Factors driving business model adaptation to multi-sided platform reality by global retail industry: case of Amazon

- Easier entrance to other countries

Digital revolution enables platforms to disrupt many industries simultaneously. But consideration of global platforms presence, or whether it makes internationalization for companies with platform business models easier, is a gap of knowledge as still little is known about this fact. According to Stallkamp and Schotter research (Stallkamp, M., Schotter, A., 2019) whether it easier for platforms to become global depends on the presence of country-external network effects. If, for example, platform creates such a user base, consisting of several sides of participants, that makes increase of user base valuable for every user in the world it could ease the process of becoming present in several countries. This is the case for social network platforms, where increase in both: users of this platform by people in your country and by people in other countries make it for valuable you.

- Consumer Lock-in is Created with Horizontal Integration

Multisided platforms have an ability to lock in their consumers as they are able to provide access to lots of services through one (its own) channel. When a platform offer large amount of digital services, there is no need for consumers to use something else, because it is more convenient to use one channel, for example Amazon, where consumers are able not only to shop online for any retail products they want, but also get some recommendations, and even have an access to video and music content. (Hдnninem, Mitronen, Smedlund, 2017).

- Loyalty Programs and Social Features Facilitate Consumer Value

As platforms usually cover several services simultaneously, they create some loyalty programs for all their services, stimulating customers to concentrate all their purchases on one platform. And as it is really convenient for customers, it generates additional value for them. Besides the convenience, platforms aim to generate rich user experience and facilitating social interactions between other anonymous platform participants. For example, when a user switch from the customer role to content/information creator. (Hдnninem, Mitronen, Smedlund, 2017).

- Higher level of scalability

Multisided platforms are not a new phenomenon if we consider supermarkets or fairs. But advantages of such platforms, such as network effect and many others are even more present and noticeable under the presence of digitality in multisided platform. High level of scaling is a characteristic feature for digital platforms because additional computing capacity is not a technical obstacle and platform is able to adapt to demand changes really quick. Moreover, for digital platform geographical boundaries do not exist. (Engelhardt, Wangler, Wischmann, 2017).

- Higher level of data analyses

Data is one of the most important factors to be monitored for digital platforms as well as for another digital market. High amounts of interactions from both demand and supply side allow platforms to gather and analyze huge amount of information. This advantages platforms in a way of understanding what products and services are needed by consumers, ability to transform products and services under changing requirements, ability to control products offered through the platform, opportunity to develop and improve business models. As a result, platform businesses can create greater value for its users and generate greater profits. (Engelhardt, Wangler, Wischmann, 2017).

- Lower transaction costs

The amount of transaction costs is an important factor influencing on the decision making in every business. The lower transaction costs are, the higher the amount of business transactions. Technological progress is widely used by platforms to reduce transaction costs which allows to increase a number of business transactions and, as a result, changes existing market relationships. (Engelhardt, Wangler, Wischmann, 2017).

- Positive indirect network effect

Platform could be considered as a central player on the multisided market with positive indirect network effects. The higher amount of participants on the one side of the platform increases value for the other side and vice versa. (Engelhardt, Wangler, Wischmann, 2017).

- Spillover effect ( “impact of seemingly unrelated events” (Investopedia, 2019))

Platforms bring in more transparency and information availability where it was not enough. For example, Uber, due to its technological algorithms, can optimize company's processes because the information about driver's location is transparent. While rating system allows to evaluate drivers and make matches more efficient. Moreover, prolonged interaction between the platform and its users lead to more efficient pricing of services offered by the intermediary.

In or work we try to determine factors that drive traditional retail companies to adapt their business models to a new platform form of business model as lots of companies appeared in recent years using platform business model shows very good market and financial results. They are in the top of the list of companies with the highest revenue, highest market value and consumer recondition. It is always interesting to understand what factors stand beyond their success. But, it is always useful to consider the situation from the other side of a medal. When digital platforms had their rise about a decade ago, it seemed that their possibilities were endless. But, today, as the field of digital platforms has developed and become more complex, we can notice a rise of several problems that companies trying to manage platform or adopting their business model to a platform one could face. These challenges are as follows:

- Regulatory constrains: here two concerns are mainly could be attributed. Antitrust regulations and data restrictions. Platforms are very fast in their growth. The most dominant platform players are so big and participate in so many markets simultaneously that attract lots of attention from government regulators concerning antitrust restrictions and competition policies. That facts should be considered in platforms strategies. What else should platform consider is data-driven regulations. As platforms acquire lots of data about its users, platforms future strategies should take into consideration future government restrictions on data acquisition, data transparency and data accuracy, that can in the future increase costs of obtaining data. Data concerns for platform sometimes also include gaining consumer trust to be able to get the data from consumers. The fact of constrains for platforms businesses from legal authorities could be proven by regulations that are already anticipated (For example: Uber is completely banned by governments of Turkey, and partially banned in such countries as France, Italy, Netherlands and some others due to constitution of “unfair business”. So, governments of those countries are trying to protect existing market players. The same regulatory restrictions are attributed to Airbnb in Russia by “Hostel Law” initiated in October 2019, that put some restrictions on the Airbnb activities. In 2017, Dynamic Coalition on Platform Responsibility initiated inspection that would analyze platforms contributions and responsibilities in concern to human rights.).

