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Strategy and Transformation

Amazon’s New Business Model

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How did Amazon get its start? The business model originally focused on selling books. Then Amazon moved into general retailing, where it experienced rapid growth and success. Now it is moving in new directions that play to its software strengths – content distribution and creation.

Technically, Amazon has always been a content distributor. Authors wrote books and Amazon sold and shipped them. Manufacturers created products and Amazon sold and shipped them. The difference between then and now is that the content is becoming increasingly digital. Digital content distribution is a low-cost business, where the only marginal cost added for a sale is the cost of bandwidth to allow the user to download it. Artists and record labels produce music and Amazon sells and distributes it for a low cost to consumers. Authors and publishers create books and Amazon makes it available for download and purchase. The Kindle follows the original iPod business model – sell the technology to consumers at an affordable price and make money off of content. The new Amazon Kindle Fire tablet takes that business model forward even further; content is no longer limited to e-books and now includes music, video and applications.
So what’s next? Well, take a look at some of these prices and tell me what’s wrong here:

In this case, the book costs the same as the Kindle e-book. Despite the costs of printing, binding and creating a physical product the prices are the same. If you opt to buy a new book from a reseller or buy a used book, the e-book is more expensive! Why is that? Check out the Kindle e-book price – this price was set by the publisher. Because of this, Amazon’s next move is into content creation. There have been several notable authors this year who have decided to publish through Amazon rather than a traditional publisher.

In some cases it could be about the money (a deal with former TV star Penny Marshall was reportedly for $800,000 according to theNew York Times), but in many cases it seems to be mostly about getting past some of the legacy processes that are typical with traditional publishers, and expanding the potential market for a book.

Authors have the ability to self-publish and sell through Amazon as a Kindle e-book and keep 70% of the profits, or they can use Amazon as a traditional publisher and market their books as both physical and e-books. New York Times bestselling author Barry Eisler chose Amazon over a traditional publisher because contracts were drawn up immediately, the books could be distributed more quickly (both in e-book and paperback form) and he got to keep a higher percentage of the profits.
Amazon is continuing to play on their strengths and disrupting the traditional models of doing business. Amazon’s focus is on creating value for their suppliers and customers and they’re doing very well for it.
Publishers: What are you doing while Amazon eats your lunch? – on GigaOM
Amazon to book publishers: Welcome to the jungle, baby – on GigaOM 

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