AWS , Subscription Services , and Advertising revenues play a significant role within Amazon as fast-growing segments.

Table of Contents

Amazon’s short business model breakdown 

We describe the Amazon  business model   via the   VTDF framework   developed by FourWeekMBA. 

Amazon’s business model today

Before we dive into Amazon’s history and break down its whole business model. Let’s give a look at some of the key highlights for the company, in 2021. 

• Indeed, by 2021, Amazon had grown into a tech giant, which generated over $469 billion in sales. 
• Among its sales, over $241 billion were product sales (51.4%), and over $228 billion were service sales (48.6%).
• The largest cost the company faced in 2021 was the cost of sales, which represented over $272 billion or 57.9% of the total revenues. Cost of sales comprises primarily sortation and delivery centers costs, together with the transportation service provider, and digital media content costs, including video and music. For instance, as Amazon highlighted, in 2021 the increase in the cost of sales was primarily due to increased product and shipping costs resulting from increased sales, costs from expanding Amazon’s fulfillment network, as well as increased carrier rates, increased wage rates, and incentives, and fulfillment network inefficiencies resulting from a constrained labor market and global supply chain constraints.
• The fastest-growing Amazon segment in 2021, compared to 2020, was Advertising. Which grew from over $21.4 billion in 2020 to over $31.1 billion in 2021 (45% YoY). This was followed by Amazon AWS, which grew by 37% YoY, from over $45.3 billion in 2020 to over $62.2 billion in 2021. Third-party seller services and subscription services also grew very fast (see table below). 
• Amazon AWS is the largest contributor to Amazon’s operating margins. In fact, in 2021, of the total $33.3 billion in operating margins, over $18.5 billion came from AWS. This means that AWS contributed to over 55.5% of overall Amazon’s operating margins. What does it mean? Amazon’s e-commerce platform is running at very tight margins, even though it’s the largest segment. Instead, other segments, like Amazon third-party services, subscriptions, and advertising are running at much wider margins. However, it’s AWS, which, for now, is running at the widest operating margins. This is in part because of the underlying cloud infrastructure that makes Amazon AWS, which today powers up a good chunk of the Internet. In fact, Amazon AWS is among the largest players. Indeed, by 2021, Amazon AWS had revenues of over $62 billion, whereas Microsoft Intelligent Cloud, for over $60 billion, and Google Cloud, for over $19 billion.
• The fact that Amazon’s e-commerce platform is the one with the tightest margins doesn’t make it the less important. Quite the opposite. The Amazon e-commerce platform is the main asset of the company. For a strategic choice made two decades ago by Jeff Bezos, Amazon keeps its e-commerce margins low, bypassing low prices to consumers, while on the other hand, building other business segments with very high margins (see AWS, Third-party seller services, Advertising, and Subscriptions). 
• While Amazon is still a product company, meaning its e-commerce platform is still the main component of its business model. It’s worth noticing how Amazon is leveraging its product side, to build its service business. In fact, Amazon has built a larger set of tools, for third-party stores to sell on top of Amazon. In addition to that, Amazon has also been building its Amazon Subscription business (Amazon Prime) and lastly, Amazon advertising services also are growing exponentially. 
• It’s also important to emphasize that today Amazon is a very complex business model, comprising various business units. Today Amazon is both a platform (Amazon e-commerce) and an infrastructure (Amazon AWS). This has been possible thanks to a lack of regulation on the Internet. Going forward it might be possible to see Amazon spinning off parts of its business, as a separate company (for instance AWS might be a completely separate enterprise business compared to Amazon e-commerce). 

Understanding the tradition from e-commerce to platform 

Amazon AWS born as a side effect of making an order to the “jumbled mess” that had become Amazon infrastructure in the early 2000s is now the most profitable part of Amazon.

With $13.5 billion in revenues in Q1, it’s among the fastest-growing segments for the company.

And it generated over $4 billion in operating income, which represents almost half of the total operating income of Amazon! In short, if you were to spin off AWS, Amazon would be running at very tight margins.

To be sure it doesn’t mean the e-commerce part is not valuable. The opposite. Amazon explicitly runs it at a loss because it’s what gives the company scale.

And it also enables it to experiment and create new revenue streams. Indeed, Amazon Prime, Amazon seller services, and Amazon advertising (the most profitable segments) are all built on top of the Amazon e-commerce platform.

And Amazon AWS also was born as an attempt to make orders to the Amazon e-commerce infrastructure and enable more and more third-party stores to be hosted on top of it!

So when you look at Amazon, keep that in mind! It’s way way more than just an e-commerce company.

It’s a platform, a marketplace, an advertising giant, a streaming company, and one of the most powerful cloud enterprise businesses, powering up a good chunk of the web!

Was this a random transition? Nope, it was a conscious choice, which took two decades to build Amazon into the company that we know today. 

Back in 2019, in Amazon’s shareholders’ letters, one of the last ones from   Jeff Bezos , as CEO of Amazon, he highlighted: 

The percentages represent the share of physical gross merchandise sales sold on Amazon by independent third-party sellers – mostly small- and medium-sized businesses – as opposed to Amazon retail’s own first-party sales.   Third-party sales have grown from 3% of the total to 58%. To put it bluntly: Third-party sellers are kicking our first-party butt. Badly.

As   Jeff Bezos   further highlighted, back then: 

And it’s a high bar too because our first-party   business   has grown dramatically over that period, from $1.6 billion in 1999 to $117 billion this past year. The compound annual   growth   rate for our first-party   business   in that time period is 25%. But in that same time, third-party sales have grown from $0.1 billion to $160 billion – a compound annual   growth   rate of 52%. To provide an external benchmark, eBay’s gross merchandise sales in that period have grown at a compound rate of 20%, from $2.8 billion to $95 billion.

He also analyzed the context, to understand what made up Amazon’s success in attracting third-party stores, and he posed a few questions:

Why did independent sellers do so much better selling on   Amazon   than they did on eBay? And why were independent sellers able to grow so much faster than Amazon’s own highly organized first-party sales   organization ?

Jeff Bezos   emphasized:

There isn’t one answer, but we do know one extremely important part of the answer: We helped independent sellers compete against our first-party   business   by investing in and offering them the very best selling tools we could imagine and build. There are many such tools, including tools that help sellers manage   inventory , process payments, track shipments, create reports, and sell across borders – and we’re inventing more every year.

In short, a successful   platform   incentivizes third-party stores and e-commerce to compete against the first-party stores, and it offers them a set of key tools to manage   inventory , payments, track shipments, and reporting.

