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March 26, 2023
7 min

Amazon Digital Ecosystem Strategy, Explained

Amazon has evolved from a small book store into a unique digital ecosystem that penetrates almost every sphere of modern life. Its main focuses are e-commerce, advertising, consumer electronics, cloud computing, and digital streaming.

In this article, we will look into the multidirectional strategy that makes Amazon so successful, and see that the same steps can be used by other companies across industries.

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How Amazon services set the ecosystem in motion

Amazon is a typical multidirectional digital ecosystem. It runs businesses in multiple industries, which generates huge profits, reduces risks, and helps expand into new market segments. Essential services are accessed through one subscription, bringing users an uninterrupted experience and helping Amazon forge a stronger customer relationship.

Amazon has a far-reaching ecosystem of digital services: its offerings range from groceries and medication to movies and cloud computing. The company has been actively expanding into new market segments by numerous mergers and acquisitions, as well as launching private label subsidiaries.

In 2022, it ranked first among companies with the largest market capitalization, leaving behind the Chinese e-commerce giant Alibaba. And by revenue, Amazon was second only to Saudi Aramco, and Walmart, another retailer that develops its own digital ecosystem.

Within its businesses, Amazon singles out online and physical stores, third-party seller services, Amazon Web Services, and subscriptions. Let’s take a closer look at each category and see how they coexist and support each other in Amazon’s ecosystem.

Online stores and marketplaces are the core of the ecosystem

Historically, online stores and marketplaces have been driving most of Amazon’s sales. In 2022, they brought the company $220 billion.

Amazon started out in 1994 as an online bookshop but was never meant to develop only as a retailer. Having a wide variety of goods and lower prices as its main competitive advantage over physical stores, it quickly picked up steam, grew to 1.5 million customers by 1997, and got big enough to challenge Barnes & Noble.

Next, it expanded its offerings to more products: music, videos, and CDs. Having grown even bigger, it eventually opened its online platform to third-party merchants in the year 2000. Instead of competing with other businesses, Amazon was now charging them for selling their goods on its marketplace, and benefiting from the new customers they brought in. One year after opening its ecosystem for third-parties, Amazon reached 25 million customers and grew its sales by 13% to $3.12 billion.

With time, Amazon launched new platforms for different varieties of goods and services. Now, it runs marketplaces of business bulk shopping, pre-used goods and devices, handmade produce, apps, and home service contractors.

It also acquires third-party businesses, expanding into new product categories and geographical areas. In 2017, it made a decisive stride into the Middle Eastern market by acquiring Souq.com, the largest e-commerce platform in the Arab world.

Together with e-commerce, it develops offline locations, a strategy which helps keep afloat during fluctuating times. During the pandemic, the Amazon Marketplace experienced its highest sales rates, making over $222 billion in net revenue. Now, in 2023, the company expects the opposite trend to take over and is getting ready to go big on physical stores.

Third-party seller services drive marketplace sales and work as a standalone business

Amazon hosts almost 2 million small and medium businesses that provide 59% of its overall online sales. Greater assortment drives user activity and results in bigger revenues. Knowing that, Amazon encourages merchants and creators to place their produce on its platforms by providing them with supporting services.

For marketplace sellers, it takes care of delivery, offers logistics, analytics, marketing, and advertising tools. Amazon also runs programs that help creators sell their content on Twitch and in the Kindle Store. In both cases, it takes a fixed fee per sold unit and benefits from the increased online sales.

Providing third-party seller services works as a standalone business. In 2022, such services earned the company $117 billion, becoming the second most-profitable source of income for Amazon.

Amazon third-party seller services

Advanced tech optimizes Amazon workflow and helps access new markets

Its third most profitable business, Amazon Web Services, appeared as a result of Amazon’s shift to cloud services. With time, Amazon turned AWS into a separate stream of income.

Today, it dominates the global cloud market and offers over 200 products and services on its marketplace. It provides compute, storage, database, analytics, artificial intelligence and machine learning tools that power industries from education and government to energy and hospitality.

Amazon invests in artificial intelligence and robotics to cut its costs and improve internal operations. It uses its own AI-powered recommendation engine to study users’ preferences and personalize their experience on amazon.com, and creates software and machinery to optimize the workflow in its fulfillment centers. For example, using Amazon Robotics systems in its warehouses.

It also develops consumer electronics and technology to pair with it. Its most popular digital solution is the voice assistant Amazon Alexa, which powers Amazon Echo devices and works as another customer touchpoint.

Alexa helps users manage their daily lives and promotes other Amazon products. It keeps shopping lists and places orders on amazon.com, plays audiobooks and podcasts on Audible, and streams Amazon Studios shows on Prime Video. To cover more users, it also works with third-party streaming platforms and devices, following the ecosystem strategy set by Amazon in the very beginning.

Content and subscriptions help acquire and retain customers in Amazon ecosystem

Another pivotal branch of Amazon business is content and subscriptions. Video, audiobook, music, business, and e-book subscription services contributed $35 billion to Amazon net sales in 2022.

Amazon subscriptions

Its most popular offering, Amazon Prime, helps the company engage more users and works as the ultimate client touchpoint. It introduces users to several Amazon ecosystem services at once: Amazon Music, Prime Video, Reading, Gaming, and Photos, as well as bonuses like faster deliveries and exclusive deals on the Amazon Marketplace.

By offering multiple services and benefits in one package, it hooks customers on its digital ecosystem and takes over almost all aspects of their online experience. In 2021, Amazon Prime had over 172 million users in the U.S. and over 200 million users worldwide.

Amazon Prime Video is another customer touchpoint that drives users to the ecosystem. In 2022, it featured the first season of The Lord of the Rings: The Rings of Power, that reached over 100 million viewers and resulted in new Prime sign-ups.

Prime Video hosts popular movies and TV shows from other providers and offers content by Amazon Studios, its own private-label production company. To expand its movie library and compete with other streaming services, Amazon bought Metro-Goldwyn-Mayer, the legendary studio behind the Rocky and James Bond franchises. Now, its content will be available on Prime Video, attracting more viewers to the streaming platform and, eventually, to the whole ecosystem.

Key takeaways

Amazon uses an ecosystem approach to keep expanding into new sectors and stand against competition. It launches supporting services and buys off prospective companies to cover more market segments and reach new customers. It keeps the customers within its ecosystem by consolidating multiple ecosystem services and useful deals in one convenient subscription. And drives profits from its extensive network of businesses.

“The same steps can be made by any other business in any industry. If you are interested in using ecosystem strategies, our team is here to help. Try our guide to map out the process, or schedule a call to work out the specifics of your case.”

George Petersen
Head of Business Development at HeyInnovations
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