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Anyone who is looking for a "short" Amazon summary quickly reaches its limits. Nothing is short at Amazon, because the multi-layered business model is in need of explanation.

Does Amazon earn its money by selling products or as a service provider? Does Amazon see itself as a retailer or cloud provider or even a film studio or fashion brand? Is there a brand strategy behind all products? And why is everyone talking about "Day One"? In the following article, we want to take a look behind the scenes of the Tech giants and show how it all began, where the company stands today and what strategy and philosophies make the company so successful.

 1. Founding history: How did the bookstore become a billion-dollar corporation?

Amazon is the global market leader in online retail. Many people cannot imagine shopping online without the Internet giants can no longer imagine. Many retailers can no longer run their business without the digital sales platform. But how did a small software start-up become a Innovative tech giant with a multi-layered business model? 

In 1994, the American Jeff Bezos founded Amazon.com in his garage in Seattle. In 1995, the online retailer sold his first book and a year later introduced the now famous customer reviews. In 1998, Amazon celebrated its 1,000,000th customer and the company opened its digital store doors in Germany. The first logistics center in Bad Hersfeld followed a year later.

In 2000, new categories such as DVDs, videos and electronic goods are added to the books previously sold. In 2002, Amazon opens its marketplace to third-party sellers. Between 2003 and 2005, Amazon launches the sale of kitchen, household and home items as well as the DIY and garden store. In 2005, the online retailer launches the Amazon Prime offer making fast delivery the new standard on the Internet.

Amazon is a driver of innovation in cloud computing. Launched in 2006 Amazon Web Services (AWS) and today supports hundreds of thousands of companies and public authorities. Amazon is completing its development from an online bookseller to a e-commerce partner further into an infrastructure company. Thanks to the cloud, fixed costs become variable and server and other IT resources can be planned and procured at short notice.

In 2007, Amazon launches its sports, leisure, footwear and accessories store, bringing it ever closer to its vision of having the largest selection on one online platform. In the same yearAmazon Kindle is launched on the market and, thanks to Kindle Direct Publishing, authors can now publish their books themselves. Amazon is shaking up the publishing world.

Since 2010, Amazon has been developing Amazon Studios his own scripts. Amazon Drive and Amazon Prime Video follow a year later. Four years later, Amazon Fire TV and the Fire TV Stick are launched on the market. One of the company's biggest innovations came in 2015 with Amazon Echo. The intelligent speaker is controlled by the AI technology Amazon Alexa.

In the same year, Amazon revolutionized the consumer world with the Amazon Dash Button. The ordering service for consumer goods, for example, ensures that the missing milk is reordered at the touch of a button in the fridge. However, the service will be discontinued completely at the end of the year. As we reported in the Brand analysis as we will see later, testing ideas is part of Amazon's DNA. This includes the knowledge that not all innovations, products and services will be successful in the long term.

Amazon Fresh is launched in 2017 and the company digitizes weekly shopping. Research also becomes an increasingly important field for Amazon and in 2018 the company launches an AI partnership with the Max Planck Society in Cyber Valley. A year later, Amazon once again made headlines with its range of Amazon Goa supermarket of the future. 

2. sales by business segment: How does Amazon make money?

In 2019, Amazon generated over 280 billion US dollars in sales, of which 11.5 billion net profit. With 193 billion US dollars, the USA is the market with the highest turnover followed by Germany with 22 billion, the UK with 17 billion, Japan with 16 billion and the remaining markets combined with 31 billion. The focus on the geographical markets is clear: as an American company, the USA is and remains the largest market. What about Amazon's business segments?

A journey through the last 20 years of Amazon shows how incredibly multi-layered the company has become. Is Amazon now an online retailer, e-commerce platform, IT infrastructure company, publisher, film studio or supermarket chain?