As   Jeff Bezos   further highlighted:

But of great importance are Fulfillment by Amazon and the Prime membership program. In combination, these two programs meaningfully improved the customer experience of buying from independent sellers. With the success of these two programs now so well established, it’s difficult for most people to fully appreciate today just how radical those two offerings were at the time we launched them.

As   Jeff Bezos , highlighted, those two programs (now widely successful) were not guaranteed to succeed:

We invested in both of these programs at significant   financial   risk and after much internal debate. We had to continue investing significantly over time as we experimented with different ideas and iterations.

In fact, while those make sense now, and seem obvious, in hindsight, it took a lot of mistakes, failures, and iterations, to get there:

We could not foresee with certainty what those programs would eventually look like, let alone whether they would succeed, but they were pushed forward with intuition and heart, and nourished with optimism.

This passage above is critical to understanding the evolution of Amazon’s business model so that we can understand and appreciate its history. 

The history of Amazon

We can break down Amazon’s history in four key waves: 

• 1994-2005: in the early day Amazon, through the vision of Jeff Bezos was among the most prominent Internet players. Amazon had placed substantial bets on various companies and it had quickly scaled its operations. Starting from books, by the late 1990s, Amazon had already expanded into other categories, and Jeff Bezos had placed investments in various Internet startups. As the dot-com bubble burst, though, Amazon not only lost substantial amounts of money into failed bets (the epitome of that was the bankruptcy of Pets.com one of the key bets the company had placed) but it shrank in value, and many analysts predicted its demise. However, in those years, especially in the early 2000s Amazon changed its business playbook. It cut all the investments in things it could not directly control and it started to move from an e-commerce company to a platform business model . 
• 2005-2015 : By the mid-2000s Amazon had set the stage for a complete change in its business model. The company had also started to experiment with various programs and products. Some were a complete failure (like the Kindle Fire Phone) and others would turn out into incredible products, and business segments (Amazon Prime, Amazon Advertising, and Amazon AWS). 
• 2015-2020 : By the year 2015, Amazon had turned into a tech giant already, and it showed the world, finally, that not only it had survived but that it had the ability to scale at an international level. In these years, Amazon showed the world the incredible numbers behind Amazon AWS (most business players were astonished and other companies like Microsoft and Google started to double down on cloud computing as they saw the success of AWS). And the company managed to expand in Europe, Mexico, and India and tried hard also to break into China. 
• 2020-Forward : as the pandemic hit, Amazon became one of the companies that defined this moment in the history of western humanity. In fact, by choice Amazon started to burn a substantial amount of cash to further scale its service, and make it one of the most compelling for consumers. 

Amazon, through the vision of Jeff Bezos, had the merit of creating a customer-obsessed business, which I argue, has been continuously Blitzscaling, since its inception. 

The fast pace of Amazon has made it also a very controversial company. In fact, obsessing over customers has made Amazon, a business loved by consumers. 

On the other hand, it has also created tensions toward other stakeholders (employees, suppliers, and third-party stores in particular). Indeed, if your main focus is the customer, and you’re obsessed with it, then you might operate in a way that leverages your negotiating position to squeeze other stakeholders.

This has made Amazon a controversial company for sure. 

The Launch 

Amazon was launched on July 16, 1995, as a humble online bookstore operating out of the garage of founder Jeff Bezos. In little more than two decades, the company is now the largest eCommerce retailer in the world with annual revenue in 2020 of $386 billion. Bezos originally wanted Amazon to be called Cadabra – a shortened version of Abracadabra.

In 1994, Bezos and then-wife MacKenzie Tuttle began registering several domain names. These included Awake.com, Browse.com, and Bookmall.com. The pair ultimately settled on Amazon.com after searching through a dictionary for inspiration. As the biggest river in the world, it aligned with a goal Bezos had to make his online store similarly vast.

What’s in a name?

Bezos originally wanted Amazon to be called Cadabra – a shortened version of Abracadabra.

However, his lawyers advised him that the reference to the popular magic catchphrase might be too obscure. They also contended that Cadabra could be misconstrued as “cadaver” instead. 

The early years

The original Amazon business model of selling books online was met with much derision from skeptics. Many argued Amazon would not be able to compete with established chains such as Borders and Barnes & Noble.

Where Amazon differed from these established players was convenience. Bezos wanted to deliver online orders directly to any customer anywhere in the world – a process we take for granted now that was revolutionary at the time.

Very early on, a bell would ring in the Amazon office every time a customer made a purchase. The company was so small that employees would crowd around to see if they personally knew the customer.

After a few short weeks, however, orders became so frequent that the bell had to be removed. During its first month of operations, Amazon had sold books to people in all 50 states and 45 different countries. Each order was personally transported to the post office and dispatched by Bezos and his employees.

It all started back in the early 1990s, when a young Jeff Bezos was working at Hedge Fund D. E. Shaw & Co, where he was pulling off a very successful career on Wall Street. Yet as Jeff Bezos recounts, while at the firm, while doing a market research on the potential of the Internet he stubled across a staggering statistics: the web usage was growing at a 2,300% a year.

So he made sure right on to find a business plan that would make sense in that hypergrowth context. And he picked books. Why? As Jeff Bezos pointed out “there are more items in the book category than any other category by far,” with over three million different books worldwide. Only Music was number two.

Keep in mind those words. Indeed, as we’ll see throughout this incredible story. As Amazon scaled up it extended to wider and wider niches, from CDs and music, and slowly, then all of a sudden to everything else.

However, books were an incredible commercial niche, as it was a showcase for Amazon to emphasize the unbounded potential of the Web.

As the story goes, Jeff Bezos made the final decision through the regret minimization framework .

As he explained back then:

I want to have lived my life in such a way that when I’m 80 years old I’ve minimized the number of regrets that I have

On October 4, 1995, at 12:00 AM Amazon announced : “World’s Largest Bookseller Opens on the Web.”

They explained in the press release:

At a time when pundits are questioning the advantages of shopping online, Amazon.com offers consumers a shopping experience that would be impossible without the Internet. A physical bookstore as big as Amazon.com is economically impossible because no single metropolitan area is large enough to support such a mammoth store. Were Amazon.com to print a catalog of all of its titles, it would be the size of 7 New York City phone books.

While intellectuals discussed the viability of the internet, Amazon experimented fast. 25 years later, Amazon made over $386 billion in sales, selling way more than books. Becoming the “everything store”, a media house, and among the largest digital advertisers on earth!

Amazon proved the viability of the Internet explaining “a physical bookstore as big as Amazon.com is economically impossible because no single metropolitan area is large enough to support such a mammoth store.”

