eCommerce success story: The history of Amazon (2)
Laia Ordoñez
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On the first installment of the Amazon case study which published before, we focused on knowing where the inspiration came from, and the original mission and vision.
We talked about how Jeff Bezos got an almost Instant Success with his business even if he made a risky bet, and also about the company’s beginnings in a Garage and with a basic but effective e-commerce.
But today we wonder: how has it become what it is today? What did Amazon do to reach 2.370 millions per year in sales and to reach 341,400 employees around the world? Let’s continue investigating Amazon.
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On the first installment of the Amazon case study which published before, we focused on knowing where the inspiration came from, and the original mission and vision.
We talked about how Jeff Bezos got an almost Instant Success with his business even if he made a risky bet, and also about the company’s beginnings in a Garage and with a basic but effective e-commerce.
But today we wonder: how has it become what it is today? What did Amazon do to reach 2.370 millions per year in sales and to reach 341,400 employees around the world? Let’s continue investigating Amazon.
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The milestones that have marked Amazon’s Success.
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As this is a deep and exciting topic, we're going to try to find the most important insights from the steps that have been shaping the actual business model, and have led them to be a constant reference
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#1 – Amazon diversifies its products catalog.
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Since always, Amazon has been defined by a strategy focused on the size of its catalog. When it started, it boasted about having more than a million books available.
In 1998, they decided to go a step further by adding new categories to their eCommerce. This is how, in addition to books, Amazon started putting its eggs in different baskets such as:
- Music CD’s
- Video DVD’s
- Software and video games
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INSIGHT: When diversifying your business, be like Amazon and search not only for products that may share your core product audience but also products in which you can replicate your business model and that allow you to use the infrastructure and methodology you already have without any additional investment.
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#2 – Amazon becomes a marketplace
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This is one of the most important changes that happened on Amazon. This happened in the year 2000, and it was the moment when the marketplace opened to third-parties.
What until that moment was an online store, changed its concept completely, even if it was imperceptible for the user. Starting in the new millennium, any seller or manufacturer could start selling their products on Amazon. Obviously by paying a fee and complying with the strict quality control.
Looking back, we can affirm that this has been one of Amazon's smartest strategic move. This has given them a wide catalog, variety, and an unpayable knowledge base to know what works and what doesn’t (this to later produce it and sell it under its own brand).
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INSIGHT: When you get a notorious and dominating market position you can turn potential competitors into partners. On the other hand, imagine the impact adding thousands and thousands of third-parties to its core had on Amazon’s inventory.
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#3 – Web Services
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Obviously, in the online world, an unleashed and sustainable business growth always supposes a growth in the digital infrastructure.
Imagine how much bandwidth a website like this can consume, the amount of simultaneous and recurrent users it needs to stand, the traffic peaks, the terabytes, and terabytes of storage it requires and, the most important, the performance.
All this supposes a huge annual investment, so Amazon turned it into a business opportunity. Thus, in 2002, Amazon Web Services was born, AWS is a set of applications and products thought for those who develop websites or web apps.
To get a sense of AWS’s dimension and capacity, it’s enough with the following information: Netflix used Amazon’s cloud services to operate until recently.
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INSIGHT: Take advantage of your knowledge of tangent or intrinsic matters to your business to open new paths. Also, keep in mind that what Amazon is doing in that way is increasing the rentability of its investment in datacenters, hardware, software and human resources and, confidently, taking advantage of its huge volume to negotiate with providers.
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#4 – Amazon Prime
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We have said many times that Amazon’s strategy involves a huge catalog. The catalog in itself can differentiate them from other competitors, but the underlying reason is an obsession to give more and better options to the customer.
Jeff Bezos defines his company as a Customer-Centered company and he usually takes it to the extreme. What he wants from the customer is always the same: recurrence. To enhance it, he launched in 2005 his already famous program Prime, that for an annual fee of $79, users get free shipping on thousands of products, a max. 48-hour shipping guarantee.
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INSIGHT: Recurrence is key to making a business grow. The prime program is not quite profitable from an objective point of view, but the fact is that attracting a new user is a lot more expensive than making an already captured user profitable. Prime customers purchase something 3 times per month on average, and their annual expense is around 800 dollars, 65% more than what non-prime customers spend.
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We thought of closing Amazon’s Case Study here, but we still have a lot of things to say. We need to talk about many others of its strategies such as own product, digital product, retail, logistics, and affiliations… So please stay tuned to our blog because we will reveal more keys.
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Read the complete series.
Images | Amazon, Unsplash, Google Trends.