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Saturday, January 31, 2009 10:21 PM
Revenue model for Google, Amazon.com and eBay

Google, Amazon.com, and eBay. They are the best in the e-commerce industry and often became a benchmark to other competitors whom wish to excel in this industry. Take a look at their (Google, Amazon , E-bay) financial statements and you will understand why they are the best. They are earning 10 digit profits every year plus with a constant growth year by year. Their success contributes from their own unique and dominant revenue models. Referring to the lecture notes i had, they are 5 main revenue models in e-commerce which is Sales, transaction fees, subscription fees, advertising fees, and affiliate fees. Now, lets identify the model that had been used by Google, Amazon, and E-bay as their main source of income.

First up, Google.inc. Based on its annual report, the main source of revenue comes from advertising model.

Google revenue
Extract from Google's annual report

Google Adwords, an online self-serving program that enables advertisers to place text-based ads on Google websites.

Click and make google RICH!!!

Google Adwords offers pay-per-click (PPC) online advertising. Through this program, advertisers may specify the words that should trigger their ads and the maximum amount they are willing to pay per click. For example, an advertiser agreed to pay Google RM0.10 per click on their ads on Google, lets say 10 users click on it, then it requires the advertiser to pay RM0.10 x 10 = RM1.00 to Google. As we can see, there are millions of advertiser using Google Adwords program, and they are TRILLIONS users that are clicking on the ads, producing billions of profit to Google’s pocket. Besides that Google Adwords program also enable advertiser to pay Google base on the number of times their ads appear on Google network members site specified by the advertiser, which leads us to Google Adsense.

Google Adsense is the program through which Google distribute their advertiser’s ads for display on websites that register as a Google Network Member. Google Adsense also uses a pay-per-click mechanism, but the difference now is you are clicking the ads in other people’s website. Example shown below.

Amazon.com revenue model is base on a more traditional approach like the ordinary brick and mortar business, which is sales. Once started out from a website selling books, now Amazon.com, one of the largest retail website sells millions of products ranging from books, to apparels, and others. Other than that, Amazon also generates revenue from sale of services. Amazon Web Service (AWS) are a collection of remote computing service. The picture below shows the list of its services.

Click on the picture for larger view

eBay is an online auction website that serve as a transaction medium between buyers and sellers. eBay uses a transaction fee revenue model, it generates revenue from a number of fees, such as the fees to list a product and fees when the product sells, plus several optional fees, all based on various factors and scales. The more popular U.S.-based eBay.com takes $0.20 to $80 per listing and 5.25 percent or less of the final price. Most of the eBay websites that based on other countries charges listing/insertion fees and final value fees (Sales price fees) but fortunately eBay.com.my does not charge any of those fees due to local market competition.

eBay malaysia FOC

In addition, eBay now owns the paypal payment system which has fees of its own. Paypal, a subsidiary of eBay is an e-commerce business allowing payment and money transfer to be made through the internet. It made transaction faster and easier but there is a price for convenience. Image below shows the fees charge

By comparing the 3 different models used by 3 different e-commerce pioneers, it seems that Amazon’s Sales model is the most basic form of revenue method and it needs more marketing, advertising, promoting in order to maintain or increase sales. Ask for Google, as long as Google remains a top search engine, where billion of users utilize it, advertisers will come flocking to advertise on Google. eBay would have to develop a better platform to attract more users to place auction and improve the fee structure to collect more commission than ever.

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