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How does Amazon make money? | Amazon Business Model | 2022 Updated

Amazon business model cannot be better explained than the way its CEO Jeff Bezos once explained, “There are two kinds of companies, those that work to try to charge more and those that work to charge less. We will be the second.” 

If you have a great business idea for a multivendor eCommerce like Amazon, this is probably the most crucial insight you can get from the man who started Amazon. 

Read on to know what else Amazon does, other than offering the lowest prices on most of its products, to keep the business running and thriving for almost three decades now.

A Brief History of Amazon 

Started as an online book shop named Cadabra, Jeff Bezos broke into the realm of online business in 1994. Later, he renamed its organization Amazon and in 1997 it was listed on an open market on the NASDAQ.

Interestingly, when it started only less than 1% of the world’s population had access to the internet. Today it’s one of the largest retail marketplaces in the world that offers almost everything you can think of. With a market capitalization of $1.3 trillion, Amazon has come a long way since its inception in 1994.

Amazon Marketplace Statistics

  • Amazon generated $470 billion in revenue, making it the third largest company in the world by revenue.
  • In 2021, Amazon Web Services made a remarkable revenue of $62.2 billion.
  • As of 2021, Amazon Prime Video subscribers account for 175 million with 68 million users using its Prime Music services. 
  • With a 37.6% increase in revenue in 2020, Amazon is the third largest public company by revenue in the world, behind Walmart and China’s State Grid.

Amazon Quarterly Revenue
Business of Apps

  • From USD 172 billion in 2015 to $1.6 trillion in 2022, Amazon witnessed exponential growth in valuation. 

How does a Multivendor eCommerce Business like Amazon Work?

Amazon primarily runs an eCommerce platform as its core business model. In addition, its other business operations are directly tied to the eCommerce platform. For instance, while Amazon AWS services improve Amazon’s tech infrastructure, Amazon Prime rewards repeat customers which significantly enhances its overall business. 

In short, Amazon simply targets an audience segment that buys its products and services. It also offers various other services such as Amazon Prime, AWS services, Audible, Kindle, prime video, Amazon music, and more.   

Amazon Business Model 2022 

Amazon Business Marketplace revolves around four key attributes – consumers, sellers, developers, and content creators.

Consumers

As per a survey in 2021, out of 200 million prime subscribers, 147 million subscribers are based in the US. Amazon serves its huge customer base through its online website & app that primarily focus on product selection, convenience, and price. Also, the website is designed in such a way that it caters to the needs of customers and allows them to browse through various categories with ease. 

Sellers

And not just the customers, Amazon offers retailers to sell products, grow business on the websites, and fulfill orders on the go! In return, Amazon earns a fixed percentage on each sale, per unit activity fees & interest, etc. 

Developers & Enterprises

Amazon Web Services, one of its key subsidiaries, serves different types of developers and enterprises. It provides distributed computing processing capacity and software tools via AWS server farm to various business segments. It includes startups, academic institutions, government agencies, and more. 

Content Creators

Amazon offers to serve different types of content creators like musicians, authors, app developers, and filmmakers to sell their content on the platform. Again, in return, it charges some percentage of its business earnings. For instance, an author can publish his book on Kindle with a 70% stake in the total earnings from the content. The rest goes to Amazon as service-providing charges.

Amazon Revenue Model 

As mentioned earlier, despite Jeff Bezos’s growing interest in diversification of its services in different business aspects, Amazon revenue model and its successful run largely depend on its online store. The multivendor eCommerce giant has generated $163 billion from 2019 to 2020 only from its product sales.

Amazon Revenue Streams

Similarly, Prime Day has been a significant occasion for online sales on the platform. To give you an idea, Prime day broke all records with $11 billion in sales in 2021.

Online Stores

Apart from the products sold on its online platform, Amazon leverages a wide range of consumable and durable goods. This includes social media products in both physical and digital formats. From books, videos, and games to music and software, digital product subscriptions provide unlimited viewing or usage rights.

Physical Stores

Amazon has its physical stores where users can walk in and easily buy products. Amazon, Books, Amazon Go, Amazon Fresh, and Amazon 4-star are some of its physical stores.

FBA (Fulfilled by Amazon) 

It offers two options to all its merchants – FBA and non-FBA products. Where in FBA, Amazon stores, packs, and delivers the product to a customer, the merchant does the same in non-FBA products. And Amazon charges fees in both cases. 

Third-Party Seller Services

The company benefits a lot from third-party sellers in the form of shipping fees and other commissions. For example, Amazon charges a listing fee, starting from 2% on various product categories, from third-party sellers.  

Subscriptions 

A significant portion of Amazon business revenue comes from its monthly and annual subscriptions. Its subscription services are available on audiobooks, digital music, e-Books, and other non-AWS services. 

AWS (Amazon Web Services)

As mentioned earlier, Amazon Web Services includes global sales of computing, storage, database, etc.

Other services

The organization also makes profits from sales of advertising services.

3 Ways Amazon Business Model is Different from its Competitors

As briefly mentioned earlier, one of the key reasons why people worldwide use Amazon services is its low and competitive pricing over a wide variety of products. Although this multivendor eCommerce giant only offers such pricing convenience to compete with other market players. Here are some of the pricing tactics used by Amazon.

Dynamic Pricing

Amazon frequently changes the prices of the products on its platform. This dynamic pricing allows the company to keep its prices competitive, something that has helped Amazon boost profits by 25% on average. These changes are based on several factors including customer activity, available product inventory, order history, trending product preferences, etc.   

Psychological Pricing

Amazon’s pricing algorithm is such that every customer assumes that the platform offers the lowest price among its competitors. However, what happens is that it offers huge discounts on a wide range of common products and raises the price of uncommon products. Now, because most of the visitors visiting the website or app buy the common products, they automatically think that the prices are lower overall.

Competition Monitoring & Repricing

All the retailers on Amazon offer an option of monitoring the prices offered by its competitors. This allows them to adjust their prices to attract as many customers as possible. 

Final Thoughts

Amazon business model is comprised of various income streams. And if you are only interested in Amazon alike eCommerce stores, you will need an app that efficiently serves your target audience. However, multiple factors account for a successful run of an eCommerce marketplace despite the presence of other established players.

Now, you don’t need to be an app developer to start an eCommerce business. You can simply outsource app development to experts – like Code Brew! 

Our expert app development team has built over 10,000 apps for various industries like social media, on-demand ride-sharing, online food delivery, e-commerce app, online education, healthcare, and so on! 

Looking to build an advanced-feature-loaded eCommerce App like Amazon? Contact Code Brew today and get a free demo!

September 7, 2022

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