The advent of the internet and its largescale adoption has brought forth the popularization of eCommerce platforms. Even a decade ago, we wouldn’t have been able to imagine a world where we could shop for literally anything from any corner of the world from the comfort of our homes. With the ballooning of eCommerce businesses, certain companies like Amazon have gone on to become behemoths in their fields, so much so that even traditional brick-and-mortar establishments like Walmart have either started their online shopping divisions or are investing huge sums into eCommerce startups to gain a share of the ever-burgeoning pie. Here, we will look into the business model of Amazon and try to understand what makes these businesses so profitable and scaleable.
The first order
Amazon, as we know it today, started off as an online bookstore. The company was founded by Mr. Jeffrey Preston Bezos, a.k.a Jeff Bezos in 1994. Starting in Seattle, Amazon grew rapidly, and in 1999 they expanded into other domains of eCommerce as well, like selling electronics, consumer goods, etc. As a quick side note, the Seattle office of Amazon had a red ringer bulb that used to light up whenever an order came in. Had this bulb been in service today, it would’ve surely stayed on 24*7.
Amazon provided a platform for many sellers to join in the online revolution and nowadays, it is possible for a seller to sell a product of Chicago online to a buyer in India and vice versa. The company is currently the second biggest employer in the USA alone and has grown to unimaginable proportions in a very short period of time.
Gradually, Amazon started disrupting other industries by either acquiring existing players or entering those spaces themselves. In 2022, Amazon has stakes in numerous businesses like Twitch, IMDB, Whole foods market, etc. just to name a few. Amazon has numerous subsidiaries of its own like Amazon prime music. Amazon prime video, Audible, Eero, etc. They are even trying to establish themselves in the logistics space with the introduction of Amazon air. Steps like these not only help them to penetrate new industries but cut down on costs as well, thus increasing profitability. Now, let us take a closer look into the operations of this eCommerce juggernaut.
Behind the scenes
Here, we will take the case of the Chicago-based seller to gain a better understanding of the system.
- Setting up Amazon Storefronts- In order to sell the product of Chicago, the seller must create a storefront on the Amazon platform. Amazon storefronts are especially suited to small and medium-scale business establishments wherein there are separate virtual stores with curated products. This was flagged off by Amazon in 2018 with the intention of providing potential customers the benefit of directing purchasing from a small or medium business without having to navigate through the maze of tons of other products. Considering that our seller falls in this category and mainly deals in the local product of Chicago we move on to the next step of the process.
- Listing- Once the Amazon storefront is established, the seller posts engaging photographs and write-ups of their content on their Amazon Storefronts. This step can be potentially tricky since a good product photograph and description can make or break the business. Luckily, there are numerous agencies who provide top-notch product photography services and they can really help in spicing up the seller’s storefront. A well-curated and engaging storefront can really boost customer engagement and increase sales.
- Receiving the order- Now things start to get interesting. Potential customers can visit the storefront via the Amazon application and once they find a product they want, they place an order with the seller. The seller, once he receives the order, can opt for either the easy ship option or for the fulfillment by merchant option. Under easy ship, the seller stores and packages the product while the logistics and transportation are handled by Amazon. Under fulfillment by Amazon [FBM], the merchant takes care of storage, packaging, and transportation. It is the responsibility of the merchant to send that product to Chicago anywhere in the world and the choice of logistics chain depends on the merchant.
- The review mechanism- To improve transparency and trust, Amazon relies on a system of reviews where customers can share their real product experiences and services. This system allows potential customers to make conscious choices and enables sellers to learn where they can improve. They can also use this portion to share additional product information.
- The pay out- After a certain accounting cycle, the amount due to the merchant is credited to their bank accounts at pre-decided time intervals. A consistent timeline ensures trust in the system and dedication on part of the sellers.
Amazon follows this system roughly for its operations. The establishment of Amazon storefronts has given small and medium sellers a very good opportunity to grow astronomically. The platform it provides is invaluable for them and a systematic payment mechanism ensures that cash flows are consistent and transparency is paramount. The eCommerce space is growing day by day and its potential is immense.
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