How Jeff Bezos Made amazon a 1.6 Trillion $ Company, Business Model of Amazon ?

Wants to know how Amazon become so successful then you are at the right article because here you will get to know How Jeff Bezos Made amazon a 1.6 Trillion $ Company, Business Model of Amazon ?

In the year 1994, Jeff Bezos left his cushy investment banking job,to work on his startup. Internet was blowing up at the time. So he got the idea of doing something internet-related. Of creating an online store, to sell books!

So Let’s Start our Today’s Topic How Jeff Bezos Made amazon a 1.6 Trillion $ Company, Business Model of Amazon. So Read the Full Article.

What should he call this online store?

He thinks of the name Cadabra. From Abra-Cadabra. This name was so weird that when he started using this name, his lawyers questioned the name. When they called up customers, the customers often didn’t recognise or understand the name of the company. They tell him that the name has to be changed. So Jeff Bezos started thinking about other names. He registered several domain names. Because it was supposed to be an online bookstore, he thought of BookMall. In fact, this is a domain name that still redirects to amazon.com when you type in this website on your browser.

He finally settled on the name Amazon, because Amazon is the largest rainforest in the world. And the Amazon River is the largest river in the world.He wanted the Amazon company he built, to be the largest bookstore in the world.

Interestingly, if we fast forward to 25 years into the future, today, Amazon is not only the largest bookstore in the world, but also is the largest online store for buying just about anything. And Amazon Prime video, is one of the largest OTT platforms.

Amazon Web Services is number 1 in its field. Amazon Alexa, Amazon Kindle, Amazon Drive, Amazon Music, Amazon’s Audible, Amazon Pay, Amazon has even started delivering groceries in some countries, under the name Amazon Fresh. At one point, Amazon had tried to launch their phone, called Amazon Fire. Though that turned out to be a flop idea. But today, Amazon has become so successful not only as an online store, rather as a company spread over soo many sectors. How was it possible?

What is the Business Model of Amazon?

Come, let’s understand in today’s video. “Jeff Bezos has become the first human being on the planet to be worth $200 billion.” “I was a good student. I always worked really hard. I was nerdy. It doesn’t matter to me whether we’re a pure internet play what matter’s to me is do we provide the best customer service?”

The idea of Amazon was quite simple right from the start. But it was a unique idea for its time. To create an online bookstore. At the time, people had to go to physical bookstores to buy books. Why not let people buy books online through a website on the internet? Initially, Amazon’s website was a mere bookselling website. The advantage of selling books online was that customers could access thousands of books on a single website. A very basic, practical, and convenient idea. One that people needed. Right from the beginning, even as a startup, Amazon was a successful company. The website was launched in 1995. And by December 1996, they had amassed a customer base of 180,000. Their website looked like this then. By 1997, their revenue had reached $148 million. At this point in time, Jeff decided that he didn’t want Amazon to remain a private company instead, he wanted to list it as a public company in the stock market. So that the company could access more funds to grow.

In 1997, Amazon became a public company. And by 1998, Amazon’s revenue had reached $600 million. There are said to be 2 main reasons behind Amazon’s success. First, Amazon was offering a huge convenience to the customers. And at the time, there were next to no companies that was offering the same service as a competitor. And the second is something that’s called the Flywheel Effect. A flywheel is basically a spinning wheel, it keeps spinning evenly even when faced with changes in external conditions.

Amazon’s business model had become like a flywheel by then. They sold books at lower prices, and millions of books were available in their online store, so the customers had a positive experience, since the customers were happy, it drew more customers to their website, and because more customers were joining their website, the sellers of the books, especially the third-party commission-based sellers, wanted to join Amazon to sell their books. Because they could see the large number of customers it had. So more and more sellers listed their books on Amazon, leading to more options of books to buy on Amazon for the customers. It had become a wheel that was being pushed in the same direction twice, increasing the rotational speed.

When Amazon earned more profits, Amazon used that money to improve their website and to improve the customer experience as well as in keeping the costs low. Because this was a game of low costs. When books were being sold at low prices, more customers and sellers would use their services. And thus a nice business model was created.