- Chicken and egg problem: sometimes indirect network effects could become negative. Platforms as a newcomers face the following strategic problem: platform becomes attractive for a one side of users only when another side of users is present on it and vice versa. As a result, owners of platforms usually face chicken-and-egg problem, which implies that the platform needs to “attract large base of producers and consumers simultaneously, as the value for this user base is based on their mutual interaction”. (Tiwana, 2014).

- Principal-agent problem: this problem is present in any situation where asymmetric information is present and where sides seek for their benefit. The principal-agent problem could be expressed in several ways for the platforms. One of them is disintermediation, or the situation when platform participants first find their match with a help of the platform, but after that bypass the platform and contact directly for example to avoid participation fees. Some of such users sometimes even start their own business based on platform user-base. Usually platforms are successful in overcoming principal-agent problem by offering additional value for users with supplementary services or by eliminating ability of participants to communicate directly without an intermediary.

- Multi- home problem: this problem arises when there are several platforms that offer quite similar services on the same market. And if costs of participation in additional platform are low, usually users can use several of them simultaneously. Multi-homing could be present for both sided of users: consumers and producers. Usually, platforms overcome this problem by successfully locking one side of a platform's participants.

The literature review of existing researches on the topic and market analyses lead to conclusion that general factors that drives traditional companies to adapt their business models to a new reality of platforms are the same for retail industry adaptation. Actually, all the factors mentioned above are present in all industries, while their intensity is more present in some industries and less present in others. But there is one factor which is quite specific for retail industry, as retail industry deals with inventory in a form of physical products:

- Transfer of inventory risks from a retailor (platform) to a supplier

A multisided platform as a business model changes completely the nature of retail industry as MSBMs matches consumers with independent suppliers or, in other words, with marketplace. As a result, a platform company represents an intermediary between customers and suppliers, and transfers inventory risks from a retailor to a supplier. (Teller et al. 2008; Teller & Elms 2010; Teller et al. 2016).

Chapter 2. Analytical part

2.1 Retail industry outlook: trends and relevance of participation in digital platforms

Over the last two decades, the fourth worldwide revolution, known as digitalization, have had a considerable impact on lots of industries. In our work we focus on the retail industry. More precisely, we focus on a multisided platform as a new way of building business model as the answer to digitalization and fast and constantly changes in consumer preferences requirements satisfaction. Multisided platforms are relevant in the retail industry as, considering quite changing environment of the industry and consumer requirements, this type of business model allows to adapt quick and easy, while creating interactions between consumers and suppliers from all over the world within a platform ecosystem support.

The retail industry is more and more often moved online nowadays. E-commerce share of total retail accounted for only 7.4% five years ago, while it accounts for around 14% for the year 2019, which almost two times higher. (Picture 5, Statista, 2020). That is why existing retail business models face higher competition and greater consumer requirements. New business models, such as multisided platforms, use digitalization and fast changing consumer preferences as an advantage, as they are able to gather information about it. That is why it is quite challenging for existing business models to compete with new ones. Examples of companies using platforms in retail are Alibaba Group - multisided platform without any own inventory recourses, or Amazon.com - hybrid platform combining its own recourses and independent suppliers. A multisided platform as a business model changes completely the nature of retail industry as MSBMs matches consumers with independent suppliers or, in other words, with marketplace. As a result, a platform company represents an intermediary between customers and suppliers, and transfers inventory risks from a retailor to a supplier. As it could be seen from the example of Amazon.com, the company does not sell its own inventory stocks, but it controls its retail suppliers network. As a result, in contrast to traditional retailers that sell their own inventory stocks and take a burden of inventory risks by themselves, multisided markets behave in the same way to shopping centers or retail agglomerations, that create value by making social interactions with a help of networks. (Teller et al. 2008; Teller & Elms 2010; Teller et al. 2016).

Picture 5: E-commerce share of total global retail sales from 2015 to 2023.

Source: Statista, 2020.

The topic of multisided platforms in the retail is very interesting, because traditionally in retail industry companies coordinate their activates and recourses by themselves, not with the help of platforms. In the reality of platforms, consumers are the main value, as platforms don't usually have their own physical capital such as inventory or real-estate. Platforms advantages consumers in a way of convenience and wide variety. With a help of a platform, consumers are able to get access to thousands or even millions of different suppliers - it is impossible for even huge traditional retail companies. It is also more profitable to sell so called “long-tail” inventory through the platform - inventory with high inventory risks.

