The big question, how does Amazon earn?
on Monday December 4th, 2017, By Sumeet Patel

In what started as a bookstore, now is an International giant in almost every sector.

The company named as Amazon, to show that it has a product range as big as the Amazon rainforests, has all kinds of products and services ranging from Amazon Web Services to Amazon Prime, Amazon Firestick to the Amazon Kindle.

Jeff Bezos started it with just one goal in mind:
To be the number one seller in the country, on the internet!

Amazon Founder, Jeff Bezos ©Wikimedia Commons

But ever wondered that despite spending such huge amounts of money on advertising and discounts during festivals,how does Amazon clock such huge profits year on year?

Let’s look at the costs involved with running Amazon

  • Maintaining huge servers
  • Giving such a huge platform to the seller with about 5-10% in commissions
  • Selling products at nearly half the original price during the festive seasons
  • Giving away a healthy 4-10% commission to affiliates ( People who earn if people buy products on Amazon through their links)
  • Managing the logistics and also not to forget, delivering orders above Rs 600-800 without any surplus charges
  • Spending millions for their brand to be shown on primetime shows to ensure that people know that they are selling at really affordable prices and are as good as offline sellers
  • The salaries of lakhs of employees working with them at every stage of shipping from maintaining the site to delivering the product to your footsteps

Now the question from the perspective of someone who has just taken off the support wheels from his bicycle and wants to know how a car is driven,


Amazon’s business model is better than most other players in the e-commerce industry

1) They have their own products

Amazon Kindle

Be it the introduction of Amazon Kindle or selling their own CDs or even e-books published by them
They realised that it would be better to be the farmer selling directly to the end user rather than just someone who ships the vegetables to the market without any commission.
Amazon Kindle generates millions in revenue for Amazon.

2) Taking advantage of the windfall

Amazon’s streaming platform, Amazon Prime

Amazon Web Services

They did not limit themselves to books

They started selling everything from electronics to apparel, to even building their own cloud platform from scratch in the form of AWS (Amazon Web Services)
Seeing the opportunity in the streaming business they started Amazon Prime.
Their already famous name sure helped them gain traction, but again if the gift inside a beautifully wrapped box isn’t good, no one would invite you to their party ever again

The objective behind giving such a bad analogy is to say that the service, be it AWS, Amazon Prime or Amazon Echo, it’s all been near six sigma perfection.
The app UI is brilliant, the experience of using AWS majestic. People trust Amazon due to their impeccable service and great products.

They indeed made hay when the sun shone on their parade.
For example, launching the Amazon Firestick right when Jeff Bezos briefly moved ahead of Mr. Bill Gates to become the richest man on the planet.

Read more: Why WhatsApp does not contain ads?

3) Deals with different brands to sell exclusively on their platform

Amazon has tied up with many brands like Xiaomi, One Plus and Motorola in the past

This helps them earn more, a lot more than selling the same product via some third party seller.

4) You may not like this one
In general (not any e-commerce company specifically), there are some companies that earn by selling the user data to third party companies which further use your buying habits to show you targeted ads and products

Data is definitely worth a lot more than selling a book at a minimal profit.
Again, it’s not on Amazon specifically but rather in general.

5) Investor Funds

At an early stage, to get the company out into the market, funding is what helps them.
Amazon has many well wishers and many people holding onto the shares of the company.

In short it is all the combined result of mixing up different business models for the company that Amazon is very successful today. There’s too much going on behind the scenes as compared to what meets the eye. It’s all a process that takes years in operation for anyone to master.

They launched around 1994 selling books and are still going strong and that says a lot about the brains behind it. It’s takes a team of geniuses to make a dream turn into reality. And when your dream is to become the number one seller in the world, you better have good people on your team.

Sumeet Patel

Co-founder, Writer and Editor at Ten. I like writing on Life and Entrepreneurship. New concepts and innovations inspire me

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