Amazon Business Model Canvas [2022]

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Value Propositions for Consumers

“I very frequently get the question: What’s going to change in the next 10 years? And that is a very interesting question; it’s a very common one. I almost never get the question: What’s not going to change in the next 10 years? And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time.

… [I]n our retail business, we know that customers want low prices, and I know that’s going to be true 10 years from now. They want fast delivery; they want vast selection. It’s impossible to imagine a future 10 years from now where a customer comes up and says, ‘Jeff I love Amazon, I just wish the prices were a little higher;’ ‘I love Amazon, I just wish you’d deliver a little more slowly.’ Impossible. And so the effort we put into those things, spinning those things up, we know the energy we put into it today will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.”

Jeff Bezos, Founder and CEO Amazon Inc.

In summary, Jeff Bezos called out Amazon’s 3 key value propositions as:

Low Prices
Fast Delivery
Large Choice of products (and services)

While there are other value propositions, we will be focusing on these three within this article. Let’s look at all 3 in a bit more detail.

(1) Low Prices

We will look at the dynamic pricing strategies in the Key Activities section in a moment.

(2) Fast Delivery

Amazon offers “free” shipping on millions of eligible items for an annual (or monthly) subscription fee for Amazon Prime. $8b of these revenues are being attributed to fulfilment and delivery services. “Free” shipping was at the core of Amazon Prime and is still being valued highly within the overall Prime package as we will see a bit later. This value proposition becomes more valuable as Amazon adds more and more choice (see next value proposition) in that consumers can make more use of their free shipping option for more of their purchases (and therefore also shift more of their purchase needs to Amazon).

Being able to deliver ordered items fast and to do so in an economical fashion (i.e. shipping cost to remain low for the customer and Amazon) is a huge challenge. For starters it requires scale which in the earlier days meant that Amazon had to use 3rd party providers (and in part still does). Most importantly, there are trade-offs to be made between how much inventory to be held, replicated and located where, facility costs and other costs. In the course, we are elaborating in great detail on the delivery and logistics infrastructure which is crucial for the delivery pace.

(3) Large Choice of products (and services)

Amazon started with books and then quickly expanded into media through (physical) discs and DVDs. By now most of this is available in different digital formats.

Books are available via Kindle either by purchasing books or via Kindle Unlimited
Books can also be consumed via Audible in the form of audio books
Music via Amazon Music (which also includes Podcasts)
Videos via Amazon Prime Video
Then there is Amazon Prime which includes a slice of each of the above

In addition, consumers can buy anything under the sun from Amazon, from consumer electronics to car tyres as we all know.

More interesting are their growth areas. These add to the growing choice for consumers and growing revenues for Amazon. Let’s look at some of their growth bets in terms of product categories.

Growth areas (product categories)

Amazon is growing in many directions at the same time and with that their value proposition in terms of choice (and of course their potential revenue sources).

While only a fraction of food/groceries are sold online, it is one of the largest forecasted growth areas for online sales. It’s clear that Amazon will want to participate (or be the main player – and will face Walmart as a major competitor) in this lucrative category (esp. fresh food).

Here are some of Amazon’s endeavours in the categories that are trailing have yet to meaningfully shift to online retail.

Food/groceries:

Amazon Prime Pantry: Groceries (dry goods) and household goods
Amazon Fresh: Includes also perishables and produce and stored & delivered in a cooled infrastructure chain
Amazon Prime Now: The essentials (range of 15,000 products and restaurant orders, etc) that can be delivered within 2 hours for free (or 1 hour with surcharge)
Whole Foods Markets (WFM): Amazon acquired WFM with their over 350 physical stores. WFM produce is starting to be delivered through Amazon’s network
Amazon Go: Automated check-out and a range of popular products

Furniture:

Apparel:

“Amazon currently claims about 6.6% of the apparel market. That share is expected to increase to 8.2% by next year and further expand to 16.2% within five years” by the estimates of one analyst
Amazon fashion brands: Amazon launched seven fashion brands with some observers wondering if Amazon wants to get into the high margin apparel business at large scale
Zappos.com: the famous online shoe and apparel retailer has been acquired by Amazon in their first foray into apparel but still running under their own brand (while having moved operations of 2 of their warehouses to Amazon)
Prime Wardrobe: accessible to Prime members only. It allows apparel choices to be sent home for trying them on. Unwanted items can be returned for free (within one week)
Several fulfilment centres dedicated to apparel, like the massive one in Jeffersonville, IN
Amazon has patented clothing manufacturing-as-a-service
And they have opened a clothing manufacturing plant in Norristown, PA

Pharmacy/medication:

The playbook

These are a few examples of retail categories that Amazon is expanding into. Each category would deserve their own article. But it gives some insights into how Amazon enters/grows new product categories:

Large choice of product offerings on their pages composed of Amazon-owned and 3rd party inventory
Acquisitions of suitable companies, mostly smaller ones (Whole Foods Market is the notable exception)
Starting a number of “secret” (Amazon-owned) brands within the category
Establishing a fulfilment and delivery structure with respective warehouses and other infrastructure (e.g. temperature-controlled delivery chain, bulk item handling, prescription drug management)
For some of the categories: integrating a subset of the overall choice as part of the Prime membership or dedicated subscription models, etc

Value Propositions for Sellers

Amazon has also value propositions for 3rd party sellers which is the second largest business segment by revenue as we have seen with over $100b in 2021.

Amazon Marketplace

More than 50% of items (in terms of units, not revenues) sold through the Amazon pages are from 3rd party sellers. One prominent seller is Nike after resisting for a long time. But most 3rd party sellers are much smaller. Amazon has opened their pages to 3rd party sellers in 2002 and the share of those sales has increased continuously.

Amazon Marketplace falls under the platform business model that we have covered in great detail on our pages. The revenue model is often a transaction fee as a percentage of the sales. This is often combined with other revenue sources, e.g. advertising as well as FBA, SWA, etc.

Fulfilment by Amazon (FBA)

Fulfilment by Amazon is a service that offers merchants to store their items in Amazon fulfilment centres and delivery infrastructure to reach the customer. It includes checkout and payment options, management of returns and more. Items can be used to sell through the Amazon pages or through other sales channels.

Shipping with Amazon (SWA)

Amazon has increasingly insourced elements of the delivery network and then opened it up to external customers as a service. They have started with the last-mile delivery using Amazon Flex drivers but have increasingly expanded on this. This used to be branded Shipping with Amazon (SWA) but is now included as an option in Fulfilment by Amazon (FBA).