Amazon Instant Video

Product Model






Amazon Instant Video is an example of a product business model: Video on Demand (VoD) streaming is offered for a subscription fee. It is important to note that Amazon Instant Video forms just one part of Amazon’s portfolio of business models, which include the Amazon Prime product (free shipping, free VoD, and other benefits in return for an annual subscription fee), the Amazon Cloud Services product wherein Amazon charges other companies for the use of its servers, and the Amazon marketplace which connects buyers and sellers and charges a transaction fee. This write-up will focus on the Amazon Instant Video as a stand-alone business model, which is consistent with Amazon’s current policy of offering it as a stand-alone product. Amazon Instant Video serves as an incentive to join Amazon Prime, creating cross-sell and up-sell opportunities.

HISTORY - THE EXEMPLAR FIRM AND OTHERS

In 2011 Amazon rebranded its already existing video-on-demand service as Amazon Instant Video, and offered it as a stand-alone product for a monthly fee, or as part of the suite of benefits for joining the Amazon Prime membership program. Currently it is estimated that Amazon Prime has more than 20 million members. Amazon Instant Video streaming accounted for 2% of shows streamed in Q1 2013. The VoD industry contains multiple large players and business models. Firms in the industry compete on price, exclusivity and range of content, and user experience in terms of personalization and compatibility with different devices. Some of the large competitors include Hulu, which uses a platform business model partly based on advertising revenues, and Netflix, which has over 40 million subscribers and is the largest VoD streaming company proving advertising-free service in exchange for a subscription fee.

CUSTOMERS - WHO THEY ARE

In this business model the customer is understood to be individuals who have access to the internet, particularly through a personal device such as a laptop or tablet for whom VoD would be an attractive entertainment option. Many Amazon Instant Video customers are also customers of other Amazon products like Amazon Prime membership.

ENGAGEMENT - VALUE CREATION PROPOSITION

Amazon Instant Video subscribers enjoy unlimited instant streaming of thousands of movies and TV shows. To compensate for a smaller movie library and limited compatibility with some mobile devices, Amazon Instant Video is priced lower than its largest competitor, Netflix, at $6.58 per month compared to Netflix’s $7.99. Video steaming quality is comparable to Hulu and Netflix.

DELIVERY - THE VALUE CHAIN

Amazon licenses content from broadcast and cable network providers as well as film studios and distribution companies. The technology used to stream the content is based on Flash, which is not supported by some devices like those running iOS. In 2010 Amazon established a division for development of original content, which has recently started developing video content as well. The company is planning to take into account viewer feedback and viewing habits to develop content that it feels confident will appeal to a wide range of viewers.

MONETIZATION - VALUE CAPTURE

The Amazon Instant Video model captures value by charging a monthly subscription fee.

Disclaimer:

Written by Tatiana Mikhalkina and edited by James Knuckles under the direction of Prof Charles Baden-Fuller, Cass Business School, this case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions.



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