Innovation Design and Business Model (amazon.

com)
Final Report

The business model canvas is a great tool to help you understand a business model
in a straightforward, structured way. Using this canvas will lead to insights about
the customers you serve, what value propositions are offered through what
channels, and how your company makes money. You can also use the business
model canvas to understand your own business model or that of a competitor. The
business model canvas is used to easily transcribe the economic model of a
company. It is perfectly adapted to start-up a business, and can also be used for
launching new product or service. It is a quantitative and qualitative assessment of
a market.
Research into business model canvas has attracted increasing attention among
young students who have Innovation and entrepreneurship ideas. Conceptually,
business model canvas describes in layman's terms what a company does to create
and market value, while business process models describe how this can be
achieved at the operational level.
This work aims to help me to ameliorate my business model canvas by studying
the Business Model of Amazon.com from the point of view of resource efficiency
and innovation of business models.
Amazon.com

Amazon.com (/ˈæməzɒn/ AM-ə-zon) is an American multinational technology

company which focuses on e-commerce, cloud computing, digital streaming, and
artificial intelligence. It is one of the Big Five companies in the U.S. information
technology industry, along with Google (Alphabet Inc.), Apple, Meta (Facebook),
and Microsoft. The company has been referred to as "one of the most influential
economic and cultural forces in the world", as well as the world's most valuable
brand.

Jeff Bezos founded Amazon from his garage in Bellevue, Washington on July 5,
1994. Initially an online marketplace for books, Amazon has expanded into a
multitude of product categories: a strategy that has earned it the moniker, "The
Everything Store". The company has multiple subsidiaries including cloud
computing company, Amazon Web Services; autonomous vehicle company, Zoox;
satellite internet company, Kuiper Systems; and computer hardware R&D
company, Amazon Lab126. Other subsidiaries include Ring, Twitch, IMDb, and
Whole Foods Market.

Amazon has earned a reputation as a disruptor of well-established industries

through technological innovation and mass scale. As of 2021, it is the world's
largest Internet company, online marketplace, AI assistant provider, cloud
computing platform, and live-streaming service as measured by revenue and
market share. In 2021, Amazon surpassed Walmart as the world's largest retailer
outside of China, driven in large part by its paid subscription plan, Amazon Prime,
which has over 200 million subscribers worldwide. It is the second-largest private
employer in the United States, one of the world's most valuable companies, and as
of 2021, the world's most valuable brand.

The Business Model of Amazon

Investors just can’t seem to get enough of Amazon. Even though Amazon is
already the world’s fifth-largest company, investors believe that it is only just
getting started! It already has revenues of $125 billion per annum. It is targeting
revenues of more than $500 billion in the next few years. Startups have grown at
this astounding pace earlier. However, Amazon is no longer a startup. It is a
fledgling company with a multi-billion-dollar business. If Amazon can grow even
at half the speed that it aims it, it will be the world’s most valuable company in no
time! As students of good business practice, it, therefore, makes sense to study the
business model being used by this very innovative company. From the side of
Customer Relationships and Segmentation Strategies, one of Amazon’s strong
points has always been excellent customer service and ensuring complete customer
satisfaction, even when the sale lacks the familiar sensory experiences of a normal
shopping experience (touch, hear, smell, see). Having a peer review system, easy
checkouts, user-tailored suggested products, making changes proactively rather
than reactively to adapt to changing user needs and performing disruption analysis
on existing customer data for business changes have aided in making Amazon one
of the best customer-rated online retailers ever. By using promotions and word of
mouth advertising, behavior tracking of fewer segments (what products people
with similar purchases have bought as well) and having wide product and resale
offerings ensuring high spending convenience and brand loyal customers are
satisfied with the experience and keep coming back, Amazon is able to bring
world-class service to its online market. In terms of Channels, Amazon mainly
offers their service through their self-contained website (available in many
countries), where a person can browse for any type of product, order it and pay for
it. 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). In terms of Key Partnerships, Amazon has historically acquired, invested
and partnered with businesses aligned with their current and near-term expansions,
while reinvesting sales profits into long-term expansion into new markets and
innovative research. With increased competition in digital content and cloud
services from Microsoft, Google and Apple, Amazon needs to focus on the quality
of service it provides its technology partners, digital content publishers and
application developers to maintain its attractiveness and competitiveness in this
evolving market place. Looking at the company’s Key Activities and Resources, it
focuses on producing great service and innovative platforms, while maintaining
and improving its physical, intellectual, human and financial resources. Having
large physical and digital content retail operations the company is not only being
able to keep up with retail and cloud competitors, but continuously innovate with a
long-term profit outlook, while remaining desirable to investors.

