Amazon’s business model follows both a B2C and B2-B distribution strategy. Indeed, on the one hand, its e-commerce platform is consumer-facing, providing millions of products to billions of users around the world. At the same time, its e-commerce platform is also used by other businesses, called third-party stores, to sell their own products on top of Amazon.
Amazon Hybrid Distribution Model Explained
What does it mean that Amazon follows a hybrid distribution model?
Well, when looking at Amazon, it’s critical to understand the company ranges from D2C to B2B and enterprise, with its various business units.
On the direct-to-consumer side, Amazon is one of the most successful e-commerce companies worldwide. It enables billions of consumers worldwide to buy anything from its vast selection of items.
While Amazon is one of the most successful e-commerce companies on earth. That is also a B2B platform, which hosts, through its third-party seller services, millions of third-party (independent, not owned by Amazon) e-commerce stores.
The third-party stores leverage Amazon’s infrastructure (online store, seller analytics, inventories, and delivery) to outsource part of their business to Amazon. This is the B2B side, which empowers millions of independent entrepreneurs and small businesses on top of Amazon.
The third head of Amazon’s business model is represented by Amazon AWS. A cloud juggernaut that empowers millions of businesses out there. AWS enables other companies to host part of their infrastructure on the cloud, making it possible to substantially lower the cost of doing business as AWS becomes underlying and outsources web infrastructure for this small, medium, and large enterprises. Also, very large companies, like Netflix, host their services on top of AWS!
Amazon e-commerce first-party business
Amazon e-commerce is a B2C business that targets billions of consumers worldwide.
The B2C e-commerce is run for scale.
In short, it has tight profit margins, yet it generates cash in the short term (see cash conversion cycle), which Amazon re-uses to scale up its operations quickly.
This side of the business is all about a wide variety of products, low prices, and very fast delivery.
On top of it, over the years, Amazon has added Prime to enable consumers to get free delivery.
Amazon third-party platform
Amazon’s third-party platform is part of e-commerce which hosts other sellers.
And it enables them to sell on top of Amazon.
This side of the business comprises an ecosystem of entrepreneurs joining the Amazon platform to amplify their sales.
Third-party sellers can choose to sell on Amazon and take care of the fulfillment. In this case, Amazon will take only a revenue cut as a distribution fee.
Or they can decide to leverage Amazon’s inventories. In this case, the seller won’t have to store any inventory, which will be sent directly to Amazon, which takes care of the fulfillment.
In this case, the seller takes only a tiny cut of the overall revenues, as Amazon takes care of the inventory, distribution, and fulfillment.
Amazon AWS is the cloud infrastructure that powers up a good chunk of the web.
Amazon AWS is primarily a B2B and enterprise platform, which has become a company within Amazon.
Born, as a way for Amazon to offer third-party sellers the ability to host their e-commerce on top of Amazon, AWS is now a company with its own business logic.
Indeed, AWS contributes to most of Amazon’s profits!
In this side of the business, the distribution approach is quite different.
On the one hand, it’s about offering a set of AI-ML tools, which are used by developers to build cloud tools on top of Amazon AWS.
On the other side, it’s about a qualified sales force that can sell those services to other businesses or potentially enterprise clients.
Two souls, a single-tech giant
As we saw, Amazon has two souls.
On the one hand, it’s a strong consumer brand that leverages a powerful flywheel to enable low prices, wide variety, and speedy delivery.
That is how Amazon defines customer obsession.
On the other hand, it’s also a B2B or enterprise platform.
AWS sells its cloud services to other businesses or enterprises, thus making it possible to use Amazon’s cloud infrastructure as the backbone of their business.
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