It also could be added that the fact that giant retailers as Walmart still face technological change implementations brought by companies such as Amazon means that it is more than relevant for retail companies to participate in digital platforms (Blitz, 2016).

Recent studies (Barљauskas et al., 2008) also prove the relevance of participation in digital platforms by retailers. As e-commerce adoption has a positive effect on business results, especially in such areas as cost of material ordering process, average inventory level & average cost of inventory keeping, process of search and identification of suppliers and supplier competition level.

Relevance of participation in platforms is increasing not only by the presence in different industries, but also by the presence in different countries. For example, almost 200 different platforms are operation in European Union according to the statistics as for the year 2017. (Picture 6, European Comission,2017).

Picture 6: Number of Platforms Operating in The EU per Country of Origin.

Source: European Commission, 2017.

As for today, the biggest retail players all over the world are still offline retailers. But ecommerce share globaly and by countries is growing by very huge steps, according to the statistical data, mentioned above. Considering main e-commerce retail players worldwide, according to the statistics of Similar Web, top three are Amazon, eBay and Rakuten - all of them are platforms. (Similar Web, 2020). According to Euromonitor, Amazon, eBay and Alibaba together accounts for around 65% of all e-commerce cross-borders purchases. (Picture 7, Euromonitor, 2016). The world map below shows five key e-commerce retailers with their regional focuses. What is worth to notice that all of them either platforms or players who partially implemented some key platform features.

Picture 7:Five Key E-retailers in North America, Latin America, Australia, New Zealand, Europe and Asia.

Source: Euromonitor, 2017.

2.2 Case study of Amazon company: presence of factors driving traditional BM adaptation to MSP BM

Over the last twenty years retail industry landscape has been significantly changing. Mainly because of the dot.com boom and spread of the internet - the fourth digital revolution. Despite the fact that traditional brick and mortal businesses are still dominates the retail industry in terms of geographical coverage presence (number of stores), revenue and in terms of share of total retail sector revenue, e-commerce business models are leaders in terms of sales growth. (Table 4, Deloitte, 2020). E-commerce share of global retail industry is growing by enormously fast steps, accounting for around 13 % share of total retail sales in 2019 and is predicted to account for 22 % by the year 2023. (Picture 9, Statista, 2020). And most of e-commerce sales fall on companies using digital platforms as a business model. (Picture 8, Forbes, 2019). E-commerce relevance could be explained by the fact that it is a transformation time for retail.

Picture 8:Top 5 ranked world ecommerce retailers.

Source: Top 5 Online Retailers: 'Electronics And Media' Is The Star Of E-commerce Worldwide, Forbes, May 2019

Trends and changes in retail are driven by consumer changing preferences and requirement secured by technological development which allows consumers to shop wherever, whenever and however they want. Clients constantly remain connected and, what is more, they are more than ever demanding, as there is a huge scope of opportunities to meet their shopping behavior requirements nowadays. As players of the retail industry starting to realize this fact, they try to combine old brick and mortal stores with new internet based platform to meet all diverse consumers requirements. Those who did not understand that the era of transformation is in its prime, are forced to shut down. According to Deloitte research 2018, USA became a leader in a number of brick and mortal stores shut downs, it accounted for 6885 shut downs in 2017. According to the research, the reason for that is that consumer spendings move from offline to online and companies leave open only the most profitable and efficient spots.

Picture 9: E-commerce share of total global retail sales from 2015 to 2023.

Source: Statista 2020

However, there are lots of e-commerce players who have become successful marketplaces only by the online presence. The first online platform marketplace, which, by the way, was organized in the form of auction, was eBay, but the biggest e-commerce player and the most well-known platform nowadays is Amazon.

Amazon is known as one of the hugest world companies, selling all kinds of goods and services via the Internet. Being launched in America in 1994 as a book selling online platform, the company is considered as a leader in online consumer goods sailing nowadays. The history of the company began in the garage of Jeff Bezos, who always wanted to create “an everything store”. After he read the article about Internet usage growth rate in Forbes, which was amounted for 2300%, there was no doubt for him that e-commerce would be the next huge step in the development of internet business. Starting with selling of books only, company than diversified its product portfolio to CD disks and video-products.

Table 4:Top 10 players of retail market FY 2018.

Source: Global Powers of Retailing, Deloitte, 2020.

Nowadays company offers the following line of products and services:

- Amazon.com - the hugest online marketplace connecting suppliers and buyers even from different parts of the world. A lot wider variety of products is present on the marketplace nowadays. Buyers can search for/ investigate characteristics/buy following categories of products:

· Books

· Camera & Photo

· Computer and Video Games

· DVDs*

· Electronics

· Grocery

· Health & Personal Care

· Home & Garden (including Pets)

· Music*

· Musical Instruments

· Office Products

· Personal Computers

· Pet Supplies

· Software

· Sporting Goods

· Tools and Hardware

· Toys & Games

· Videos*

· Video Games

· Baby Products

This marketplace also provide creative consumer journey for its clients, including 24/7 customer service, tracking of a package, estimation of import fees, secure payment, shopping in more than 60 currencies and in eight languages.

