In part, this is due to the fact that cloud technologies offer themselves for consumption. In part, that is also a mindset shift from ownership to usage.
For instance, Amazon is pushing to bring as many people as possible to become part of their Amazon Prime Program.
This isn’t by chance. In fact, Amazon has been investing massive resources to enhance their membership revenues. That’s also the reason why Jeff Bezos said: “When we win a Golden Globe, it helps us sell more shoes.”
In fact, Amazon is investing billions of dollars in their Studios to develop as much original content as possible in order to attract as many subscribers, within the Amazon prime program.
In 2017, Amazon revenue generation still saw its online stores as the primary source of income.
However, there are two important aspects to point out.
First, as Amazon uses the so-called cash machine revenue generation, which implies tight profit margins.
In short, Amazon leverages on its inexpensive prices, to hook as many people as possible to the Amazon marketplace.
Second, even though subscriptions still represent only 5.47% of Amazon total revenues, they grew exponentially since 2014:
[infogram id=”affe48d5-0cb8-4e93-a2fe-b8a7331dadc6″ prefix=”ISZ” format=”interactive” title=”Evolution of Amazon revenue generation model”]
13 years post-launch, we have exceeded 100 million paid Prime members globally. In 2017 Amazon shipped more than five billion items with Prime worldwide, and more new members joined Prime than in any previous year – both worldwide and in the U.S. Members in the U.S. now receive unlimited free two-day shipping on over 100 million different items. We expanded Prime to Mexico, Singapore, the Netherlands, and Luxembourg, and introduced Business Prime Shipping in the U.S. and Germany. We keep making Prime shipping faster as well, with Prime Free Same-Day and Prime Free One-Day delivery now in more than 8,000 cities and towns. Prime Now is available in more than 50 cities worldwide across nine countries. Prime Day 2017 was our biggest global shopping event ever (until surpassed by Cyber Monday), with more new Prime members joining Prime than any other day in our history.
That is also why Amazon is doubling down with initiatives like Amazon Prime Day:
Whether you’re a traditional tech company making the pivot to the Cloud or a born-in-the-cloud business, there’s a financial “fish” in your future that you will need to swallow.
In short, in transitioning the business toward the subscriptionmodel an initial decrease in revenues and an increase in costs will be experienced. This financial situation takes the shape of a fish.
Until – as pointed out on tsia.com -“you begin to transition from the money-losing, rapid-growth phase to a more steady-state pattern of slower (but profitable) growth.“
Key takeaway
Many tech companies are experimenting with new business models. This is a normal process.
In fact, as economic, technological, socio-cultural scenarios change, companies need to adapt at a aholistic level.
In fact, most companies that start experimenting with subscription models – especially when coming from a product-based businessmodel – experience periods of losses that are known as “swallowing the fish.”
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
