Walmart has been around for over 5 decades and has easily grown to being the biggest company in the world in terms of revenue, thanks to its ‘Everyday Low Prices’ business model and vision of its founder Sam Walton and his proteges, the company earns just over $500 billion in annual revenue today.
Amazon on the other had its humble beginnings in 1994 where it was run out of the garage of the now richest man on earth, Jeff Bezos. The company originally started out as an online bookstore but has since expanded into other sectors such as cloud computing, over-the-top media services, internet publishing and a host of others. Currently, Amazon is by far the largest eCommerce company in the world with a revenue and market cap of $280 billion and $1.7 trillion, respectively.
In this article we will be looking at the business models of both companies── Amazon vs Walmart──, comparatively. However, before we delve deep into the article, we need to answer a few questions so we can understand the full scope of what a business model is.
Just as was explained in this article, a business model is “is a set of strategies, offerings & structures adopted by an enterprise in order to generate income, acquire customers, etcetera”
Without further ado, here are the business models of Amazon vs Walmart, compared.
Amazon business model
1. Subscription-based model
Amazon utilizes the subscription-based business model through its Amazon Prime and Amazon Web Services platforms. Here, customers pay a certain amount on a monthly/yearly basis to access free same day-delivery and on-demand digital media on Amazon Prime and Cloud computing infrastructure on Amazon Web Services. As of the fiscal year of 2019, Amazon earns over $40 billion in annual revenue from its subscription-based business model.
Amazon’s core business model is e-tail, which stands for electronic retailing and it is a form of eCommerce which involves buying goods from manufacturers or wholesalers and then selling such goods directly to consumers over the internet. This is the core business model of Amazon as it is known to directly sell goods to consumers over a wide range of categories such as groceries, electronics, books and a host of others. In 2017, however, Amazon opened up physical retail stores in a variety of locations, which now make up 5% of its total annual revenue.
3. Commission-based business model
Amazon utilizes the commission-based business model by charging sellers a certain percentage off of goods sold through its platform. It also charges sellers who utilize Fulfilment by Amazon (FBA) program.
Amazon’s marketplace is quite different from its e-tailing business model. Here, Amazon merely acts as a middleman between sellers and buyers and facilitates the sales of goods between both parties. Amazon had the following to say on its marketplace business model in its annual report;
“we offer programs that allow sellers to grow their businesses, sell their products on our websites and their own branded websites, and fulfil orders through us. We are not the seller of record in these transactions. We earn fixed fees, a percentage off sales, per-unit activity fees, interest, or some combination thereof, for our seller programs.
According to Mark Zuckerberg in a 2020 senate hearing, Amazon is the fastest growing advertiser in the world. With its hundreds of millions of customers and a monthly traffic of over 1 billion monthly active users, it is easy to understand why amazon ventured into the advertising business model. Here, advertisers(sellers) pay to make their products appear higher in search results, as well as on the homepage and on other sections of Amazon’s website, this in turn boosts the sales of the advertisers’ products. As of 2018, Amazon saw a huge leap in its advertising revenue. The company made $6.27 billion in advertising revenue in 2018, a huge leap from the $2.92 billion it made in 2017.
Walmart business models
Walmart’s business model is heavily based on the brick-and-mortar model through which it runs over 11,500 retail and wholesale stores across the world. Its operations are divided into 3 main sectors:
- Walmart U.S.: Walmart U.S. accounts for 64% of Walmart’s revenue. It comprises all its operations in the United States, including Washington D.C. and Puerto Rico, representing three primary store formats as well as its eCommerce segment.
- Walmart international: Walmart International operates in a total of 27 countries and accounts for 25% of its revenue. It’s made up of 3 major categories; retail, wholesale, which operates in different formats such as Supermarkets, Supercenters, Hypermarkets as well as eCommerce.
- Sam’s club: Sam’s club is a membership-only warehouse which operates in 44 U.S. states and Puerto Rico. It accounts for 12% of Walmart’s revenue and offers various merchandise such as grocery and consumables, home & apparel, technology, health and wellness and fuel and other categories.
2. Subscription-based model
Walmart also earns a significant amount of money from the subscription-based business model through its VUDU Movie Streaming service which allows customers to stream on-demand movies and TV shows
Walmart began utilizing the e-tail business model by creating a dedicated site at Walmart.com which allows customers to search and buy products, and of course, have those products delivered to their doorsteps.
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Similarities in the business model of Walmart and Amazon
In this comparison of Amazon vs Walmart, it is quite obvious that there are a lot of differences in their business models, while Amazon is heavily reliant on the internet, Walmart takes the brick-and-mortar business model approach. Nonetheless, they both share the following business models in common:
- Subscription-based business model
Having read this comparison of Amazon vs Walmart, it is quite obvious that both companies are big in their own rights, however, Amazon has a much disruptive approach when it comes to utilizing multiple business models. Walmart on the other hand aims to provide lower prices which in turn helps them dominate the brick-and-mortar business model scene.
Question: After reading this article of Amazon vs Walmart in terms of their business models, which would you consider your favorite?
I’m the cofounder of WealthOnPoint, and business is akin to me just as blood is to humans. Being an advocate of business literacy, I’m the go-to guy for matters concerning business, marketing & investments. My mission: I wanna take your business to higher heights, the question is; are you willing to let me?