Amazon Internet business model
Amazon.com is in the headlines again because it started Sunday package deliveries in several large cities. This offering follows the company’s recent strategic decision to offer same day delivery to most US addresses. As a part of this strategy, the company is drastically increasing the number of warehouses all around the US.
As we discussed in our forthcoming book, and this recent post on the HBR bloggers network. Amazon is in a class of its own when it comes to thinking about its business model. We are all accustomed to new offerings from Amazon.com: in fact, since its inception in 1995, Amazon has fundamentally changed its business model several times. At its inception, Amazon’s operation was organized around a “sell all, carry few” business model: while offering more than a million books it actually stocked only about 2, 000. The remaining titles were sourced through several arrangements but predominantly by “drop-shipping”: Amazon simply forwarded customer orders to book wholesalers or publishers, who then shipped the products directly to consumers using Amazon’s packaging materials and labels.
As the scale of Amazon’s operations grew, its catchment area became larger than that of many publishers or distributors, who, it turns out, were not that good at shipping goods to individual consumers. And as online retail matured, it became harder to dominate the space based on product selection alone. Although Amazon was still ahead of brick-and-mortar retailers in the breadth of the selection—in many categories, not just books—other Internet retailers adopted variants of drop-shipping and were able to offer similarly wide and deep stockless product availability.