In 1998, Bezos thought of using the same strategy to sell not only books, but to sell computer games and music also. In 1998, Amazon expanded their business, in addition to books, they were also selling computer games and music on their website. It saw unprecedented success. To such an extent that in 1999, Time magazine’s Person of the Year

was Jeff Bezos. His photo was printed on the front page. With time, Amazon adopted many ideas, big and small. Driving forward the growth of the company. One of these ideas was, the 1-Click button.

When you shop on Amazon, you would’ve seen, there’s an option “Add to Cart” and below it, there’s the option Buy Now with 1-Click. With one button, you can buy the products and get them delivered. Many people use this 1-Click button and often end up buying things that they truly don’t need. This button was a great idea on its own. And it was so successful that in September 1999,

Bezos got this technology patented. There were 2 uses of this seemingly simple button. The first and quite obvious is that customers can buy things much more easily. It greatly improves the convenience of the customers. And the second and hidden benefit of this was that when people use this button, they need to save all their information first. Their personal information. Name, contact details, payment details, billing address. Only then can you use this button.

Amazon started tracking it. When people used this button, Amazon tracked what they bought. And based on that, Amazon started sending out suggestions “If this person bought this they would like this too.” With this, they started putting up ads for the customers according to their buying preferences. With the help of these targetted ads, it became easier for Amazon to sell products. And their sales grew exponentially. If you have to click on multiple buttons to buy something, it gives you the time to think.

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Do I really need it? Should I buy it?

But if one click of a button, you get to buy something, you wouldn’t even get the time to think. So the sales of Amazon grew even more. Several companies tried to copy this idea. There’s a company called Barnes & Noble, they tried to incorporate a one-click button too, but since Amazon held the patent, they lost the lawsuit. And Amazon was the only one that could use this. Amazon had a huge advantage because of this. But fortunately, for the other companies, this patent expired in 2017. And presently, any company can use it. For starting any type of a business or job, you need creativity and innovation but before that you need to have the basic skills in your field.

How Jeff Bezos had the knowledge of computer science beforehand. It was his field of study. While working at the investment bank, he had an idea of the potential of the internet. In his job, he was assessing the growth of the internet, and whether they should be investing in internet-based companies or not. In 2000, the Amazon Marketplace was launched.

Jeff didn’t want to be limited to books and games. He wanted everything to be sold on Amazon. Through this Marketplace, any third-party vendor could sell anything on Amazon. The benefit was that Amazon would take a portion of the sales as its cut, of anything sold. And this was huge. Because normally, if Amazon had to sell something suppose, Amazon wanted to sell tables and chairs. Amazon would have to have a warehouse for making and storing the tables and chairs. But here, a third party was making the tables and chairs and was selling through Amazon. So Amazon didn’t need any storage space. It didn’t need to build its warehouse. This became an important source of revenue for the company.

Amazon was growing so fast with so many new customers and vendors joining them, that they faced a shortage of data storage. Jeff then decided to invest more in technology and to create their own data storage facility. Rather than using someone else’s storage facilities. Friends, this was the birth of AWS. Amazon Web Services. Again, this was another field, that didn’t have much competition. Not many companies were doing this. And this business was so successful for Amazon, that currently, this is the highest profitable business that Amazon is involved in. 40% of the profitability of Amazon is from AWS. Amazon Web Services. Most of the top companies in the world who have an online presence, Netflix, Pinterest, Twitch, LinkedIn, Facebook, use Amazon Web Services to store their data.

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Amazon Kindle

In 2007, Jeff Bezos executed another horizontal expansion of Amazon, with the launch of Kindle. An e-Reader. Since Amazon had begun as an online bookstore, launching an e-Reader, so that books could now be read digitally as well as physically, was a related expansion. Interestingly, Jeff Bezos decided that Kindle would be a Zero-Profit device. The cost incurred in making the device, would be the only amount recovered from the buyers and Amazon would earn zero profit from selling Kindle. You would be surprised to know this, you might wonder how it could be possible.

