Amazon Business Model – How Does Amazon Make Money?

Amazon is the king of e-commerce.

When discussing e-commerce websites, Amazon will be at the top of the list. Simply put, Amazon marketplace is ruling the roost!!! The platform is popularly known for quality products and services, delivered around the world. The platform is helping both merchants and customers. Here merchants can list their products or services. On the other hand, customers can get their desired product or service at the best price.

What is Amazon?

Amazon is the world’s leading e-commerce website and a popular cloud service provider. Amazon is a large internet-based enterprise. The platform sells products or services from a wide range of categories. It includes books, electronics, fashion, cloud service, and more. The online marketplace used by businesses and individuals. Amazon is the largest e-commerce retailer serving people around the world.

It all started in 1994 as a bookstore set up in the garage of “Jeff Bezos” and now the Amazon is ruling the e-commerce world. Its success has enabled it to grow and transform into “a-to-z store” in their true sense.

Amazon Business Model

Amazon has developed to become an outstanding ecosystem over the past 2 decades. The internet-savvy must have accessed an Amazon service at least once. Amazon’s have implemented a smart business strategy to increase their earnings. The team came up with a well-designed strategy that has several revenue sources. It includes books, games, web services, prime, Alexa and more. 

Amazon’s business model is “e-commerce model”. The interesting fact is Amazon is the biggest advertiser around the world.

Amazon has reported revenue for its Q3 2020, including profits over 37% to $96.1 billion. North American sales are more than 39%, Amazon has earned $59.4 billion. While international sales are growing over 37%, the revenue is $25.2 billion.

What Does Amazon Sell?

If you’re a merchant or customer of Amazon then you might have know Amazon sells more and more through subsidiaries. As already mentioned, Amazon operational model is completely based on e-commerce. The platform will sell products or services on its platform. On the other hand, Amazon allows third-party merchants to sell their products for millions of customers globally.

Currently, Amazon is offering below-mentioned products/services:

  • Apparel
  • Electronics
  • Groceries,
  • Sporting goods
  • Amazon Prime
  • Amazon Drive
  • Amazon Publishing
  • Amazon Web Services
  • Merchant and vendor products
  • Fire TV
  • Echo & Alexa
  • Appstore for Android

Who are Amazon’s Customers?

Are you eager to know who Amazon’s customers are? Let’s discuss. There are three customers sets such as

  • Customers – People who purchase products or subscribe to Amazon services.
  • Seller customers – Sellers or merchants who promote their products or services on Amazon.
  • Developer customers – These people are focused on providing AWS technologies.

How Does Amazon Make Money?

It’s no surprise Amazon is earning good income through retail sales. The sales are considered as the primary source of income for Amazon. As discussed earlier there are other channels such as books, prime, web services, etc from which the company is earning income.

Let’s dive into the topic!!!

Retail Sales

Amazon is the best marketplace for sellers and customers. The platform is offering excellent products or services to its customers through online and offline channels. It recognizes profit when the seller delivered the product or service to its customer. 

The company is offering a simple and transparent payment structure for their sellers. No hidden charges are encouraged on Amazon. When a seller sells their products or services on Amazon, they need to pay commission for referral and closing. Keep a note, there is no listing fee, subscription or payment collection fee. Amazon charges when a customer makes a sale.

Amazon has over 2.5 million sellers on its platform. As per the analysis, Amazon has earned $1 million from 25,000 sellers and $100,000 from 200,000 sellers. Also, the company has earned $17.2 billion from offline or physical stores.

Third-party Sellers

If you’re new to the e-commerce world becoming a third-party seller is helpful for you. At Amazon, the third-party sellers will list and sell their products effectively. But Amazon is responsible for fulfilment and shipping. This commission is identified when the seller requests a service through Amazon.

According to research, the third-party seller business segment has fetched more than $12 billion in 2020. It means the segment has grown by almost 23% compared to 2019. The revenue is generated by offering services such as shipping, fulfilment and other services. Though it’s not considered as direct sales growth Amazon is making good income through third-party sellers and still continues to prosper in coming years.