Amazon's sales in 2019 are broken down by business segment as follows About 50% of revenue come from online retail, 19% flow in from retail via third-party providers, 12% are generated by AWS (IT infrastructure services), 6% come from Amazon's physical stores, 6% make up subscription services (e.g. Amazon Prime, Amazon Music, Kindle Unlimited, Audible) and 5% services such as advertising and ads.

Amazon's core business continues to be based on the e-commerce platform. Half of all income is generated by the Online trading generated and amounted to 197 billion US dollars in 2020. Anyone who assumes that Amazon is a product company is nevertheless wrong. Online retail has the lowest margins. Competition in this segment comes from companies such as JD.com or also Walmart.

The Growth in operating income was primarily made possible by the high margins in the other business segments such as Amazon Web Services (AWS). AWS offers hundreds of cloud-based services, including data storage, analytics and artificial intelligence. In 2020, Amazon generated 45 billion US dollars in revenue with this segment. Competition for this comes from companies and their offerings such as Google Cloud and Microsoft Azure.

Another segment is Third-party serviceswhich account for 19% of Amazon's sales and recorded sales of 80 billion US dollars in 2020. Third-party sellers can sell products via the Amazon marketplace and pay fixed fees, revenue shares and flat-rate shipping fees. Competitors in this area are the ebay and Etsy platforms.

Subscription-Services are a lucrative and important business for Amazon. The best-known subscription is Prime, which includes digital services such as Prime Video, Prime Music and Prime Reading. Last year, the tech giant generated sales of 25 billion US dollars with these services, and the trend is rising. Netflix and Disney are competing with Amazon here.

The physical storeswith a turnover of 16 billion US dollars, make 5% of sales from. Amazon owns supermarket chains as well as other physical stores such as Amazon Books, Amazon 4-star, Amazon Go and Amazon Pop-Up. Its competitors in the USA are Walmart, Barnes & Noble and Costco Wholesale.

The remaining 5% of Amazon's revenue is recognized with "Other services" categorized and generated sales of USD 21 billion in 2020. These mainly include Advertising revenue but also other offers such as co-branded credit cards. This business segment has grown by over 70% every year. That is seven times as much revenue as Twitter has generated - and Twitter lives almost mainly from it. 

The sale of products goes hand in hand with lower margins, which is why Services with high margins such as Amazon Advertising Services, Amazon Prime and Amazon AWS are becoming increasingly important for the company. This is where the greatest potential for the Tech giants and the focus for the future.

 

amazon sales

Source: Amazon. (February 2, 2021). Amazon sales by business segment worldwide in the years 2017 to 2020 (in billion US dollars) [Graph]. In Statista.

 

3. target groups and the fly-wheel effect: who plays the biggest role for Amazon?

Amazon's business model has Four main target groups. One of Amazon's most important brand values is customer centricity. Therefore, the End customers the most important role. Amazon promises the highest selection and delivery convenience at the lowest prices. Who can say no to that as a consumer? 

43.9 million people in Germany regularly order from Amazon. Of these, 40% take advantage of a paid Prime membership. These almost 17 million Prime users make an important contribution to the company's success, as their purchase frequency is higher and more consistent than that of non-Prime customers. The young target group in particular appreciates the offer. 42% of German online shoppers between the ages of 16 and 24 are Prime customers.

When Amazon was founded, its mission was none other than "the most customer-oriented company in the world" to be. Jeff Bezos wanted to grow by putting the customer at the center. Legend has it that Bezos drew a sketch of this, which we now call the "Flywheel" know. Growth is at the center. Positive customer experiences are needed to set this in motion.

Positive experiences increase the number of visitors, which in turn makes the platform interesting for sellers. The Assortment grows and this in turn leads to higher Customer satisfaction. A cycle is created in which Center growth by enthusiastic customers. The growth achieved ensures that Amazon can reduce its own costs and thus the prices it passes on. And that leads to - you guessed it - increased customer satisfaction. 

 

Fly-wheel-amazon

Source: Amazon

 

Amazon's second important target group is the Vendorwithout which such a selection and variety would not be possible. Retailers can not only resell products on the online platform, but also create their own brand pages and create shop-in-shop experiences for end users. Amazon charges fixed fees and revenue shares for this and offers various sales programs.