In 1995 Jeff Bezos highlighted:

We are able to offer more items for sale than any retailer in history, thanks entirely to the Internet, If you’re a reader and shopping from your keyboard, and hundreds of thousands of discounted items appeal to you, then we might interest you.

This is how Amazon opened up its operations on the web.

The Launch Of Amazon.com Associates

By July of 1996, as Amazon grew into one of the most popular domains on the web, it also announced a program called Amazon.com Associates. As Amazon explained at the time:

Through this program, any Web site, whether it attracts only a few visitors or hundreds of thousands of hits, can enhance its content and earn revenue by recommending books. More than 300 Web sites are currently enrolled as Amazon.com Associates, with dozens signing up daily.

They further explained:

With the Amazon.com Associates program, Web sites select books of interest to their visitors and link directly to the Amazon.com 1.1 million title catalogue. Amazon.com handles online ordering, credit card charging, customer service and shipping the books directly to customers. Amazon.com, already recognized as one of the leading electronic retailers, offers Associate customers the same discounted prices and service that has earned its reputation among Web users. Associate Web sites earn a referral fee for their book recommendations.

In short, while the affiliate business model was not new, Amazon had learned how to take advantage of it. And Jeff Bezos explained at the time:

By providing a referral fee for these recommendations, Amazon.com has developed an electronic business model that takes advantage of what the Web has to offer.

The IPO, The First Distribution Deals, And The First Legal Battle With Barnes And Nobles

As Amazon’s growth picked up further momentum, the company got ready for its IPO.

As Amazon got ready for its IPO, it also started to close its first deals. Among the most important, Amazon closed a deal with Excite, and as explained :

The three-year relationship combines Excite’s core competencies in distribution and programming with Amazon.com’s strengths in bookselling and editorial content to offer consumers the opportunity to buy topic-related books while browsing Excite’s channels. Throughout Excite’s channels pages, Excite will offer users links that will take them directly to the related Amazon.com search results page. The full range of links is expected to be in place in the fourth quarter of 1997. Amazon.com’s advertising will begin running immediately throughout Excite’s popular topic-based channels at http://www.excite.com .

Amazon also closed another key deal with AOL, a deal that would place it on the most popular website on earth, at the time. As they explained back then:

Under the agreement, Amazon.com will receive a permanent “above-the-fold” front-screen button (visible without scrolling down) on the AOL.com homepage, the most visited site on the Web. This button will link users directly to Amazon.com (www.amazon.com), the leading online bookseller, where they will be able to review and purchase books. In addition, Amazon.com and AOL will introduce a new navigational tool that will allow NetFind users to link directly to relevant Amazon.com search results pages through a hyperlink on every AOL NetFind Results page. By offering users additional in-context access to books at the time of their search, Amazon.com and AOL will enhance NetFind’s informational value and broaden user access to Amazon.com’s 2.5 million titles. Furthermore, Amazon.com will have broad exclusive promotional placement rights on AOL.com and NetFind, including a range of banner advertisements on selected NetFind Review Category pages and keyword categories.

Amazon was closing distribution deals pretty much with the most important web players at the time, such as AltaVista, and then Netscape, which as explained :

In a related announcement today, Netscape unveiled its commerce strategy for Netcenter with the launch of Netscape Marketplace. Amazon.com will be one of the first commerce offerings that Netscape will provide to its Netscape Netcenter membership of busy professionals. “This agreement marks another important advance in our strategy to be the primary destination for all Internet bookbuyers,” said George Aposporos, Amazon.com Vice President of Business Development. “We are particularly excited about our relationship with Netscape because it secures Amazon.com’s place as the premier bookseller on the top three most highly trafficked sites on the Web.”

This was also the year that marked a fierce battle with Barnes & Noble. As Barnes & Noble took Amazon in court, for its “misleading” advertising as the “World’s Largest Bookseller” eventually the lawsuit was dismissed, and both companies agreed to compete in the marketplace.

And later that year, as Amazon announced its third-quarter results, it was clear the company was on a rocket ship growth trajectory. As Amazon announced at the time several initiatives were launched :

In September, Amazon.com launched major improvements to the Amazon.com store, including powerful new features that increase the benefits of online shopping. The new features include a state-of-the-art Recommendation Center; 22 subject-browsing areas; and the use of a proprietary technology, 1- Click(SM) ordering, to streamline the ordering process. These enhancements represent the largest-ever step forward in the company’s strategy of offering customers the easiest, most enjoyable, and most effective way to find their next book.

Amazon was pretty much anywhere. As it was the “premier bookseller” on AOL.com, Yahoo!, Netscape, Excite.com, the AltaVista Search Network, and the Prodigy Shopping Network.

To scale up its operations, by November 1997, Amazon opened its second distribution center. As Jeff Bezos highlighted at the time:

Now with distribution centers on both coasts, we can dramatically reduce order-to-mailbox time for Amazon.com customers everywhere

The same press release highlighted:

The new Delaware distribution center positions Amazon.com closer to its East Coast customers and provides immediate reductions in shipping times for many Amazon.com book buyers. The distribution center also brings the company closer to East Coast publishers, who benefit from faster shipping and receiving service.

This was the beginning of the Amazon’s scale up!

Amazon Scaling

As Amazon had proved itself in books, it was time to move on in new niches.

By June 1998, Amazon.com opened up to music, with the following statement:

The leading online bookseller opened its music store at 1 a.m. today along with a major update of its award-winning Web site. The music store offers more than 125,000 music titles–10 times the number the average music store offers–at everyday savings of up to 40%, including 30% savings on the 100 bestselling Amazon.com CDs.

Jeff Bezos highlighted at the time:

It’s a music discovery machine, using the power of technology and the Internet, we’re enriching the music experience for everyone, from casual to devoted listeners alike.

As Amazon moved to music it used the same playbook it had used for books. It enlisted a militia of affiliates, who provided huge distribution to Amazon music products. In fact, by August of the same year, Amazon had over a hundred thousand affiliates!

David Risher, Amazon’s Vice President, in 1998, emphasized:

Amazon.com’s Associates program is the only major syndicated selling network in existence that enables participants to sell books, CDs, DVDs, and sheet music–giving them the potential to earn more than they could with any other program, the real winners, though, are the visitors to Associate Web sites who no longer have to keep track of multiple passwords, user IDs, and orders. With our cross-product program, visitors to Associate sites can purchase several titles across multiple product lines from a single source.

By October 1998, Amazon entered the European book market, starting from UK and Germany.

Get big fast

While the company was not profitable until 2001, Bezos noted that books were easy to source, package, and distribute. 