- Amazon Web Services - the most widely deployed cloud platform in the world with the broadest capabilities, providing more than 175 full-featured services for data centers around the planet. Examples of some of them are as follows:

· Analytics

· Application integration

· AR & VR

· AWS cost management

· Business applications

· Developer tools

· Machine learning

· Storage

· Robotics

· Security, identity & compliance

· Satellite

· Media services

· Migration & transfer

· Quantum technologies

Moreover, AWS provides AWS Marketplace - a digital catalog with thousands of software listings from independent software vendors.

- Prime Video - a video streaming service available for members of Amazon

Prime. It provides access to thousands of video content, including movies and TV series of different genres without any additional costs incurred. Here customers can watch best-awarded, most popular or even Amazon Original Movies, brought to them by Amazon Studios. Additional fees allows to get access (buying or renting) to a wider choice and subscribe to customers' favorite channels and shows.

- Amazon Music - the same as Prime Video but with music streaming services; provides access to thousands of stations and playlists, allows customer to listen to music offline and to listen “hands-free” with a help of Alexa.

- Fire Tablets, Kindle E-readers, Fire TV engineered by Amazon

- Echo and Alexa - new AI developments from Amazon. Echo device is a smart speaker connecting to the voice-controlled intelligent personal assistant service named Alexa, which will answer to customers when they pronounce its name. Alexa can maintain a conversation, answer questions based on data analysis on the Internet, look up information on the Internet (for example, weather or traffic jams), play the selected music or video, or even set an alarm, remind you of an important event or help you to make a to-do list. It can also control several smart devices, acting as a home automation hub.

The ability of the founder of Amazon, Jeff Bezos, to foresee the right direction for the development of the company and the diversification of the product line have led the bookstore, which began its activities in the garage, to be the most successful online retail platform in America and one of the leaders in the world. To make sure of this, let's look at the company in the numbers provided by 2020 statistics. Amazon is the top leader in the most popular apps for shopping in United States with around 150.6 millions of users accessing this app in September 2019 according to Statista. (Statista, 2019). The company now accounts for 150 million Prime (Amazon loyalty program) subscribers globally. Brand value of Amazon in 2019 constituted 315.51 billions of US dollars, that is higher than the brand value of Apple or Google. (Statista, 2019). 89% of customers prefer to buy online from Amazon rather than other e-com websites. (Freedvisor, 2019). Almost 200 thousands of products are available on the amazon.com as of April 2019. (Scrapehero, 2019). The company sells on average 4000 items per minute. (Amazon, 2019). Number of suppliers for Amazon accounts for more that 2.5 millions. (Marketplacepulse, 2019). Net sales of the company in 2019 were about 280.5 billions USD, while met income was about 11.59 billions USD. (Statista, 2019).

But Amazon's history started like a pipeline business model. The company established amazon.com as the online shop, but it managed sourcing of products, inventory and selling of products down buy itself. So, the company took traditional linear pipeline BM and brought it from offline to online. The first step of the company towards platform BM was introduction of “reviews” feature. By that Amazon created consumer value creation by producers as reviews could be created by customers and consumed by other customers. Introduction of reviews plays the role of magnet, attracting both producers and consumers on board on the one hand, and as a toolbox which provide interaction between these two segments on the other hand. By this moment, company's main business model still was a pipeline, but with elements of platform. The next step of the company towards platform business model was introduction of “Users who liked this also liked this…” feature. To introduce this feature, Amazon used data about consumer usage. And, as a result, the company got matchmaker tool with better collaborative filtering. The greater the amount of users, the more accurate filtering becomes - so called network effect of data which does not exist in traditional pipeline model. The final step of company's business model transformation from a pipeline to a platform structure happened when Amazon introduced Amazon Marketplace which provide external suppliers to sell their goods via Amazon platform. The company continued to be a producer itself, but it also allowed other producers to make transactions on its marketplace.

For a better understanding of a platform structure of BM and how this structure creates value, let us consider Amazon BM by Osterwalder BM framework:

Table 5: Amazon Business Mosel Canvas.