Value Proposition and Value chain

The value proposition provided by Amazon is simple. They offer the most
convenience, widest range and the lowest prices. Their prices are so low that they
have displaced Wal-Mart as being the leader is low price category! The amazing
part about Amazon is that it provides goods and services at extremely low cost
without compromising on quality by any means. Amazon makes the lowest prices
possible by leveraging technology. Firstly, it has leveraged technology in such a
way that it does not have to stock inventory of any kind. While other stores are
reeling under the massive cost burdens of stocking inventory, Amazon can afford
to undercut the competition on this. It is a mix of a retail company as well as a
technology company. Unlike, retail companies, Amazon seldom hires stock clerks
and floor managers. Their employees have high technological skills like data
mining etc.
value chain, primary activities are the activities that make the basis of the business
model through providing the required services to the customers. These activities
are procurement of raw materials and products, operations to convert the procured
materials to final products, and then high-quality services, sales, and marketing to
gain a competitive advantage. The five primary activities are discussed below in
detail.

Inbound Logistics:

Inbound logistics generally mean obtaining raw materials. However, since Amazon
usually does not produce its products, Fulfilment by Amazon service is its inbound
logistics, and it provides these services to vendors. Amazon stands tall in the
market because of its logistics and the efficiency of its delivery and returns. It
provides guaranteed services with responsibility for logistics, customer service,
and product returns. At the same time, efficient logistics infrastructure covers the
inbound logistics for Amazon value chain analysis.

Operations:

In general value chain analysis, operations include activities that convert raw
materials into finished goods. Amazon has different channels that are covered by
the operations. These segments are of different geographical locations, including
the North American segment and international segment. The third segment is the
Amazon Web Services (AWS). AWS encompasses computing, storage, cloud
infrastructure, database, and other services. These operations provide Amazon a
competitive advantage through services and operations. Innovative and robust
solutions add value to Amazon's profile. Cloud storage, AWS, and cloud
computing started as in-house solutions for the company itself. However, its
sophistication and robustness made it another business stream for Amazon as they
commercialized these solutions. So, the operations also provide a competitive
advantage to the company.

Outbound Logistics:

Outbound logistics involve storage, supply, and distribution of the finished

products. Amazon's outbound logistics revolve around the 175 fulfillment centers
all around the world. Amazon's fulfillment is supported by robotic technology for
inventory. Activities involved in storing, moving, and distributing finished
products. Amazon has various operations included in its outbound logistics.
Fulfillment by Amazon manages, stores, and ships the products in all orders. It
includes the shipping companies and Amazon's logistic system encompassing
planes, ships, trucks, and drones for efficient outbound logistics. Apart from this,
outbound logistics also involves the digital delivery of its products. It includes
digital format books, media, etc. Then another channel of outbound logistics for
the physical stores.

Marketing and Sales:

Of course, this great scale of marketing and advertising is spanned over different
channels, media, and a global reach and impact. It includes print and media ad
campaigns, sales promotions, events, public relations, and targeted customer
marketing. Apart from direct and mainstream marketing, Amazon has other
channels of attracting customers to its brand. It uses attractive prices, fast delivery,
and Amazon prime services for marketing itself as a favorite brand.

Service:

Value chain analysis of Amazon shows that the services provided by the
organization play a vital role in acquiring a competitive advantage. It provides
premium services for the end customers and the vendors that eventually result in a
sleek and reliable business model for everyone. It provides full support, including
training, literature, and support facilities for vendors. At the same time, the end
customer can use Amazon Marketplace and prime services for more advantages.
After-sale service is another great endeavor from Amazon.