With great business acumen, he noted that books would allow him to capitalize on the massive growth potential in online eCommerce. In fact, he believed online retailers would only be successful if they adopted the mantra “Get Big Fast” – a slogan Bezos had printed on company t-shirts.

To fund this strategy , Amazon held its IPO in May 1997 and managed to raise $54 million . The following year, it expanded its product range by selling computer games and music. 

After several online bookstore acquisitions in Europe, the product range was extended once more to include consumer electronics, home improvement items, software, toys, and video games, among other things.

The rest, as they say, is history.

• Amazon founder Jeff Bezos originally wanted the company to be called Cadabra. However, the idea was canned after lawyers noted its obscure reference to magic and possible confusion with the word “cadaver”.
• Amazon’s original business model of selling books was derided by critics who suggested it could not compete with established players. To provide a point of difference, Bezos maintained a focus on customer convenience.
• Amazon grew rapidly because Bezos identified how easily the sale of books could be scaled to achieve growth. This idea became a company mantra that is responsible for a large part Amazon’s success.

Surviving the dot-com bubble

Since its inception in 1994, and its IPO in 1997, going to the 2000 dot.com bubble Amazon was not a profitable company. Indeed, as Amazon established itself as one of the strongest online brands, and the strongest bookstore online, already by 1996-1997, it quickly expanded to offer more and more, from DVD to any other item imaginable. That sort of expansion was driven to gain as quickly as possible market shares of, at the time, embryonic e-commerce market. Thus, Amazon lost money, year after year.  Yet, the company still managed to generate positive cash flows, thanks to its positive cash conversion cycles and exponential revenue growth, until the dot-com bubble kicked in.

As Amazon revenue growth slightly slowed down, its cash generation also declined and from $822 million at the bank, in 2000, Amazon ended up with $540 million at the bank by 2001, thus burning over $280 million in cash.

Amazon pre-dot-com bubble

While at the time Amazon had already expanded in many categories and product types, it still didn’t think as a platform. Amazon was an incredibly successful e-commerce with a broad selection of items, low prices, discovery, the 1-Click technology, fulfillment, “look inside the book” feature, reviews, wish list and more. 

As we’ll see it would be only in 2001 that Amazon would start three core programs ([email protected] Program, Merchant Program, Syndicated Stores Program), that would help Amazon gain substantial traction, with revenues moving from over $3.1 billion in 2001 to over $5.2 billion by 2003, and for the first time in its financial history (at least from its IPO) Amazon turned a profit and cash started to flow in again. 

The near-death experience

During the 2000s with the explosion of the web, capital was flowing at a high rate. This was mostly a top-down approach where venture capitalists invested billions of dollars in companies hoping they would build something valuable. A simple idea coupled with a domain name was enough to spur excitement and inflated stock growth. 

To have an idea of how gloomy was the scenario. As the Guardian highlighted in June 2000, in an article entitled “Amazon.bomb:“

Analyst Ravi Suria highlighted Amazon‘s “weak balance sheet, poor working capital management, and massive negative operating cashflow – the financial characteristics that have driven innumerable retailers to disaster through history.” It was a day during which Amazon‘s shares lost 20% of their value, and 51m of them changed hands. A company worth about $40bn (£25bn) just before Christmas had ended the day worth $12bn (£7.5bn), and things did not improve during trading yesterday.

At those comments, Jeff Bezos replied at the time:

Three years ago our stock was $1.50 a share, today it’s $30-something. There have been many, many days when our stock has gone up 20% in a day” – that laugh again – “and if stocks can go up 20% in a day, they can go down 20% in a day. All internet stocks are volatile, including Amazon.com… we are nowhere near running out of cash, and we are not at all worried about it.

And he was right. Even though the company had burned a few hundred million in cash in 2001.

It had managed to get a long-term loan of over six hundred million back in 2000, right before the explosion of the dot-com bubble. Thus, guaranteeing enough cash to go through that bad period.

Indeed, as of 2001, Amazon still had over five hundred millions of cash sitting in its bank account. To understand how bad Amazon reputation might have been at the time (of course not all agreed with that), an article dated April 26, 2001, by Doug Casey, author of “Crisis Investing,” highlighted: 

I’ve said several times that Amazon is a cinch for bankruptcy, certainly Chapter 11 (a reorganization) and maybe even Chapter 7 (a liquidation), although I consider the latter a bit of a long shot.

Luck for sure played a key role. Amazon, like many other companies during the dot-com bubble, played with a very aggressive playbook skewed toward market domination and investing the whole resources brought back into the business for more aggressive growth and expansion. This became clear when, in 2000, Amazon found itself in a cash squeeze. The company was burning cash, and although one deal with AOL brought in an additional $100 million in cash as an investment into the company.

There was another event that saved Amazon from bankruptcy, and it happened a month before the dot-com crash. Amazon sold $672 million in convertible bonds to overseas investors and it did so at just the right time. Had Amazon waited just a bit longer it would have failed miserably.

Given the perfect timing of that capital raise, as the dot-com busted, investors also filed a class action against Amazon , that would be finally settled in 2005. It’s important to remark that many internet companies underwent lawsuits during that time, as the bubble burst, leaving off the table billions and billions of investors’ money. 

That near-death experience taught Amazon to rehaul its whole playbook. It wasn’t any longer just about aggressive growth and expansion for its own sake, with an aggressive financial model where it was all about cash flows, but Amazon started to become more nimble and also to come up with programs such as Amazon websites (third-party) and many other programs that would lead to the success of the company. 

Today Amazon praises itself as the most customer centric company on earth. 

To understand also the shift on how Amazon spent money also in terms of product/technological development below a fragment from the Amazon financials back in 2001:

Technology and content expense was $241 million, $269 million and $160 million for 2001, 2000 and 1999, respectively, representing 8%, 10% and 10% of net sales for the corresponding periods, respectively. The decline in absolute dollars spent during 2001 in comparison to the prior year primarily reflect our migration to a technology platform that utilizes a less-costly technology infrastructure, as well as improved expense management and general price reductions in most expense categories, including data and telecommunication services, due to market overcapacity. 

The paradigm shift

The turning point was 2001, after the dot-com bubble burst. Amazon realized it needed something to change its pace of growth. They stopped thinking in terms of a traditional business operating on the web and therefore using the web as a sales channel and they started to think of the web as a platform for business model change. 

Thus they started to think in terms of ecosystem, so how do we enable other businesses on top of our platform? From there Amazon started to experiment some key programs that would not only enable the transition toward becoming a platform (most items sold on Amazon would be third-party) but also to develop later in the 2000s the cloud infrastructure that would evolve into AWS, today the most valuable part of the business, which is giving rise to another phenomenon, that of the AI company.