Amazon's third target group is Developers and companiesthat are addressed with Amazon Web Services (AWS). AWS is a cloud service platform that offers database storage, computing services and other functions. The aim is to support start-ups and companies in scaling and growth.

Thanks to the cost-effective infrastructure platform in the cloud, Siemens, for example, can fend off over 60,000 cyber threats per second thanks to machine learning, while the startup mapbox collects 100 million pieces of raw data for its maps every day.

The fourth target group is Content Creatorssuch as authors, musicians, filmmakers or app developers. With Amazon Kindle, authors can publish their books themselves. Bands can publish their albums via Amazon Music. Content creators play a major role in the platform economy and will become increasingly important in the future.

 4. Brand strategy: What does Amazon stand for?

Amazon is one of the most customer-oriented companies worldwide. The brand values of the company are Innovation, Accessibility, Customer focus and Excellence. In order to characterize brands, one speaks of so-called "archetypes". These are universal archetypes that are associated with certain characteristics and emotions. Nowadays, archetypes are used in marketing for positioning and storytelling. Amazon's brand archetype is the "hero". He is strong-willed and self-confident, his goal is domination and change.

The company sees itself as a "pioneer" and "Inventors for consumers". It is constantly testing new categories, venturing into uncharted waters and is aware that not all business ideas will work out. Jeff Bezos says: "Our passion for pioneering will drive us to explore narrow passages, and many will inevitably turn out to be dead ends. But - with a bit of luck - there will also be some that open up into broad paths.

Amazon's success is based on three rational benefits: The largest selection of productswhich most favorable prices and the Delivery convenience. These benefits have been anchored in Amazon's DNA for years. Jeff Bezos prioritizes them accordingly and emphasizes: "We firmly believe that customers value low prices, a wide selection and fast, convenient delivery and that these needs will remain stable over time. It's hard for us to imagine that customers will want higher prices, less choice or slower delivery in ten years' time".

Amazon's brand architecture is based on the Branded house approach. Here, a hierarchically superior umbrella brand dominates the market presence and reduces the influence of the hierarchically subordinate brands to a minimum. Amazon is continuously expanding its business area and uses the company name as an umbrella brand, such as Amazon Prime, Amazon Kindle, Amazon Echo or Amazon Fashion. This allows the brand to gain attention for its new products relatively quickly.

Amazon is according to Statista the Most valuable brand At 683.85 billion US dollars, it is the highest in the world in 2021. clear ahead of Apple, Google and Microsoft. Amazon was able to increase its brand value by 60% compared to the previous year. The ranking is based on the methodology of the Market research company Kantar, which calculates financial value and brand contribution. The ranking provides information on what it would cost to rebuild the brand from scratch.

5 Comparison: What distinguishes and connects Google, Amazon, Facebook, Apple and Microsoft?

There are five big tech giants that are indispensable in today's world. We use their products and services every day and many of us even work there. The US companies Google, Amazon, Facebook, Apple and Microsoft - in short GAFAM - combines enormous growth and the symbol of the success of the New Economy.

Each of these companies started with a Core productwhich has increasingly lost importance in recent years in favor of new Business areas.

Google started out as a search engine and is now a company for Personalized advertising. In 2020, Google generated revenue of 146 billion US dollars with its advertising business.

Apple started with computers and still generates 50% of its revenue with the iPhone. However, 20% of sales are generated with iTunes, software and digital services - and the trend is rising. Apple is attempting to diversify further with its entertainment division.

Facebook has a similar model to Google and generates its revenue through personalized advertising. An exact analysis of the User habits allows targeted display of advertisements to desired target groups. The Group is diversifying by acquiring WhatsApp and Instagram, as well as acquiring stakes in companies in the field of virtual reality hardware.

