Amazon is known by many as a standard for maintaining a multi-sided platform(s) that delivers significant value to its users and captures significant value for Amazon, which is often recycled back into further advances that feed additional value creation. The primary areas this post will focus on are the E-Commerce Platform and Amazon Web Services, as well as an overview of the backbone concepts that support these two platforms.
The first natural place to start with Amazon in terms of value creation is their e-commerce platform and the broader marketplace that it facilitates. The platform unified a cohesive online source for products and goods of all types in an ecosystem maintained by rigorous governance, standards, and user reviews/feedback. For users this was a one-stop-shop to get anything they needed, and Amazon took this value creation further by using algorithms to optimize the experience further based on user’s preferences and behavior patterns. Lastly they have used the data to further optimize the interfaces and functionality of the platform for both buyers and sellers such that it operates intuitively and responsively.
Amazon captures a fairly large amount of this value, though not necessarily exclusively on the direct revenue from percentages of sales or other fees like Amazon Prime. Much of their value capture also comes from the advertising capabilities provided to vendors and others through their algorithms and data. Lastly they also use the data that feeds back into the platform to improve the backend systems and optimize their resource allocations and base infrastructure.
Amazon Web Services
On the Web Services (Cloud Infrastructure-as-a-service) side, Amazon provides both computing/storage and other technology infrastructure capabilities and platform services on an as used basis to customers, allowing them to shift significant capital expenditures to monthly operating expenses, and further allowing customers to realize deeper cost savings by increasing the utilization of their technology assets. Furthermore, AWS supports a marketplace on which many vendors offer various Software-as-a-service and platform offerings, thus extending the value customers can capture. Lastly the whole offering is a fully managed service that is backed by all of the compounded learnings and expertise of Amazon’s employees, who have used AWS to support the broader Amazon.com platform for many years before it was opened to the public.
While Amazon captures a percentage of the usage volume moved through the AWS platform as profit, they capture value in other areas as well. They benefit significantly from the increasing economies of scale that result from increased usage by end users, which is used to reinforce and support other areas of the business. Additionally, they leverage usage patterns and other data to optimize their resource allocation and planning over time as demand curves are smoothed and more consistent with increased volume.
Customer-focus and Data
Underlying these two platforms are a few core concepts that drive the underlying value. The first is their much lauded customer-focus that drives most of their design choices and interactions. The data collected from aggregated feedback and observations of users is used to improve the overall experience. It also feeds into the customer service interactions that are fast and responsive. In terms of capturing value from this side, extensive data is gathered, aggregated, and analyzed to improve backend systems, while machine learning helps to automate many of the backend functions, allowing operational focus to be delivered elsewhere or toward new initiatives.
Frugality and Economies of Scale
The focus on frugality and cost savings is also a major driver of both value creation and capture. In terms of value creation for users, this focus drives down costs and allows economies of scale to be achieved. In both cases these cost savings are shared passed in many ways down to consumers with lower prices. To reinforce this, Amazon maintains many internal behavior patterns and process standards that it also often holds vendors and other members of their offering pipeline accountable to. Amazon captures value from this as well through internalizing some of the cost savings for other investments and by leveraging the growth to drive efficiencies through sharing costs across internal teams.