Back in the 2000s, Amazon opened up to brands like Toysrus.com, Inc., Target Corporation, Circuit City Stores, Inc., the Borders Group, Waterstones, Expedia, Inc., Hotwire, National Leisure Group, Inc., Virgin Wines, and others which further amplified Amazon’s brand.

If you could buy something from Target on Amazon, you would trust its brand more easily.

In 2001, we began marketing three services for third-party sellers that are designed to provide catalog retailers, physical store retailers and manufacturers with cost-effective e-commerce solutions and to expand the selection on our Websites for the benefit of our customers:

The third-party seller strategy started to work. And it showed how Amazon was leveraging on a platform business model to enhance its brand and business.

The third-party seller services strategy revolved around three core ones:

• [email protected] Program: here third party seller could offer their products on Amazon, either in its online stores or in a co-branded store on the Amazon site, or both. And they could also fulfill those thorough products Amazon by paying the company a fixed fee. Companies like Target and Toysrus were part of it.
• Merchant Program: with which the third-party seller had its own URL and Amazon provide the option of providing fulfillment-related services on behalf of the third-party.
• Syndicated Stores Program: which represented third-party seller’s e-commerce websites were offering products available on Amazon, which product were fulfilled by Amazon and the company paid commission to syndicated store.

The experiments that lead to becoming a tech giant

Some of the technologies that helped Amazon become a successful e-commerce company in the first place were the “1-click patent” and by 1999 Amazon had also launched its seller marketplace, that used to be called zShops, where sellers could sell their used merchandise. 

While, the turning point came by 2003, when Amazon launched web hosting services, that would become AWS, in reality, the real turning point was in the 2000, when Amazon started to order their jumbled mess to offer third party to build their sites on top of Amazon, what was known at the time as Merchant.com.

As Tech Crunch reports:

What you may not know is that the roots for the idea of AWS  go back to the 2000 timeframe when Amazon was a far different company than it is today — simply an e-commerce company struggling with scale problems. Those issues forced the company to build some solid internal systems to deal with the hyper growth it was experiencing — and that laid the foundation for what would become AWS.

As explained in Amazon 2017 annual report :

It’s exciting to see Amazon Web Services, a $20 billion revenue run rate business, accelerate its already healthy growth. AWS has also accelerated its pace of innovation – especially in new areas such as machine learning and artificial intelligence, Internet of Things, and serverless computing. In 2017, AWS announced more than 1,400 significant services and features, including Amazon SageMaker, which radically changes the accessibility and ease of use for everyday developers to build sophisticated machine learning models. Tens of thousands of customers are also using a broad range of AWS machine learning services, with active users increasing more than 250 percent in the last year, spurred by the broad adoption of Amazon SageMaker. And in November, we held our sixth re:Invent conference with more than 40,000 attendees and over 60,000 streaming participants.

Amazon’s mindset

As Jeff Bezos recounted back in 2006, “many of the important decisions we make at Amazon.com can be made with data. There is a right answer or a wrong answer, a better answer or a worse answer, and math tells us which is which. These are our favorite kinds of decisions.”

Indeed, opinion and judgment, in that case, mattered way more. As Jeff Bezos recounted in 2006:

As our shareholders know, we have made a decision to continuously and significantly lower prices for customers year after year as our efficiency and scale make it possible. This is an example of a very important decision that cannot be made in a math-based way. In fact, when we lower prices, we go against the math that we can do, which always says that the smart move is to raise prices. We have significant data related to price elasticity. With fair accuracy, we can predict that a price reduction of a certain percentage will result in an increase in units sold of a certain percentage. With rare exceptions, the volume increase in the short term is never enough to pay for the price decrease. However, our quantitative understanding of elasticity is short-term. We can estimate what a price reduction will do this week and this quarter. But we cannot numerically estimate the effect that consistently lowering prices will have on our business over five years or ten years or more. Our judgment is that relentlessly returning efficiency improvements and scale economies to customers in the form of lower prices creates a virtuous cycle that leads over the long term to a much larger dollar amount of free cash flow, and thereby to a much more valuable Amazon.com. We’ve made similar judgments around Free Super Saver Shipping and Amazon Prime, both of which are expensive in the short term and—we believe—important and valuable in the long term.

In particular, Jeff Bezos cited a paper called “The Structure of ‘Unstructured’ Decision Processes” published in 1976 by Henry Mintzberg, Duru Raisinghani, and Andre Theoret.

More, in particular, the paper highlighted how, when an institution made decisions, primarily based on data and math, that made them take efficient operating decisions. Yet, as long-term, strategic and “unstructured” (based on processes that have not been encountered in quite the same form and for which no predetermined and explicit set of ordered responses in the organization) decisions, might not rely on quantitative understanding, will get underestimated.

That happens, because decisions that can be taken on a quantitative basis can be measured, thus institutions but also companies and managers in the field focus too much on measurable analyses. Yet those decisions might be good for the short-term. They might prevent an organization from focusing on long-term, hard and strategic decisions. Amazon, a company that relied over and over again on quantitative analysis of things that could be measured, optimized and maximized. Also relied a lot on judgment, opinion, and human decision-making when it came to long-term, strategic decisions that could not be based on previous experience or scenarios, but needed to be tackled. This point is very important. In a world of management that focuses more and more on the quantifiable, and measurable. Getting data-driven might mean losing the strategic focus.

Amazon laid out the foundation of its decision-making process, based on few key principles, defined in 1997, in the first Shareholders letter :

• We will continue to focus relentlessly on our customers.
• We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.
• We will continue to measure our programs and the effectiveness of our investments analytically, to jettison those that do not provide acceptable returns and to step up our investment in those that work best. We will continue to learn from both our successes and our failures.
• We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case.

Amazon’s renewed business playbook

In the annual letter of 2001, Jeff Bezos highlighted:

When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.  

And he continued:

Why focus on cash flows? Because a share of stock is a share of a company’s future cash flows, and, as a result, cash flows more than any other single variable seem to do the best job of explaining a company’s stock price over the long term.  

Therefore, even though Amazon did survive the dot-com bubble, the business model which would enable the company to make it through the first phase of scale-up was drafted around the beginning of the year 2000, right at the bottom of the dot-com bubble.

In short, even though Amazon emphasized so much on cash flows, during the dot-com, the company was burning a substantial amount of cash. And Amazon itself still saw the web as a distribution platform, rather than a business model enabler.

