Analysis of Amazon Business Model

As known as the largest internet retailer in the world, this article is focus on its business model analysis. Although customers can buy tons of products on Amazon.com, retail is only part of the picture when it comes to Amazon.com.

The company itself defines its lines of business in terms of product sales, service sales, AWS, fulfillment, publishing, digital content subscriptions, advertising, and co-branded credit cards. For my purposes, I'll define Amazon's lines of businesses as 1) online retail, 2) internet services, and 3) the Kindle ecosystem.

Online Retail

Often touted as the largest online retailer in the world, Amazon operates under a business model with many moving parts. First and foremost, the company sells goods directly. A percentage of products are offered to buyers through Amazon's online storefront with a small markup, and inventory is kept in the company's large network of warehouses. Most consumers visit the company's site assuming its products are less expensive and readily available for purchase and shipping.

In addition to direct sales, Amazon provides a platform for other retailers to sell products to buyers. Products sold through Amazon's partner retailers are often less common items or those with a higher purchase price, allowing Amazon to avoid holding slow-moving inventory that could dilute profit. While Amazon does not assess a fee for its retailer partners to list items for sale, the company does retain a portion of the sales price as commission.

Internet Services

Amazon's internet services cannot easily be discussed as a standalone line of business because it is deeply intertwined with both its retail business and the Kindle ecosystem. From the consumer perspective, Amazon has begun to provide services like Amazon Prime, which provides free two-day shipping on retail purchases, on-demand video streaming, and free access to the Kindle library, all for an annual fee. Amazon Prime overlays the subscription and all you can eat business models with the retail model to provide additional customer value.

 Kindle Ecosystem

Amazon has expanded its business into manufacturing and distributing the family of Kindle tablets. Originally designed as an electronic book reader (supplementing its online book seller business), the Kindle has become a fully functional tablet and media device. With the Kindle, Amazon serves as both manufacturer and traditional retailer (and also wholesaler by selling the device through other retailers).

While the company does not admit as much, it is assumed that the Kindle devices are sold at a loss, which would more correctly put this line of business into the razors & blades category of business model. By selling the hardware at a loss, Amazon is betting that customers will purchase enough electronic books, games, and videos to justify the initial loss.

Resource from http://www.digitalbusinessmodelguru.com/2013/07/analysis-of-amazon-business-model.html