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Amazon’s Business Model Innovation | The Discipline of Innovation

Amazon’s Business Model Innovation

I thought I’d experiment with a video blog entry. I’ve got no editing software here, so everything was straight to tape. Well, straight to bits. Anyway, if it seems to work ok I’ll scale it up! It runs for five minutes.

Amazon & Business Model Design from Tim Kastelle on Vimeo.

To summarise my main point: the business model for amazon.com did not become profitable until they were doing all three functions necessary in an information-based industry: Aggregate, Filter & Connect. Yesterday I talked about the importance of filtering in scientific publishing business models – but for amazon, the key function is connecting. In particular, the killer app for amazon is their relational database – this allows them to connect related items for people. Amazon was always good at aggregating, and they’ve tried a few different filtering methods, which have all been reasonably effective. But it was only when they added connecting that their business model took off.

About Tim Kastelle

Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

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12 Responses to Amazon’s Business Model Innovation

  1. Anders 15 January 2010 at 9:20 am #

    Great video!
    Could filtering become more important than the books that are being sold?

    What if Amazon could take filtering and connecting a few steps further and integrate it with social media? What if I could use different filtering mechanisms for different things. If buying business literature, perhaps I want to use reviews from my LinkedIn network or if I’m buying a travel guide I want to use reviews from contacts at Facebook. What if there was an indication when I was looking for the travel guide on which contacts on Facebook that has been there and potentially have uploaded photos, rated a hotel and found a great restaurant?
    When I write a review, indicating that I’ve read a book, what if I got to know who in any of my social networks also read the book, to discuss the book with?

    Would people be willing to pay for customized filters and other services? Or could other platforms such as Facebook be willing to pay for the Amazon data to provide their users with the information?

  2. Tim 15 January 2010 at 9:33 am #

    I think that’s an excellent point Anders! The thing that got me thinking along these lines in the first place was the idea that filtering was actually the best way to make money on the web, and I still think that’s true.

    Social filtering like you’re talking about is going to be very important, I think. There was an article about that in Wired last year – I can’t find it in their archives at the moment, but the idea that social filtering will eventually beat out algorithmic filtering seems to be pretty hot these days.

    In any case, I think that you’re definitely on the right track – to me, filtering is where the money will be.

  3. Phillip Long 15 January 2010 at 6:18 pm #

    This seemed to more than “work”. It was great! It reminded me of some of the other engaging vblogs that I’ve seen online. You have a knack for this and the use of the simple props made it seem ‘real’ and personal.

    While it’s not the opus on filter, aggregate, connect I can see you’re leading up to it. Don’t let it slip away!

  4. Tim 15 January 2010 at 7:38 pm #

    Thanks for the feedback Phil! I’ve got a bigger plan for A,F & C – I’m just slowly working my way up to it. I’ll probably talk to you about it offline at some point…

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