Therefore, Amazon‘s survival through that period was nonetheless due to a bit of lack. However, Jeff Bezos led Amazon through that period with vision and extreme passion, and he kept pushing the company to a new business model.

A quick summary of the Amazon business model

Started in 1994 as a bookstore, Amazon soon expanded and became the everything store. While the company’s core business model is based on its online store. Amazon launched its physical stores, which generated already over five billion dollars in revenues in 2017.

Amazon Prime (a subscription service) also plays a crucial role in Amazon’s overall business model, as it makes customers spend more and being more loyal to the platform. Besides, the company also has its cloud infrastructure called AWS, which is a world leader and a business with high margins.

Amazon also has an advertising business worth a few billion dollars. Thus, the Amazon business model mix looks like many companies in one. Amazon measures its success via a customer experience obsession, lowering prices, stable tech infrastructure, and free cash flow generation.

In 2023, Amazon generated nearly $575 billion in revenues, broken down as follows, where you can also appreciate the growth trajectory of each segment: 

Amazon’s business model in a nutshell

Amazon is the largest marketplace on earth. Even though the United States represented the primary source of income for Amazon. It is expanding globally. Indeed, net sales have increased since 2014. In 2016 products represented almost 70% of total sales. Services sales have been growing at a fast pace.

In terms of operating income, the growth has been mainly driven by the high margins derived from service sales.

By looking more in-depth at the revenue sources, subscription and AWS services have been growing.

That denotes how Amazon is expanding globally by moving more and more toward services (like Prime subscription and AWS).

Amazon, according to Jeff Bezos’ vision

Amazon fundamental principles that drove and drive the company are:

Customer Obsession

• Invent and Simplify
• Are Right, A Lot
• Learn and Be Curious
• Hire and Develop the Best
• Insist on the Highest Standards
• Bias for Action
• Have Backbone; Disagree and Commit
• Deliver Results

At times a great place to start to understand the business models of a startup it isn’t necessarily its financials but rather how the founder sees its baby. In fact, for any founder a la Jeff Bezos its company has been nurtured just like a baby.

Of course, the founders’ vision of their company can also be biased. In which case the perception of the company according to its founder and how the public perceives it might have a wide gap.

However, it is a useful exercise to look at the shareholder’s letters if you want to understand the past, present, and future of any company.

From Jeff Bezos’ 2016 letter to shareholders , it seems clear that he has one metric in mind: “Being on Day One!”

For Jeff Bezos, that means avoiding decline or extreme slow motion and pushing for more each day.

As he put it:

Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And   that   is why it is   always   Day 1.

He has four main metrics to assess whether his company is on Day One, or is falling toward Day Two:

1. Customer obsession, 

You can be competitor focused, you can be product focused, you can be technology focused, you can be business model focused, and there are more. But in my view, obsessive customer focus is by far the most protective of Day 1 vitality.

2. A skeptical view of proxies, 

As companies get larger and more complex, there’s a tendency to manage to proxies.

What does that mean?

A common example is process as proxy. Good process serves you so you can serve customers. But if you’re not watchful, the process can become the thing. This can happen very easily in large organizations… …The process is not the thing. It’s always worth asking, do we own the process or does the process own us?

3 The eager adoption of external trends, 

The outside world can push you into Day 2 if you won’t or can’t embrace powerful trends quickly. If you fight them, you’re probably fighting the future. Embrace them and you have a tailwind… … We’re in the middle of an obvious one right now: machine learning and artificial intelligence.

4. High-velocity decision making.

Day 2 companies make high- quality  decisions, but they make high-quality decisions  slowly . To keep the energy and dynamism of Day 1, you have to somehow make high-quality,  high-velocity  decisions… … First, never use a one-size-fits-all decision-making process …  … Second, most decisions should probably be made with somewhere around 70% of the information you wish you had… Third, use the phrase “disagree and commit.” … “Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?”

Putting it all together

Jeff Bezos offers a portrait of Amazon which is useful to understand its business model deeply. First, it all starts with Day One.

This, to me, is a way for Amazon to keep a “start-up mindset” also if it has become a large organization. It means focusing on customers, therefore, experimenting with new product lines, services, or anything that might become “delightful” to the public.

In fact, once Amazon does identify strong trends, rather than fight them it embraces them. One example is how nowadays Amazon is using AI and machine learning as the main propellers for its business growth.

In other words, practically speaking this makes Amazon fluid. Thus, the Amazon of tomorrow might have a different face – but the same soal – compared to the Amazon of today.

How does Amazon’s business work?

Amazon is a giant marketplace where each day billions of people find anything from the latest best selling book to things like Nicolas Cage pillowcase.

Amazon’s main metrics as per SimilarWeb

According to the Similar Web estimates each day, only in the US Amazon has over 2 billion visits. On average those people spend more than six minutes on the site and look at almost nine pages purchasing what they’re looking for.

That makes Amazon the fourth most popular site in the US. The Amazon business model revolves around four main players:

As Amazon states in its annual report :

We serve consumers through our retail websites and focus on selection, price, and convenience. We design our websites to enable hundreds of millions of unique products to be sold by us and by third parties across dozens of product categories. Customers access our websites directly and through our mobile websites and apps. We also manufacture and sell electronic devices, including Kindle e-readers, Fire tablets, Fire TVs, and Echo, and we develop and produce media content. We strive to offer our customers the lowest prices possible through low everyday product pricing and shipping offers, and to improve our operating efficiencies so that we can continue to lower prices for our customers. We also provide easy-to-use functionality, fast and reliable fulfillment, and timely customer service. In addition, we offer Amazon Prime, an annual membership program that includes unlimited free shipping on tens of millions of items, access to unlimited instant streaming of thousands of movies and TV episodes, and other benefits.

We offer programs that enable sellers to grow their businesses, sell their products on our websites and their own branded websites, and fulfill orders through us. We are not the seller of record in these transactions . We earn fixed fees, a percentage of sales, per-unit activity fees, interest, or some combination thereof, for our seller programs.

Developers and enterprises

We serve developers and enterprises of all sizes, including start-ups, government agencies, and academic institutions, through our AWS segment, which offers a broad set of global compute, storage, database, and other service offerings.

Content creators

We serve authors and independent publishers with Kindle Direct Publishing, an online service that lets independent authors and publishers choose a 70% royalty option and make their books available in the Kindle Store, along with Amazon’s own publishing arm, Amazon Publishing. We also offer programs that allow authors, musicians, filmmakers, app developers, and others to publish and sell content .

An effective business model to work properly has to involve and generate value for several stakeholders. That applies to the Amazon business model as well.