The simple reason for this was the books that could be read on Kindle had to be bought on Amazon’s bookstore. Though Amazon wouldn’t earn anything from Kindle, Amazon would make money by selling the books. This business strategy was very successful too. With this Kindle could become a very low-cost device. Many people started buying it,

and today, Kindle is the world’s number 1 e-Book reader. Friends, you might have noticed one thing, so far in the story, the areas that Amazon was successful in, in most of the areas, Amazon was the first company, to properly get into the business. To capture the market. There was a significant First Mover Advantage that Amazon exploited time and again. For example, it was the first to come up with the idea of an online bookstore. To become successful with the first-mover advantage becomes very easy. Although, one has to work really hard to maintain it later on.

Like how Amazon had patented the new technologies and kept innovating rapidly, so that Amazon could maintain that advantage. And it could defeat the competitors that cropped up later. In the areas that Amazon could not get the first-mover advantage, where there was a tough competition already Amazon’s failures were highlighted there. Such as Amazon’s Fire phone.

Amazon Fire Smartphone

When Amazon tried to launch its smartphone, in 2014. But 2014 was already quite late to launch a smartphone. The first iPhone was launched in 2007. And Android was launched a few years later. By 2014, there was tough competition between Apple and Android. Both companies were innovating continuously and bringing in new technologies. In this case, when Amazon came up with its smartphone, it was very difficult for Amazon to compete with the experienced players.

That’s why Amazon’s Fire phone was a huge failure. But on the other hand, for e-Readers, Amazon was one of the first companies to make e-Readers. They made a good quality product at a low cost and with zero profits, so Amazon is the Number 1 for e-Readers. A similar thing was seen in the Indian market. In Amazon’s business field,

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Big Competition with Flipkart

Flipkart was launched in 2007. Amazon hadn’t entered the Indian market in 2007. Flipkart got the first-mover advantage here. And this advantage remained for years. In 2013, Amazon entered India with Amazon India. But because of Flipkart’s advantage, even now,

Flipkart is giving strong competition to Amazon. The two companies have an almost Duopoly in the eCommerce market. A monopoly is when one company rules the market, A duopoly is when two companies rule. Each of the two companies has a market share of around 30%, and all the other companies share the remaining part. If we look at the data from Financial Year 2020, the number of users of Flipkart is more than three times of that of Amazon India. And the revenue earned by Flipkart is more than thrice of that of Amazon India. The simple reason behind this is that Amazon is spending a lot of money in the Indian market so that it could increase its market share. So it is willing to work at a low profit too. It is sacrificing a part of its profit to build a better market share. Because as we can see, the company that can get the biggest share of the market, gets this Flywheel advantage.

There’d be more customers and more sellers. So it is very important to do this. To be successful in this market. So even if one doesn’t earn as much profit in the beginning it’s alright. When Flipkart got its advantage they made full use of it by quickly diversifying. Presently, Myntra is owned by Flipkart, Flipkart Wholesale, Flipkart Health+, Cleatrip, Shopsy, and even the payment app PhonePe. Flipkart has a majority stake in it.

Similar to the horizontal expansion of Amazon in the USA and other countries, of its business areas, Flipkart did the same thing in India. But overall, the growth of Amazon, has still been exponential across the world. their revenue growth in the last 20 years. From 2005 to 2021, they have crossed a quarterly revenue of $100 billion and this chart is rising exponentially.

Due to the coronavirus pandemic, it increased further, because everything was closed during the lockdown, so everyone was ordering goods on Amazon, while other shops were closed. Amazon got a huge advantage from it. Due to this, Jeff Bezos became the richest man in the world. Amazon’s eCommerce business can be divided into 2 models. 1P and 3P. 1P means that Amazon buys a product stores it in its warehouse, puts it up on its website and then delivers the product to the consumers. The second is the 3P model. it means that someone else makes the product, and sells their product on Amazon,

while Amazon acts as a marketplace, and then the product is delivered to the consumers. In the 3P model, Amazon basically acts as a platform, that is used by the sellers and the consumers to sell or buy their goods. Interestingly, there isn’t a significant profit margin in the 1P model. Most of the profits come from the 3P model, because in 1P the goods need to be stored as well. It is filled with hassles like buying large warehouses, for storing the goods, and the duration of storage, a lot of money goes into these. In the 3P model, there’s just the website, on which people can come to sell and buy products. For Amazon, the benefit lies when the 3P model is used more.