Value Proposition: for such a big company with wide diverse range of products such as Amazon, there are more than one value propositions. As company serves different goals for different consumer segments.	At first, company focused on providing as wide as possible choice by the lower possible market price. Now Amazon's mission is: “to be Earth's most customer-centric company, where customers can find and discover anything they might want to by online and endeavors to offer its customers the lowest possible price”. Value proposition of the company by products: Prime - buy online anything customer want with the quickest delivery, with additional value propositions in forms of music and video Marketplace - greater match possible due to customer data analyses, reviews, recommendations, etc. give an opportunity to sell better and sell more. Kindle - easy-to-use device that allow customers to read wherever they want AWS - remote computing infrastructure services that prodive security, flexibility, agility and elasticity Alexa & Echo - voice assistant that makes customers' life easier and provides an opportunity for developer as a new platform
Customer relationship:	Automated self-service; provides 24/7 customer support; easy-to use interface; customer-centric strategy: “ensure your customers get their money worth, give them reasons to return and provide the highest quality and most efficient customer service you can” ; loyalty incentives; customers' protection
Customer segment:	Amazon's customers could be segmented by individual leverage, group leverage and global customer market. But all of these categories are segmented by the company by four following characteristics: demographic, situational, psychographic and geographic. Demographic segmentation: here we refer only to people who have an access to the internet; despite the fact that the company is focused on younger generation audience, people in the age between 25-50 belong to the group of online buyers Psychographic segmentation: here we can include people who are in trend of innovations and shift to online lifestyle; what is more, amazon's customer segment values customer-oriented service, it is important for them that the company provides recommendation categories, customer support and loyalty programs Situational segmentation: here we can include buyers who search for convenience in their shopping habits, lucrative deals or lower prices as main drivers Geographical segmentation: the company is present in more than 100 countries, so it is international appeal for customers. Company focuses mainly on developed areas, but covers both urban and rural sectors. For rural areas the use of smartphones is crucial.
Key activities	- Platform that matches suppliers and buyers - Merchandising - Management of supply-chain and logistics - Design and development - Production of smart devices - Production of digital content
Key resources	Physical resources: warehouses, film studios Non-physical resources: technological infrastructure, digital content platforms, cloud infrastructure, largest in the world database
Key partners	Manufacturers of physical goods, third-party sellers, digital content producers, publishers, logistic partners, affiliates
Distribution channels	Main distribution channel of the company is the platform marketplace amazon.com (and 14 different versions of it in different languages for consumers from different countries in five different continents); there is also another amazon's less known marketplace aws.amazon.com; affiliates; smartphone applications
Revenue streams	- Online retail of physical products (main revenue stream) - Commission from retailers using company's marketplace (individual selling plan charges sellers $0.99 for each item sold through the platform in addition to closing fees in a range between $0.45 and $1.35; professional plan includes variable closing fees, $39.99 monthly fee and referral fee of 13% on average) - Selling of digital content like music and video and e-books - Fees from loyalty program subscribers ($12.99 per month) - AWS participation fee (on average $9 per month) - Advertising - Acquisitions and investments - Sales of assets
Cost structure	Amazon's main business- online retail- is cost-driven. The company always tries to minimize costs by economies of scale, lucrative partnership, technological and logistic infrastructure optimization Company's intellectual property is more value-driven rather than cost driven

Source: maid by the author based on the information from the official website of the Amazon company.

It is actually quite indicative to consider the Amazon as an example because it was originally an ordinary store and has become one of the most successful online platforms. Moreover, Amazon is a hybrid platform, that is, after all, it is not 100% digital because it works with physical products, so it's interesting to consider it.

Now we are moving to the analysis of factors. More precise, we would tests the presence of factors analyzed in chapter 1.3 of this master thesis for the Amazon company. Secondary data such as statistics and company's financial performance would be used to analyze presence of factors. The research hypotheses could be formulated as follows:

For each “i” factor:

H₀: “i” factor is present for the Amazon company.

H₁: “i” factor is not present for the Amazon company.

- Higher level of data analyses

Having a platform business model gives a huge opportunity to the Amazon comparing to its competitors using traditional pipeline business model. As all the retail activities of the company based on online sales, the company has an access to the information about consumer behavior on every step of buyers' customer journey. Once customers enter the system and search for products they are interested in, the technological infrastructure of Amazon records the history of searches, categories and products. As a result, the website could recommend customers products they could be also interested in based on the historical information of their purchases and on information about other customers. According to McKinsey & Co, 35 % of Amazon' revenue is generated through behavioral recommendations. (McKinsey & Co, 2017). Despite the fact that Amazon itself does not reveal such information, around 62,3 million USD was added to Amazon's revenue due to its recommendation engine according to McKinsey & Co, and 98,2 millions USD in year 2019 respectively. So, we can conclude, that data analyses is a huge platform advantage that can drive at least partial adaptation from a traditional brick and mortal business model to a platform one. So, H₀ is approved for this factor.

- Transfer of inventory risks from a retailor (platform) to a supplier

To be more precise, Amazon is not pure digital platform, as its main business activity - online retail- includes physical products. And they need to be stored somewhere, so physical assets as storages are also needed. Amazon company has a hybrid business model. It is a platform, but it has both physical (electronics, CDs, printed books, etc.) and digital goods (AWS, e-books, etc.). The online retailers of physical goods such as Amazon can offer much wider variety than its brick and mortal competitors, but also has a limit, because storage facilities also needed to be managed properly to provide on-time delivery.