In fact, when I get into the Amazon marketplace as a consumer, I can find anything across dozens of product categories.

Among those, I can also buy Amazon products (like Kindle, and Echo), or subscribe to Prime (to get faster delivery and even access to an on-demand library of contents ).

Also, thanks to the Amazon seller program the company earns  fixed fees, a percentage of sales, per-unit activity fees, interest, or some combination of those based on the transactions generated by the marketplace; Although AWS is a platform of its own. Nonetheless, it has a strategic role in Amazon.

Last but not least, the KDP platform allows thousands of independent authors to publish their e-books and info-products. According to the plan in which the independent author enrolls into Amazon will earn anywhere from 30-70% of royalty fees from the sales. 

Like all the other tech giants Amazon could create such a robust business model that it now works as the main engine for the dominance of the company in the next decade.

As technology becomes more and more competitive business models lose effectiveness. However, a business model well-designed can make a company capture value for a long time!

How does Amazon make money?

It’s time to dive into the numbers to understand how the company works. When trying to understand a business model , the revenues are a good starting point.

But it’s also important to look at other financial metrics to deeply understand what’s the real cash cow.

In fact, it’s easy to be fooled to believe a company falls into a specific business model . However, numbers don’t lie. Where does Amazon stand?

According to the infographic, you can see that Amazon makes most of its revenues from the sales of products. However, those product sales also have high costs. Thus, the margins Amazon makes on them is thin.

Instead, if we look at the operating income, you can see how this is fueled by the services, which comprise seller services, AWS, and subscription services.

In other words, by looking at the revenue , you might be fooled to think that Amazon is in the product business, just like Apple , yet there is a slight difference between the two companies!

Amazon vs. Apple

Like many things in business , so revenue generation seems to follow a power law. You try quite many things, but you end up with one reliable and sustainable source of income after all. Sometimes the differences in business models are subtle. 

Take Apple and Amazon. As they generate most of their revenues from “products” one might think they have the same business model .

However, with a more in-depth look your realize their model is entirely different. In fact, while Apple sells its iPhone at a high margin, Amazon sells its products at a thin margin (in fact, the cost of sales for Amazon is almost as high as the revenue generated by its products).

In short, Amazon seems to use its products to ramp up its services revenues , which seems to be the real cash cow. However, if you look at revenues alone, you might be fooled to believe Amazon is in the “product” business.

Let’s give a look at the Amazon business model from several perspectives. The aim is to have an overview of Amazon that goes beyond the conventional wisdom that Amazon is a product company, it’s much more than that!

Amazon vs. Google

Read : Google vs. Amazon

A deep look at the business dynamics of the Amazon business model

Beyond the look, we have given so far at the Amazon Business Model, I want to give you an in-depth look so that you can really appreciate how the Amazon business model works and what powers up its business engine.

Amazon revenue model

If we look at the Amazon revenue model, a few things pop up right away. As we saw the online stores are still the core part of the business.

However, the core business is the foundation for other emerging businesses that run with different logic to its online stores. Where online stores run at tight margins and high volume by taking advantage of cash conversion cycles.

Other parts of the Amazon business model , like Amazon Advertising Services , Amazon Prime , and Amazon AWS run with much higher margins. Thus, Amazon’s online stores are the foundation for those other businesses that make the overall company more profitable in the long run.

Let’s give a look at the Amazon cash machine, which is the foundation of its ability to expand, and disrupt other industries, while expanding in other areas.

Amazon’s cash machine

One of the key elements of the Amazon business model is its cash machine business strategy.  In short, Amazon has operated (and still does) for years at very tight profit margins on its online store.

The company has willingly done so throughout the years, as it made its prices low, convenient compared to traditional physical stores, and with a fast and efficient delivery system, what Amazon calls fulfillment centers .

This might give the impression that Amazon doesn’t generate enough cash flow to its business. However, that’s quite the opposite. As Amazon collects payments quickly from its customers, it then pays its vendors with relatively longer payment terms.

This gives Amazon short-term liquidity that can invest back to speed up growth. With this mechanism, Amazon has been able to disrupt several industries. Starting as a bookstore online, it quickly expanded to all the other industries.

One Amazon has built the most valuable two-sided marketplace on earth it has become way easier for the company to offer many other services.

Amazon advertising business

A few people realize among other businesses, Amazon has become a digital advertising provider. And not a small one, but among the very few able to compete against the duopoly Google-Facebook.

Indeed, as of the first months of 2018, the Amazon advertising business netted over six billion in revenues!

With such an infrastructure and many e-commerce hosted on Amazon infrastructure, more and more entrepreneurs and marketers are willing to pay for Amazon advertising services.

This part of the business has higher margins compared to the tight margins of the online stores.

Yet, this growth hasn’t stopped here. Indeed, Amazon advertising revenues spiked to over $30 billion in 2021. In part, this is given by Amazon’s ability to capture commercially relevant traffic and on the other hand, also on the doubled down effort of Amazon to make sponsored content available on top of its platform. 

Indeed, in 2022, Amazon is expanding the availability of sponsored content on its platform. Therefore, we can expect the digital advertising segment to keep growing at an incredible pace. 

Amazon Prime

Many companies nowadays have shifted to the subscription business model . Amazon has converted part of its business to accommodate this change.

Amazon Prime is a critical element of Amazon’s growth strategy . The logic is simple, the more people join the Prime Memberships, the more products they purchase on the online stores.

Indeed, with Prime, members enjoy faster delivery services besides the access to Amazon’s original content offered via streaming. This subscription model also creates a more stable and predictable income over time.

Started as an experiment back in 2000, the  Amazon AWS has grown to become an over seventeen billion dollars business in 2017. AWS also enjoys higher margins and network effects .

Amazon is doubling down on that as this business unit will be critical to its future success.

It’s important to notice how AWS managed to keep high operating margins over the years. However, as the competition toward cloud computing gets harder, and as AI gets commoditized (AWS like all the other cloud players is working as the underlying infrustructure for the web and also as the underlying platform for the AI-powered web), it might be normal to assist to a decrease in margins. 

Amazon virtuous cycle

Back in 2001, Jeff Bezos sketched on a piece of paper a flywheel that would become Amazon’s key marketing strategy for years to come. The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that starts from customer experience to drive traffic to the platform, which traffic gets monetized via Amazon’s selection of products and by inviting third-party sellers to join the platform.

That improves the selection of goods, which Amazon would have taken years to build. In turn, the customer experience improves further. At the same time, Amazon uses the cash generated to further improve its cost structure. Rather than distribute the additional cash to shareholders the company passes it on to customers via lower prices.