Initially, Amazon had used the 1P model, when it began in the late 1990s. the proportion of usage of 1P versus 3P. With time, the percentage of 3P kept increasing. By 2018, 58% of things that were being sold on Amazon, were sold under this 3P model. Meaning that Amazon wasn’t going into the hassles anymore. And was earning more profit. The revenue sources of Amazon and the money it earns from its various businesses can be seen in this chart. If you look at the numbers from 2020, the online store contributes the most revenue, around $200 billion. And AWS is a major source of revenue for Amazon, because it is the most profitable. This chart shows you the revenue only the money that the company earns. But doesn’t show the amount spent by the company. For that, we turn to the chart of profitability. Interestingly, Amazon, as a company, wasn’t very profitable in its first decade. Until 2014, the company was earning next to no profits. Because all the revenue of the company, was invested back into the business by Jeff Bezos, to expand the business.

But after 2016 and especially after 2018, Amazon has started earning profits. And is now focusing on profitability too. Over the last few years, Amazon has raked in so much profit, but the credit for that mainly goes to AWS, because AWS is one of Amazon’s businesses with the highest profit margin with a profit margin of 30%. And it kept growing with time. Even in the last few years, Amazon’s expansion wasn’t stopped. Amazon Logistics saw good growth.

Here, they are giving competition to the delivery service companies. Such as UPS and FedEx. These are big in North America. And because of these reasons, friends, today, Amazon could become a $1.6 trillion company. This was Amazon’s interesting story. If you liked this video,

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Conclusion

Hope you enjoy the article How Jeff Bezos Made amazon a 1.6 Trillion $ Company, Business Model of Amazon. Hope this article helps you to find some information and business model of Amazon. If you like the article please share it with your friend and if you have any Queries or Questions related to it definately you will give suggestions to us because it helps us to improve our Content.

 

How Russian Economy is Now Permanently Destroyed. Effects of War ?

Wants to know how Russian Economy is Damaging due to war. Then you are at the right article because here you will get to know How Russian Economy is Now Permanently Destroyed. Effects of War ?

The war is raging on in Ukraine. But the destruction is caused in Russia too. The common Russians are in a bad condition. The Russian currency, Ruble, has crashed in the last few days, now, there are long lines outside the ATMs in Russia. The Banks are out of cash to give to people. People have started hoarding phones and electronic items they are buying as many as they can, because they are the only things whose value wouldn’t depreciate.

The hard-earned money of the people has started losing its value. Thousands of Russians that deal with foreign countries aren’t getting their salaries. There’s so much inflation people are worried that Russia might end up like Venezuela.

So Read the Full Article to know How Russian Economy is Now Permanently Destroyed. Effects of War ?

Why is it happening in Russia?

When a country goes to war, how does it affect the economy of the country? How are the citizens affected? These are seldom discussed topics.

This article will shock you. Because you can’t even imagine that in today’s day and age, what a Superpower Country has to go through, when that country goes to war. Even though the war isn’t fought in the country.

Come, let’s take a look. “Sanctions from the west are already having a major impact on Russia’s economy.” “A 30% loss in value is seen in Ruble.” “Many people are worried about their income.” “Microsoft, Apple, Samsung, HP, Intel, all stopping new sales.” “At McDonald’s, final orders it’s suspending business in Russia.” “All western businesses are shutting down. Everyone who can is leaving. We’ll be left isolated.” “Netflix has pulled out. TikTok, won’t allow posts by Russian users.

The Ruble: worth less than a penny!” A study conducted by the Centre for Economic Recovery, claims that in the first four days Russia had to incur expenses to the amount of $7 billion for starting this war. Approximately more than ₹500 billion. This was only for the first four days. With the continuation of the war, the same study has estimated that this cost can eventually cross $20 billion per day for Russia.