Picture 10: Three Steps to Infinite Variety.

Source: Anderson, “The Long-Tail: How Endless Choice is Creating Unlimited Demand”, 2010.

Amazon is trying to balance between physical economics (storage and delivery) and digital economics (Internet, that allows to aggregate information about all products that could be available on the marketplace). On the one hand, the company wants to offer as unlimited as possible catalog of products to provide greater choice for their customers. On the other hand, the company wants to optimize and lower supply-chain costs. In contrast, wholly digital platforms, such as iTunes, for example, in theory have an opportunity to widen their range of products as much as possible. As all their products are digital in nature, it means that each product is only a database entry and costs nothing. Products do not need to be delivered in physical sense, and, as a result, delivery costs are also account for nothing.

Let us return to the Amazon company and look closer how the story of company's business model in terms of inventory risks has developed. Amazon, being a hybrid business model, has become such by trying to reduce its costs. According to Chris Anderson, the story was as follows. The first step of company's cost reduction and a BM transformation was a forecast of amazon's founder about e-commerce: it could outperform traditional business model as it offers centralized distribution of merchants and provide a wide online catalog of products, eliminating needs and costs of printing huge amounts of catalogues.

The next step of reduction Amazon's corresponding inventory risks was a launching of Amazon's consignment program. The company asked its suppliers (for that time suppliers were book publishers ) to send products (books) in advance to store them at Amazon's storage facilities and pay a yearly fee of $29.95, plus let the company keep 55% of proceeds. By this actions, the company protect itself from the “products are out of stock” cases. And the next influential step in the direction to even lower inventory costs was the enlargement of existing inventory model by bringing into that model other big existing retailors, whose relationships with different distributors and manufacturers are already very well developed. It was an exchange of competences; Amazon offered its e-commerce technologies and let new partners to do everything concerning inventory. As a result, “Amazon's effective inventory grew by millions of items.” (Picture 10, Anderson, C., 2010). One of the latest steps in BM transformation and lowering inventory risks was openness of Amazon's online retail marketplace to third-party sellers, so not only big retailers but distributors and retailers of any size could sell their products through the company's platform. Here Amazon offers for its suppliers three options:

1) FBA: fulfillment by Amazon, which means that the Amazon company itself cares about the storage, sending to consumer and shipping of inventory provided by a supplier.

2) FBM: fulfillment by merchant, which means that the supplier lists its products on amazon.com, but manages storage, sends products to consumer and ships them by themselves or a third party.

3) Combination of FBA and FBM

The fact of FBM option means that Amazon can increase its inventory and the catalogue of listing offered to customers in enormous amounts without incurring additional inventory risks. Under FBM agreement, Amazon acts as a third party only, so the company transfers all its inventory risks to suppliers. According to the statistical data, over 50% of Amazon products are sold by third-party sellers. (Picture 11, Statista, 2020). 6% of this third-party sellers manage all the inventory by themselves, while 29% of them use a combination of Amazon fulfillment and their own fulfillment. (Picture 12, Jungle Scout, 2020).

Picture 11:Percentage of paid units sold by third-party sellers on Amazon platform as of 1^st quarter 2020.

Source: Statista, 2020.

Picture 12: Percentage of Amazon Sellers by Fulfillment Method.

Source: Jungle Scout, The State of the Amazon Seller, 2020.

For Amazon company, all of the above consideration of inventory risk means the following: 1) total inventory risk transfer for FBM suppliers, 2) partial risk transfer for those sellers who use a combination of FBM and FBA, 3) decrease in inventory risks due to the consignment program, 4) decrease in inventory risks due to the delegation of inventory management to entities with higher skills in it, 5) Amazon, being a hybrid platform and dealing with physical products, is steal convergent to some inventory risks, but in much lower degree comparing to its competitors with traditional BM. Some of steps initiated by Amazon toward lower inventory risks could be also initiated by companies with traditional BM. For example, outsourcing, storage management. But such steps as initiation of marketplace for third-party sellers, which gives the company an opportunity to transfer inventory risks of their products totally and act only as a third-party coordinator is possible only due to platform BM definition. So, H₀ is approved for this factor.

- Easier entrance to other fields

Success of a particular platform always depends on its success in obtaining a huge user base data about interactions of this user base. These kinds of assets are valuable in multiple scenarios and in multiple markets. As a result, when a platform has obtained these assets and has reached a success in one industry, it could easily use these obtained assets and knowledges to succeed in other industries. It is one of the fundamental reasons why such companies as Amazon and Alibaba are present in so many markets simultaneously. Amazon has successfully moved from online retail only to consumer electronics, then to entertainment industry. After that, the company become a huge player in cloud computing decisions and artificial intelligence programs and tools. Amazon is also planning to expand its presence to such industries as pharma, paying systems and organic food. So, H₀ is approved for this factor.