This process contributes even further to the virtuous cycle which makes Amazon expand and take over other industries. This marketing strategy has been used in the first years by Amazon to expand its operations.

Understanding Amazon’s financial model

For years, analysts have been puzzled by Amazon’s business model. They saw a lack of profitability, an exponential price-to-earnings ratio, and many assumed it was all a bubble. 

However, from a better look, that is how Amazon has always been structured. The company, rather than focusing on pushing profit margins, pushed to generate cash flows (we saw it in the cash machine model ) that could reinvest as much as possible in the growth of the business, by being in a sort of continuous blizscaling-mode . 

While today Amazon’s marginality has improved substantially, that is primarily due to other segments (AWS, Prime, and other revenue streams), while online e-commerce still generates higher margins compared to the other revenue streams.

That is part of Amazon’s mission to keep a wide variety of things, by offering low prices. 

Analyzing Amazon’s Digital Distribution 

If we look into Amazon’s digital distribution, based on the data from SimilarWeb, it’s important to emphasize a few key points: 

Amazon has a very strong digital brand, as shown from the fact that direct traffic still represents most of the composition of the traffic toward Amazon. 

Amazon also enjoys great engagement metrics. A platform with over 2 billion visits per month, each visit usually lasts more than six minutes, and an average user navigates through 8-9 pages on Amazon!

Also, Amazon enjoys a strong demand from the US, which is still the main market for its digital distribution. 

And the Amazon shopping platform is still among the most successful when it comes to shopping, also compared to major websites, like Google.com and YouTube. 

Of course, as Amazon became more successful over the years, this also opened the way to competitors. Below are the top alternatives in terms of traffic affinity to Amazon.com: 

Summary and Conclusions

Amazon is a tech giant. When it started back in the 1990s, it began as an online bookstore. Today Amazon is the store that sells anything imaginable. As its founder , Jeff Bezos has specified Amazon is a customer-centric company.

However, it is clear that what made and makes Amazon so compelling is the business model  and which generates value for several players.

Consumers find products at a lower price and get them fast. Sellers can find new market opportunities or decide not to carry any inventory . In fact, Amazon has its own fulfillment center that manages the inventories for sellers.

Thus, that makes it easier for anyone willing to start an online store to have lower barriers to entry. Developers and enterprises can rely on AWS cloud services.

Content creators can effectively monetize their info products through programs like KDP. And customers can consume Amazon’s original content via Amazon Prime.

Even though Amazon makes almost 70% of its revenues through product sales. In reality that part of the business is the foundation to grow other more profitable segments.

From Prime, Advertising, and AWS, thanks to its cash machine Amazon has been able to create a diversified business model.

Thus, who are thinking of Amazon as just an online store has been fooled by its revenues, but have not bothered to look at how its business model really works!

Amazon shows us a valuable lesson. For how much we like to categorize things under fixed, immutable categories and definitions.

Often, a company to become a multi-billion enterprise has to create a hybrid business model that takes advantage of several revenues and business  models at once.

Take Google, it started as a search engine with an advertising business model , yet it is now diversifying in other areas.

In fact, even though 86% of Google’s revenues still come from advertising in 2017, Google makes money in many other ways.

What organizational structure does Amazon run?

The Amazon organizational structure is predominantly hierarchical with elements of function-based structure and geographic divisions. While Amazon started as a lean, flat organization in its early years, it transitioned into a hierarchical organization with its jobs and functions clearly defined as it scaled.

Is Amazon a digital advertising player?

Amazon has been ramping up its advertising business, and in the last few years, it has become one of the key players in the digital advertising landscape. Indeed, it has become larger than YouTube, with over $31 billion in ad revenues generated in 2021, alone. Amazon has a huge advantage over other players, as it intercepts the commercial intents of billions of users across the world, thus easily converting that traffic into sales, on top of its e-commerce platforms, to sell both first and third-party products. 

All you have to know about Amazon: 

• Successful Types Of Business Models 
• What Is Business Model Innovation And Why It Matters
• What Is the Receivables Turnover Ratio? How Amazon Receivables Management Helps Its Explosive Growth
• Amazon Case Study: Why from Product to Subscription You Need to “Swallow the Fish”
• What Is Cash Conversion Cycle? Amazon Cash Machine Business Model Explained
• Why Is AWS so Important for Amazon’s Future Business Growth?
• Amazon Flywheel: Amazon Virtuous Cycle In A Nutshell
• Amazon Value Proposition In A Nutshell
• Why Amazon Is Doubling Down On AWS
• The Economics Of The Amazon Seller Business In A Nutshell
• How Much Is Amazon Advertising Business Worth?
• What Is the Cost per First Stream Metric? Amazon Prime Video Revenue Model Explained
• Jeff Bezos Teaches You When Judgment Is Better Than Math And Data
• Alibaba vs. Amazon Compared in a Single Infographic
• Amazon Mission Statement and Vision Statement In A Nutshell

What is Amazon's business model?

Amazon has a diversified business model, with several business units. From the Amazon e-commerce platform both selling Amazon-owned products, to third party products, hosted on the platform. Amazon also provides fulfillment services to these third-party sellers. Complementary to that there is Amazon Prime, a streaming subscription service, which also gives subscribers faster delivery of goods from the platform, and Amazon advertising, which enables third-party sellers to sponsor their products on the platform. On the other hand, Amazon AWS is an enterprise cloud business serving small, medium, and large-sized organizations.

How many business models does Amazon have?

Amazon has five main business models types running in parallel. In fact, Amazon is 1. An e-commerce company serving consumers by offering its own products and third-party sellers’ products. 2. Amazon also is an Enterprise Cloud Platform with AWS. 3. The company also runs Subscriptions with Prime. 4. And Advertising on the platform for third-party sellers. 5. The company also produces hardware Products such as voice assistant, Alexa, the ebook reader Kindle, and more.

How does Amazon work as a business?

Amazon is primarily a platform business model, which makes money by selling its own products, or by collecting a percentage of revenues from third-party products sold on the platform. The company also makes money through advertising. And its AWS Enterprise Cloud Platform makes money through subscription services, pay as you go, and more.

Related to Amazon Business Model

Amazon Mission Statement

Who Owns Amazon

Amazon Revenues

Amazon Profitability

Amazon AWS Business

Amazon Prime Revenue

Amazon Advertising Revenue

Amazon Cash Conversion

Working Backwards

Amazon Flywheel

Jeff Bezos Day One

Regret Minimization Framework

Network Effects

Platform Business Model

More Resources

About The Author

Gennaro Cuofano

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