Amazing Amazon's business model!
Amazon has gained a matchless growth in its business and revenue by the use of technology and providing tremendous services to its customers. It has offered home delivery services to its clients without any extra charges and within a reasonable time. No other organization is providing this facility to its clients at the moment. The company has managed to charge the delivery expense to its vendors. This way it has developed a profitable delivery business, whose expenses or costs are not born by Amazon! Instead they are paid by the concerned vendors whose product is being sold by Amazon.
On the other hand the vendors have got a gigantic exposure to the 5.7 million customers of Amazon. They enjoy higher sales and thus higher profits, even after getting depleted their margins due to the advertising and marketing expenses they have to pay to Amazon. At the consumers’ end, it has performed miracles. It is trying to offer everything to everyone all the times! As Jeff Bezos CEO of Amazon, had visualized. One can order literally anything at any time to get in two days from anywhere in the US and Amazon would take that order to make it a reality. Amazon not only knows what people buy, it also knows where they live, which credit cards they use, it even knows how old people’s kids are and who is suffering from cold at the moment! It knows all this by its cough syrup orders made by the clients, in two hours delivery time.
The company has got an amazing data base. In establishing such a gigantic database Amazon is practically one of the pioneers. So much so, that whenever advertisers want to launch their advertising campaigns, they contact Amazon’s advertising services to get benefited from their knowledge about consumer’s online buying history. “Amazon has really straightforward database — they know what I buy,” says Daniel Knijnik, co-founder of Quartile Digital, an Amazon-focused ad agency that oversaw the ads for the clinics and retirement services. “For an advertiser, that’s a dream.”! The company is also expanding a self service option for the advertising agencies to get benefit of its customer’s data base.
Only the online adds selling business has become worth $125billion which is bigger than Nike or IBM, this is what Morgan Stanley has estimated. Amazon has continuously expanded its business by selling video or display ads. These ads could be seen across the entire website. There are many features common in Google, facebook and Amazon! They all target users based on their interests, their searches and demographics. What they do is that they use cookies and other technical tools to track the people from its site to other websites. For example they can inform their client advertising company that somebody who purchased diet book is now searching news at CNN and could easily be targeted over their by advertising for protein rich food! Without telling the advertising company exactly who that person was? Amazon can sell the information guiding to other company to generate business.
It not only finds customers through ads, but it also shows automatically different ads that feature positive product reviews. Although, Amazon is not the biggest company of USA, it is smaller in size to Apple and many other companies, but as far as its importance regarding reshaping of US’s economy is concerned, it can truly be said that it stands at the top!
Started in 1994 by book selling and has shown a tremendous growth over last two and a half decades in almost every line of business. It has developed a digital assistant that is under use of thousands of consumers who rely on it to perform their daily tasks that is “Alexa”, it introduced an electronic reader called “Kindle”, it has marketed its own home security system called “Ring”, and you see what name and what not? It has got a $13.7 billion consumption of food items. And yet it is expanding with a matchless pace.
There are other big companies too in the world. Rather much bigger than Amazon. But what Amazon makes it distinctive is its capacity of strategically handling of information about consumer behavior such that it could predict about what you might need in near future! Daniel Raff, Professor of Management at the Wharton School of the University of Pennsylvania says, “They were, from the start, not really in the books business. They understood that the web site was a source of information for them, about who their customers were, their customers’ search behavior and price sensitivity.”
In 2005, Amazon started ‘The Prime Membership’. This service offered such benefits that in 2017 about 57 million “households” (not persons) hold that membership and are paying $119 per year per household for access to television content, discount at food and fast free shipping. The “Fast and free Shipping” is the key which puts the Amazon on the victory stand of “Matchless E-Commerce Champion”!
The E-Commerce giant has created a wonderful set of options for the consumers. It has snatched customers from the original manufacturers or traders just by grabbing them through its website by its compelling offers. Instead of trying to sell directly in competition with Amazon, the vendors try to sell their products through ‘Amazon’ itself. This edge is gained over the conventional vendors through amazing use of IT. The data center of Amazon stands among the biggest data centers in the world. And getting benefit out of that edge it charges extra to the vendors. The price control has gone from vendors to Amazon. Vendors have to pay it for advertising, for any help that is offered to the customers on behalf of vendors, for the shipping and for the return of products from customers due to any reason. It is charging the intermediary sellers various types of fees. These are either per time or as a percentage of sales, monthly membership fees and extra fees for promotion at any of the special events. By paying such fees the sellers get exposure of gigantic customer base of Amazon and thereby get increases in their sales multiple times.