- Easier entrance to other countries

Considering the theoretical bases of that factor mentioned in the theoretical part of the master thesis, let's consider whether easier entrance to other countries is present for the Amazon company. According to the typology of network effects mentioned in the theoretical part, authors of the research distinguish external network effect within a country and external network effect between countries.(Stallkamp, M., Schotter, A., 2019). According to the business specific of Amazon, we could say that for the company external effect within a country is more valuable. For Amazon consumers in USA it is more valuable when there are more sellers of the products from USA in terms of lower shipping costs and faster delivery, rather than when Amazon increase the number of sellers from the other countries. The same situation is present for Amazon users from other countries. That could be one of the key reasons why Amazon is so successful in the USA, and not so successful in other countries. As Amazon users value more external network effect within a country, success of the company in other countries does not affect them much. For them it is more valuable when the company is successful in obtaining wider “other side” of the user base in their country.

Amazon is present in 20 different countries. Main and the most prosperous of the company's markets, besides united states are Germany, United Kingdom, and Japan. But there are others, such as China, where prosperity is prevented by another very successful e-commerce player as Alibaba, or India, where success is slowed by consumers preferences to buy offline. Amazons international strategy for going global is usually the same - acquisition of larger portion of the existing market player in the country to control companies activities.

As it could be seen from the statistical data below(Picture 13 and Picture 14), Amazon has still failed to repeat its USA success in other countries. Not only company's net sales in other countries are much lower, but also there is no significant growth in this revenues over time. So, H₁ is approved for this factor.

Picture 13: Annual net sales of Amazon in selected leading markets from 2015 to 2019 (USD, billions).

Source: Statista, 2020.

- Consumer Lock-in is Created with Horizontal Integration

Usually, such a developed and big players as Amazon are horizontally diversified, which means that besides the main service, companies offers to its customers additional spectrum of different services to be able to provide a comprehensive ecosystem of supplementary value-adding services. Amazon, for example, offers video and music streaming services by the request. By providing a comprehensive portfolio of services for its customers, platforms can provide a seamless digital user experience, because clients can use one digital channel to get access for all services they need. The main reason why consumers “allow” to lock them in, is the fact of convenience of using one digital channel for all the products and services they need. What is more, usually it is a more lucrative deal for consumers. The main reason for companies to develop a comprehensive portfolio of services is to not simply increase but maximize customers' loyalty, that contributes to the fact that platforms belongs to demand-side economies rather than supply-side.

Picture 14:Amazon segment revenue (North America vs International).

Source: Seeking Alpha, 2018.

The case of consumers' lock-in due to a comprehensive portfolio of services offered by the company could be well analyzed by the example of Amazon. According to Consumer Intelligence Research Partners (CIRP, 2019), Amazon's consumer retention rate is near to perfect one. The research found that 93% of Amazon's Prime subscribers (Amazon Prime - loyalty program for customers that offers additional services like video and music streaming, quick delivery and other perks) continue their subscription after one year of usage. What is more, a retention rate accounts for 98% after two years of subscription.

For new users, statistical data implies that 64% of people using trial version of subscription after that convert to a paid membership program. So, after consumers have tried all the perks of comprehensive ecosystem of services, they do not only do not need to, they do not want to use anything else. According to the Statista research on most important factors that drive purchases on Amazon among Amazon buyers as of February 2019, 35% of respondents name Prime eligibility as one of the main factors to do their purchases through the Amazon service. (Picture 15). By Prime eligibility here we mean all the additional services offered to customers, such as free fast shipping of products purchased, video and music streaming, movies and TV shows, exclusive shopping deals, unlimited reading facilities and many more. As a result, we can conclude that consumer lock-in due to the horizontal integration is present for the Amazon. Moreover, it generates huge revenues for the company. As according to the pareto principle, 80% of companies future revenues are generated from 20% existing loyal customers. What is more, according to the Bain & Company research, loyal relationships lead to significant cost savings: a 5% increase in customers' retention leads to 25% profit increase. (Bain & Co, 2001). So, H₀ is approved for this factor.

- Loyalty Programs

Multi-sided platforms usually create additional consumer value by range of additional value-adding offers and services which effect was mentioned in the paragraph above. Nevertheless, loyalty programs are central for ecosystems like Amazon. In fact, Amazon's Prime loyalty program is a service that offers a sample of such additional services. According to the research of Rintamдki (Rintamдki et al, 2007), traditional business models could be considered obsolete because they focus only on one value measurement. While digital platform business models like Amazon are able to create several combinations of value for their customers in a digital form. According to the Statista database, in Q4 of 2019, Amazon has surpassed 150 millions of their Amazon Prime subscribers globally.



