Amazon is no longer a retail site for customers but a service platform for its sellers

Since its founding in 1994, Amazon has undergone exponential growth. Initially an online bookstore, the company has

evolved into a global e-commerce powerhouse. Yet its reach extends far beyond retail. Amazon is also a dominant force

in technology infrastructure (Amazon Web Services, or AWS), digital entertainment (Prime Video, Twitch, Kindle),

logistics, and online advertising. Amazon’s annual revenue skyrocketed from nearly $7 billion in 2004 to $574 billion in

2023. AWS, launched in 2002, has become a major profit driver, generating $90 billion in 2023. Similarly, the company’s

advertising revenues have surged, reaching $51 billion in 2023. Employing 1.5 million people, Amazon has cemented its

position as the second-largest retailer in the United States after Walmart, accounting for 6% of U.S. commerce and an

astonishing 37.6% of American e-commerce. Amazon’s success lies in its transformation from a simple online store into

a multifaceted platform. Initially a marketplace for third-party sellers, Amazon developed a two-sided platform model that

has evolved into a tightly integrated service ecosystem for vendors, making it a significant source of revenue. Today,

Amazon is less about serving individual customers and more about offering a suite of tools for sellers, challenging the

traditional platform model that typically relies on external resources. In the early marketplace model, third-party sellers

could list products on Amazon. By 2004, these third-party sales accounted for 20% of Amazon’s revenue. Fast-forward to

2024, third-party sales represent more than 60%, with half of these sellers based in China, using Amazon to access

international markets. In 2005, Amazon launched Prime, a subscription service offering free shipping, effectively locking

in customer loyalty. Two years later, Amazon introduced its “Fulfillment by Amazon” (FBA) program, allowing sellers to

outsource logistics to the company. Sellers using FBA gain access to Prime customers, a growing segment that reached

200 million members globally by 2021, with 140 million in the U.S. Today, 94% of sellers rely on Amazon’s logistics

services, driven by the platform’s dominance and the lucrative Prime subscriber base. Amazon has consistently

expanded Prime’s offerings, adding streaming video, music, gaming, and exclusive promotions. Priced at $139 annually

in the United States, Prime has become a central pillar in Amazon’s strategy to ensure customer loyalty. While Amazon

has successfully retained customers, its influence over sellers has grown significantly. In 2012, Amazon introduced

advertising services on its platform. To ensure visibility, sellers are encouraged to purchase advertising campaigns that

prioritise their products in search results. This system mirrors traditional retail practices but on a much larger scale.

In 2024, Amazon extended advertising to Prime Video, introducing default ads for Prime subscribers. Sellers can now

promote products on Prime Video and track performance through sales metrics, creating an unparalleled promotional

ecosystem. Amazon’s advertising revenue alone generated $49.6 billion in 2023, further boosted by its cloud-computing

services via AWS. AWS hosts Amazon’s data infrastructure and monetises marketplace data by offering sellers tailored

audience segments. Combined, revenue from Amazon’s services – including cloud computing, logistics, and advertising

surpassed direct sales revenue in 2023, totalling $319 billion compared to $256 billion. Over the last decade, Amazon

has pivoted from primarily acquiring customers to monetising its relationships with sellers, reshaping the platform into an

integrated, multifaceted revenue generator. Amazon now operates as a highly integrated multi-sided platform, leveraging

cross-network effects to lock in both customers and sellers. Data plays a crucial role, enabling Amazon to integrate

search behaviour, purchase history, and media consumption into a seamless promotional and sales environment for

brands. This strategy directly challenges traditional media companies that cannot match Amazon’s unique blend of retail

and advertising. However, Amazon’s dominance has drawn regulatory scrutiny. Since 2023, the U.S. Federal Trade

Commission (FTC) and 17 states have pursued antitrust lawsuits against the company for anti-competitive practices. At

the same time, Amazon faces growing competition from Chinese e-commerce platforms such as Temu (Pinduoduo),

AliExpress (Alibaba), Shein, and TikTok Shop, which have gained traction through aggressive pricing and marketing

strategies. Notably, these platforms have studied Amazon’s playbook to refine their approach to Western markets. In

November 2024, Amazon responded by launching Amazon Haul, a Temu-like platform offering low-cost products. The

move underscores the rising threat posed by Chinese rivals, who have quickly adapted to Amazon’s dominance while

exploiting its weaknesses. Amazon has built a unique business model, blending media and commerce in ways that

challenge both industries. This integration raises critical questions about the competitive effects on advertising and retail

markets. Regulatory authorities, including the European Commission, may lack the tools to adequately address

Amazon’s multifaceted model, even with frameworks such as the Digital Markets Act (DMA) and the Digital Services Act

(DSA). Whether these regulations can effectively govern Amazon’s influence remains uncertain. As Amazon continues to

refine its ecosystem, its business model offers a glimpse into the future of commerce – a tightly controlled platform that

dominates retail, logistics, media, and advertising. But as competition intensifies and regulatory challenges mount, the

company’s ability to maintain its dominance will face its toughest test yet.

Source: https://theconversation.com/amazon-is-no-longer-a-retail-site-for-customers-but-a-service-platform-forits-

sellers-245068

Examine how targeted improvements in Amazon’s technology infrastructure could enhance its overall value chain performance, with a focus on supply chain efficiency, data analytics capabilities, and customer experience.(25 Marks)

Apply Porter’s Five Forces framework to evaluate whether Amazon’s entry into the digital streaming industry will enable it to generate increased revenue, taking into account competitive rivalry, supplier and buyer power, threat of substitutes, and barriers to entry.(25 Marks)

Critically analyze the major challenges Prime Video faces when developing a functional-level strategy for its business model, considering factors such as content acquisition, resource allocation, technology integration, and cross-functional coordination.(25 Marks)

Discuss how Amazon could demonstrate clear strategic intent in its retail business unit by implementing a best-cost provider strategy, and explain the implications for cost structure, customer value proposition, and competitive differentiation.(25 Marks)