Business Model of Amazon

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Opening of the internet to commercial activity, the creation of naming conventions for URLs and the development of a user friendly and free interface i.e. the browser were the three major developments that led to the advent of what is known as “e-business”. As the economy has moved from agrarian to industrial to information age, the focus of the businessmen or the wealthy and powerful has also shifted in terms of the ways of obtaining wealth or doing business. In the agrarian age there was shortage of land which made ownership of land as the determinant of value. Powerful land barons typically accumulated vast tracts of land and coerced people who were bound to the land and owned by the feudal lord into living on and working it. As economy moved from agrarian to industrial age, physical assets owned by a firm became the determinants of value and shortage of raw-materials led the powerful industrialists to conspire to control the supply of raw materials. In this age, the market could absorb as much product as the industrialists could produce. The current era in which we live has been defined as the information age wherein relationships and intellectual capital are more important than anything else. One is not worried about physical assets anymore. Companies don’t compete with each other over superior products as they are largely commoditized rather compete increasingly on the basis of value added customer services. The economic battles of today are fought over the mind-space of consumers. In the information age power-play customers are not passive participants, in the way that land and raw materials were in the agrarian and industrial ages. In fact, according to Zang Hailing, it is the customers' time that is in short supply, and therefore for any firm to succeed, emphasis needs to be given to the importance of reducing the customers' time to adopt a new product.

Thus, in a world where technology is changing every day and the transformation of consumers has happened from “Price Takers” to “Price Makers” as they are armed with more options and information; the companies that control more and more customer relationships will be the ones that hold the power in an industry and reap the lion's share of the profits. E-commerce or e-business is an important tool that enables companies to reach out to the global market at low cost and provides abundant information about the consumers’ requirements and preferences easily which was not so easy earlier.

Following figure is a glimpse of the promising future that the ecommerce industry holds. The US E-commerce has seen a 40% increase in the sales over the past 5 years as a percentage of the total retail sales in US. Source: http://ycharts.com

Now when thinks about e-commerce, the first name that comes to everyone’s mind is that of Amazon.com. Not only most of the people have heard about it but there are many people who have actually used its services. Amazon was not only one of the few of the companies that thrived throughout the period in which many dot-com companies struggled to survive but has been constantly performing exceptionally well in terms of revenue per visitor which is one of the key parameters for any commercial website.

Amazon has had one of the fastest growths in the internet’s history with revenues reaching $2, 8 billion in the first five years with Google’s revenue reaching only $15bn in the first five years.

Now, just like any other traditional business in order to clearly understand an e-business one needs to have information on the following components:

a) Business Strategy which determines the products and service offerings by the firm, the firms targeted customers and the firms value proposition. It also helps firms decide on the choices and the tradeoffs that the firm needs to make. b) Organizational form or structure

c) Business processes which refer to the unique ways in which organizations coordinate and organize...
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