Picture15: Most important factors driving purchasing on Amazon among Amazon customers as of February 2019.

Source: Statista, 2020.

While a standard annual Amazon Prime membership accounts for USD119. Number of Amazon Prime members in the United State accounts for 112 millions of users, which means that around 82% of households in USA have Prime membership (CIRP, 2019). What is more, according to the data (Statista, 2020 and CIRP, 2019), average annual amount spent on Amazon by Amazon Prime members accounts for 1400 USD in contrast to 600USD spent annually by non-members of the loyalty program. Total revenue of Amazon generated by subscription services accounts for almost 5% of its total revenue for the year 2019. So, H₀ is approved for this factor.

- Higher level of scalability

Traditional business models reaches their scale by selling larger amounts of product, decreasing costs of production by that. Platforms, in their tern, reach their scale in the sense of shifting their production from inside to outside (third-party producers). As it was already mention in the paragraph dedicated to transfer of inventory risks, this shift of production and, as a result, shift of inventory risks, allows platform to make variety of products/services almost as wide as it even possible. As a range of products/services (or suppliers) is very wide, possibility that transaction happens is higher, as a result value created by the platform for its users increases for every user. To estimate how fast Amazon scales, let's look at the company in figures (Table 6): according to the statistical data, year 2019 for Amazon accounts for more than 2.5 million active sellers, 12 millions of products available for selling by Amazon itself, and more than 350 millions of products available for selling if we take into consideration Amazon Marketplace sellers' products. So, H₀ is approved for this factor.

Table 6: Amazon in figures as of 2019, 2018, 2014 and companies one-year and five-years growth in metrics.

	2019	2018	One-year % growth	2014	Five-years % growth
Third-party sellers sales (main increase due to increase in number of sellers)	17.45 bln USD	13.21 bln USD	32%	3.2 bln USD	445%
# of Prime subscribers	150 mln	100 mln	50%	25 mln estimated	500%
# of employees	798'000	647'500	23.24%	154'000	418.18%
Revenue	280.5 bln USD	232.89 bln USD	20.4%	88.99 bln USD	215.2%
Shipping costs (main increase due to increase in sales)	37.9 mln	27.7 mln	36.8%	8.71	335%

Source: made by the author based on Statista, 2020.

- Lower transaction costs

Platforms transform the logic of transactions in retail. Traditional retail companies control chain of key business activities which include suppliers, purchases, logistics, marketing, etc. Platform retail companies coordinate key activities together with suppliers and managed through open data solutions. For platforms suppliers are one of the key assets as ecosystem value depends on the value generated by suppliers. As such multisided platforms as Amazon only facilitate transactions, they transfer the costs and risks of transaction to third-party sellers. That is why platforms are usually “less capital intensive, easier to scale and more profitable in the long-term”. (Hдnninem, M., et al, 2017). Comparing Amazon with traditional retail companies, we can conclude that the company decreases its transaction costs in the main following way: only online presence (except for the new project of the company “Amazon Go”). This fact eliminates needs of large investments in physical stores, their maintenance and management. What is more, the fact of online presence only eliminates risks and costs of incomplete contracts, which also involve loses due to logistics, management and in-store customer services. Not to be unfounded, in the Table 7 below, we can compare operating expenses for Amazon - one of the biggest digital online retail platform without physical offline stores, and Walmart - one of the biggest multinational offline retail corporation that operates hypermarkets chain. So, H₀ is approved for this factor.

- Positive indirect network effect

Network effect is one of the hugest advantages of platforms compared to traditional business models. Traditional BMs do not experience it, while platforms, in their tern, use this positive externality fully as it is a part of ecosystem itself. As every network effect business has its peculiarities, different products and audience, there is no one common way to measure the network effect of the company. Usually, we could only conclude whether network effect is present or not. But for our research it is enough. We have considered two most popular concepts of network effect presence measurement, offered by Li Jin and D'Arcy Coolican in their research. (Li Jin and D'Arcy Coolican, 2018). Analyzing a presence of the network effect on the case of Amazon could be summarized as follows:

Table 7: Comparison of Amazon and Walmart Operating Expenses in Dynamic.

Source: Macrotrends, 2020.

1) Organic users vs paid users: for the companies with present network effect, number of organic users should increase over time, as with time network growth and more users want to join an ecosystem. For such companies as Amazon, number of organic users increase as more suppliers join the platform, as platform becomes more valuable for customers with higher number of suppliers due to a wider range of products. We have already mentioned that number of Amazon sellers is increasing from year to year, as well as number of buyers. (Picture 17). As of the year 2019, the company accounts for 2.5 millions of active sellers. Considering buyers of the company, as we try to find numbers for organic users, it is better to evaluate dynamic changes in a number of constant and loyal customers. For Amazon they are Amazon Prime members, whose number constantly increases from year to year by huge steps. (Picture 16).

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