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Amazon Instant Video - BUSINESS MODEL:
Amazon Instant Video is an example of a
: VoD streaming is offered free as a complementary to a different product or service, serving as an incentive and creating opportunities for more lucrative cross-sell and up-sell opportunities. Amazon Prime customers, who are subscribers for a yearly fee to free delivery of products, are offered VoD service for free as part of the package. The VoD service attracts customers to Amazon store, where they can purchase the content which is not available for free, as well as other products from Amazon.
HISTORY – The exemplar firm and others:
In 2011 Amazon rebranded its already existing video-on-demand service as Amazon Instant Video, service is a free addition to Amazon Prime program. Currently it is estimated that Amazon Prime accounts for more than 20 million members. Amazon Instant Video streaming accounted for 2% of shows streamed in Q1 2013.
Video on demand industry is a crowded one, with multiple players and business models. Players in the industry compete on price, exclusivity and range of content, user experience in terms of personalization and compatibility with different devices. Some of the large competitors include Hulu, which uses a hybrid business model partly based on advertising revenues, and Netflix (over 40 million subscribers, the largest video on demand streaming company proving advertising-free service in exchange for fee).
CUSTOMERS - who are they:
In this business model customer is understood in a wide sense: the user of the Amazon Instant Video streaming service is a customer for Amazon retail business.
ENGAGEMENT – value creation proposition (including network effects):
Amazon Prime members enjoy free two days shipping on millions of items with their purchase, unlimited instant streaming of thousands of movies and TV shows, and a Kindle book to borrow for free each month. Thus Amazon
Prime creates value for customers by enabling them to receive both the Prime benefits for its other services and the online streaming service. The bundled service can encourages loyalty to the Amazon sales platform through faster and free delivery. Therefore the fee of instant video and delivery perks are mutual capture mechanism that creates commitment to both Amazon products. An Amazon Instant Video viewer also has an incentive to purchase products off Amazon. In summary although Amazon Prime offers a smaller movie library and cannot be played on some mobile devices, it offers a streaming and Prime service for a monthly price lower than Netflix; at
6.58$ per month as opposed to 7.99$.
DELIVERY - the value chain:
Amazon licenses content from broadcast network, cable network providers. The technology used to stream the content is based on Flash, which constraints the devices capable of streaming the service, as iOS and iPads do not support Flash. The player still runs with TVs, PCs, and Bluray players. It delivers the quality video comparable to Hulu and Netflix (720p).
In 2010 Amazon has established a division for development of original content, which has recently started developing video content as well. The company is planning to take intelligent approach to content development, taking into account several types of viewer feedback, including online surveys, offline focus groups and viewer behaviour.
MONETIZATION – value capture
The company captures value by charging an annual subscription fee of 79$ per year.
Written by Tatiana Mikhalkina under the direction of Prof Charles Baden-Fuller, Cass Business School, City University London (c) 2014; support of Building Better Business Models funded by EPSRC (EP/K039695/1) and partners gratefully acknowledged. Reproduction only with permission.