Amazon is also upgrading its cloud business and has become the world's largest cloud provider in recent years. In addition, the e-commerce giantse regularly opens up new business areas, such as the development of supermarkets that are automated and made more customer-friendly by technical possibilities, so-called "cashless stores".

Microsoft still relies on personal computing, but the cloud business more than doubled between 2014 and 2020. Today, the company makes 48% of its revenue from cloud solutions. LinkedIn is also part of Microsoft and helps the giant to diversify its portfolio, as does the entertainment sector with Xbox.

The Diversification is a strong growth strategy of the GAFAM. All companies have become successful by expanding their service programs to new products and markets. On the one hand, this offers many opportunities: counteracting market saturation, spreading the risk across Economically independent marketsreinvestment of profits and the utilization of Synergy benefits. At the same time, diversification is a dangerous strategy, because unknown markets have to be explored and cannot always be conquered. For example, it is not surprising that Amazon is discontinuing its Dash button. Ordering at the touch of a button on the fridge has not caught on and has not proved lucrative for the company.

The great success of all Tech giants is not only based on the diversification strategy, but also on the Changed user behavior of the global population. All five companies tapped into the right markets at the right time. Four billion people use the internet for an average of seven hours a day. The number of smartphone users is increasing. The importance of e-commerce continues to grow. In the year 2025, the E-commerce market just under 3.1 trillion euros are generated worldwide. This is a more than good starting point for the further growth of GAFAM.

6 Corporate culture: What is behind the Day 1 mantra?

Amazon is also very well known as an employer brand. The core of the Corporate culture form the 14 Principles of managementsuch as "Learn and Be Curious" or "Deliver Results". Amazon insists that its leadership principles "are not just nice inspirational sayings", but are continuously applied by employees. Amazon is extremely popular as an employer. In recent years, however, the tech giant has increasingly had to work on its positive image. Low wages and prevailing working conditions in the logistics centers brought Amazon into the negative headlines.

Anyone who deals with Amazon's culture cannot get past the mantra "Always Day 1" around. In almost all letters to shareholders, Jeff Bezos appeals to his readers: "Our approach remains the same, it's still day 1". When visiting Amazon's headquarters, you notice that the building in which Bezos is based is called "Day 1". The official company blog is called "dayone". Why is Day 1 so important for the entrepreneur and what is behind it?

Start-ups are incredibly fast, flexible and agile in their initial phases. They accept high risks and are keen to experiment. But with growth comes complexity. The once nimble startup becomes a inert large organization. In physics, there is a measure of disorder called entropy. The disorder in our universe is inevitably and constantly increasing. Jeff Bezos has applied this physical law to the world of business and found that: No matter how great a company is, over time its efficiency decreases and its rigidity increases.

Bezos wanted to avoid inertia and all its side effects for his company. Based on his knowledge of physics, he therefore emphasizes: "We want to fight entropy". It is clear to him that if no one does anything about it, Amazon will become just another average large company that is self-destructive. Innovative ability hindered. By constantly reminding himself and his employees to maintain the start-up mindset, he wants to counteract rigid structures.

The mindset "Day 1" contains the four rules of a start-up: Customer centricity comes first, results are more important than processes, Decisions decisions must be made quickly and external trends adapted. This results in a constant readiness for innovation. The "Day 1 mentality" is both a culture and an operating model. It has successfully carried Amazon through various business models for over 20 years and ensures that we will continue to hear a lot from the tech giant in the future.

Are you looking for professional support for selling on Amazon? We as specialized Amazon Agency can help you here.

How does Amazon earn money?

Amazon's sales are broken down by segment as follows: Over 50% comes from online commerce, 19% comes from commerce through third-party sellers, 12% is generated through AWS.

Who plays the biggest role for Amazon?

Amazon's business model has four main target groups. One of Amazon's most important brand values is customer centricity. End customers therefore play the most important role.

Tobias Dziuba

My name is Tobias and I am the founder and managing director of the Amazon agency Adsmasters GmbH based in Düsseldorf.

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