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The Top of the Iceberg January 7, 2013

Posted by bobv451 in business, e-books, ideas, VIPub, web & computers, writing.
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A lot of electrons zip around about how Amazon might really screw VIPub authors by taking a bigger cut of the pie on ebook and CreateSpace sales. A few percent would go a long way toward boosting AMZN revenue, but I don’t think it is going to happen. Why not? Amazon’s business model is unlike anything we’ve ever seen.

Giving away razors to get users to buy razor blades is a tried and true method that has migrated to the e-realm, but this isn’t exactly what AMZN does, though it appears to with the Kindle. Frankly, it doesn’t care what VIPub authors do with their books as long as it drives traffic to the site.. Most of AMZN revenue comes from the obvious. Most profit comes from the part of the iceberg we don’t see.

Low-margined items draw in the people, and their rental of this digital platform is where the immensely high margin delivers the $$$. The more who flock to buy, the greater the value of their digital services.

That’s the beginning. AMZN’s Web Services rent capacity to other business (ie Netflix–and over 300 of the S&P 500 companies). Monetizing this excess web service gives a profit margin pretty close to 100%. Breaking even on the sales of physical products is good enough since new sellers flock to use AMZN computers more and more (financing the expansion of the server farms) and cloud services to major corporations costs almost zero extra.

AMZN wants to drive lots and lots of commercial traffic to Amazon.com so it can expand its servers and lease out the excess capacity for big bucks at little or no added cost to AMZN. Hey don’t survive selling widgets (or e-books). They survive in the cloud.

It’s a different business model and is working. Sales drop at AMZN? Doesn’t matter since this revenue doesn’t contribute that much to the profits. What is AWS doing? That is what we should all look at.

So, want to drive more traffic to Amazon? Support VIPub authors? Click here.

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