Subscription Services

Ever since the world’s leading e-commerce platform Amazon enrolled the industry synopsis, the company has to experience amazing growth. Amazon’s operating model has been sourced in subscription services such as prime, AWS, Kindle, audible and more.

Did you know that Amazon is making good profits through subscription services? Yes!!! The company is earning billions of dollars from subscription services. The business segment follows a simple approach. The subscription includes Amazon prime membership, the company charges when the user requests for prime membership. Here the company charges for accessing the content such as music, video, e-books, audiobooks, baby registry and more. The cost for Amazon prime membership is $7.99 per month. Users need to pay a subscription fee in advance to avail the services. On the other hand, the company is offering AWS service. This service helps businesses to run their business without any IT cost. Amazon has generated $14.2 billion in the year 2018 and $67 billion in 2020.

AWS (Amazon Web Services)

Buying and maintaining physical servers and also data centres can be a difficult task for many companies. Therefore Amazon has introduced Amazon Web Services to help small and large businesses. This way Amazon is earning significantly more through AWS. The portfolio includes various services such as storage, database, compute, end-user computing, media, networking, content delivery, VR & AR, security and more. Currently, many industries such as advertising & marketing, game tech, healthcare, telecom, travel, manufacture, etc are using AWS for smooth operations.

Amazon basically uses standalone pricing. The pricing may vary from one service to another. For example, database service is offering various solutions such as Amazon Aurora, Amazon RDS, Amazon Redshift and more. The company charges $0.10 per GB-month for Amazon Aurora service. This way Amazon is earning a good income from other products such as analytics, blockchain, business application, customer engagement and more. The revenue is generated when the users use Amazon Web Services. When the user requests for on-demand storage or networking services, the revenue is generated.

The sales commissions are paid by Amazon that is related to the contract terms. This could be extending the service for a certain period, it could be 6 months or 1 year. The contribution of Amazon Web Services to company sales has touched the sky during few years. AWS has generated more than $35 billion in 2020. The company has derived almost 12% of its revenue from Amazon Web Services.

Amazon Advertising

It’s no secret that Amazon is earning good income through advertising. Since there are millions of customers on Amazon, many businesses are displaying their products or services in the form of advertisements. Currently, Amazon Advertising is offering sponsored, display and video advertising. There are few people who know about Amazon’s advertising revenue. The company has earned more than $69.65 billion through advertising.

For small and large businesses, Amazon’s advertising is the best option because the customers on the website have more purchase intent. Customers will click the ad and increase the sale.

Amazon Music

If you’re a music freak, Amazon Music is the best service for you. There are few competitors such as Spotify, encouraging the people to subscribe and enjoy unlimited music on the move. This way Amazon Music is offering on-demand music, unlimited access to songs, listen offline and more. Currently, Amazon Music is offering 3-months free-trial. Later users need to pay $7.99 per month to get subscribed to Amazon Music.

Other Sources

So far we have discussed how Amazon is making money through retail, third-party sellers, subscription services, advertising, AWS and more. Now let’s discuss other sources where Amazon is driving good income through Amazon media and content.

Amazon media and content is the next move for revenue success. The company has entered the media. The strategy has been generating high revenue. The company acquired IMDB (Internet Movie Database) in 1998. The platform is a popular celebrity, video and other content sources. The platform IMDB is generating revenue through subscription, ads and promotions.

Conclusion

If you’re a shopaholic Amazon must be your favourite destination for you. Whether you’re planning to shop for trendy accessories or the latest mobile phone, Amazon got you covered. This article has provided in-depth information about how Amazon makes money. There are several distinct ways to earn income. The primary sources are retail sales, third-party sellers, subscription services, AWS, advertising, music and other sources. As mentioned above the Amazon has earned more than $96.1 billion in Q3 2020.

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