Revenue Model

Amazon has a diverse revenue model.

 The primary source of revenue for Amazon is the commissions and fees that
it obtains by making the borrowers and sellers meet. Amazon doesn’t sell a
lot of stuff on its own. It just provides a marketplace guaranteeing a
standardized experience for both the buyers as well as the sellers.
 Amazon also derives a huge chunk of its revenues from affiliate programs.
Amazon provides affiliates with stores within their sites. It then charges a
larger commission on their sales.
 Amazon also sells advertising space on its website. The Amazon site is one
of the most visited pages in any region. Hence, sellers can expect to boost
sales by advertising on it. This is a miniscule portion of the revenue that is
generated by this company but is nonetheless significant.
  AWS or the Amazon Web Services offered their IT infrastructure services in
2006. The Amazon web services stand today as one of the most scalable and
reliable platforms in its entire industry. What makes it stand out is its low-
cost infrastructure that connects limitless business worldwide. AWS
continues to function as Amazon’s cloud business as well as providing
computing for everyone be it startups or government institutions.
 Amazon also makes a huge chunk of money from the Kindle marketplace.
Amazon has developed and sold a device called Kindle. It can be used to
read books in the electronic format. Thanks to this device, Amazon has a
75% market share in the eBook market. Also, this market is highly profitable
for Amazon. Books sold by this model do not have to be published or
transported. Amazon, therefore, pockets the share of the publisher as well as
the logistics firm. Amazon gets close to 70% of the revenue generated by
selling eBooks on Kindle.
 Lastly, Amazon has also developed subscription-based business models via
its Amazon Prime service. For a fixed subscription users get two benefits.
Firstly, users can stream movies and other video content via the internet.
Secondly, Amazon Prime members are entitled to lightning-fast delivery of
the products purchased from Amazon.

The revenue model of Amazon is therefore dynamic. It has been repeatedly

venturing into newer areas. Also, technology is the backbone of these newer
sources of revenue which many retailers had not thought about earlier.

Scalable

The business model of Amazon is not very capital or human intensive. This makes
it scalable. Amazon can easily enter another country and start selling products.
Very little groundwork has to be done. This is the reason that Amazon went from
being an American company to being a multinational very soon. This asset light
business model is also preferred by investors who have pumped in billions of
dollars for Amazon to beat its competition with its deep pockets.

Competition

Amazon faces a wide variety of competition from different types of companies.

There are brick and mortar stores. Then there are other e-commerce sites and also
video streaming sites like Netflix. However, none of these competitors seem to be
formidable. Amazon is the aggressor is almost all lines of business and is snatching
business away from others rather than defending its own turf.
Technology

Amazon has always been at the center of several technological advancements since
its inception in 1994. In 2016, they have pioneered a new technology called
contactless stores. These stores have been branded as “Amazon Go” stores. The
unique selling point of these stores is that there are no humans involved. Amazon
has achieved such high levels of automation, that they can run an entire
departmental store without having any employees! It is technological
advancements like these that will allow Amazon to reach its ambitious revenue
targets. Although at first, the revenue targets seem ludicrous, Amazon seems to
have a plan!

Conclusion
To sum it up, Amazon has a unique business model. The hybrid tech cum retail
model was pioneered by Amazon in 1994. Ever since it has not let go of the first
mover advantage. Even today, Jeff Bezos pays no dividends and reinvests all the
extra profits back into the operations signaling that Amazon is still not a mature
company and that it still preparing to grow rapidly.
References

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[4] Thierry, Isckia, and Denis Lescop. "Open innovation within business ecosystems: a tale from Amazon.
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[6] Editorial Staff. 'AMAZON’S VALUE CHAIN ANALYSIS', BUSINESS STRATEGY INSIGHTS, [online].
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[7]http://www.amgimanagement.com/founder/ProjectSummaries/APS1012_2013_spring_03_Amazon
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[8] https://innovationtactics.com/amazon-business-model-part-2/

[9] https://www.smartinsights.com/digital-marketing-strategy/online-business-revenue-models/amazon-
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