It means that each day Russia has to spend $20 billion to fight this war. This is only the direct expense borne by the Russian government. The Russian taxpayers’ money is used for fighting this war. But this is only the tip of the iceberg. Let me list out the impact of the responses from the rest of the world. 33 countries have closed off their airspace for Russian airplanes. It means that Russian aircraft aren’t allowed entry into the airspace of those countries. It includes the USA, Canada and numerous European countries.

What is the result?

According to the estimates, about 150,000 Russian tourists in these countries they were there for a visit, it is now extremely difficult for them to return. Airbus and Boeing are two major companies in the world building aircraft.

They’ve said that they would stop sending their spare parts to Russia to the Russian airlines, and would suspend their operations in Russia. In the near future, it would be very difficult for anyone to fly into Russia or to fly out from Russia. Moving on, the major clothing companies and shoe brands, like H&M, Puma, they have suspended their operations in Russia. BMW, Volkswagen, Mercedes, Jaguar, Toyota, and Honda, the major car companies, they have said that they would stop exporting their cars to Russia, and their operations in Russia, the car production, for example, were also stopped. Ikea, a major furniture company from Sweden, has closed down all its stores in Russia. Airbnb, quite useful for travellers, have now stopped their operations.

Netflix has made it impossible for Russians to sign up for new accounts. They’ve withdrawn the option. The big tech companies, Apple and Microsoft have said that they would stop selling their products in Russia. Samsung, a South Korean company, Samsung has said that it wouldn’t ship its products to Russia.

Imagine that these major multinational companies, we use their products and services in our daily lives, for the Russians, suddenly they can’t access them anymore. The oil giants, like BP and Exxon Mobil, they had similar responses too. BP has said that it would dump the 19% stake in the Russian state-owned energy company. It shows that the foreign companies are pulling out their investments from Russia. And the other foreign companies that were thinking about investing some money in Russia, have since dropped the idea.

These affect the economy of a country

and the funds that are available to it. Apart from this, the two most powerful bodies of football, FIFA and UEFA, they have decided to suspend the Russian team from all international soccer events.

Meaning that the Russian team wouldn’t participate in the FIFA World Cup. Formula 1 racing, the Grand Prix was supposed to be held in Russia, it stands cancelled now. Visa and Mastercard, two of the biggest payment processing networks in the world, millions of their credit cards are used worldwide, the two companies have decided to block Russian banks. 74% payment transactions in Russia, were processed through Visa and Mastercard. They wouldn’t work now. The international payment transfer companies Remitly and Wise, the two have also suspended their Russian operations.

Apple Pay, Google Pay and Samsung Pay. The Russian banks against whom sanctions have been issued, cannot use these platforms either. Making normal payments for their daily lives have become difficult for people. That’s why people ran to the ATMs, to withdraw cash. And you can imagine what happens when a large number of people try to withdraw cash.

I talked about it in the video on the Business Model of Banks. Banks don’t have so much cash. If everyone wants to withdraw their money from the bank, it wouldn’t be possible. This situation is known as Bank Run. This is happening in Russia now. ATMs are running out of cash and people are desperate. Seeing all this happening,

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Effect in Stock Market

the stock market of any country would crash horribly. That’s why, for a week now, the Russian stock market is closed.NEver since Russia invaded Ukraine, the Russian stock market hasn’t opened up for trade. Fearing a major crash when they open next, they’re keeping it closed as long as they can. If you don’t know much about the stock market, but you want to gain some knowledge, then I would definitely recommend Zac Hartley’s Stock Market Fundamentals class on Skillshare. It is a fascinating class.

The examples that I told you about till now, were of multinational companies that decided to suspend their operations in Russia. Companies.

How Government Imposed Sanctions on Russia

But apart from these, Governments have also taken action against Russia. Governments have declared sanctions against Russia. Broadly speaking, sanctions mean imposing a penalty or punishment on a country for violating an international law or for their aggressive behaviour. These punishments can be imposed on a country via various means. But mostly, they are economic sanctions. They target and attack the economy of a country. A major sanction imposed on Russia currently, is the SWIFT block. The Russian banks have been cut off from the SWIFT system.

What is this SWIFT system?

SWIFT stands for Society for Worldwide Interbank Financial Telecommunications. It is a payment system used internationally by more than 11,000 financial institutions. More than 200 countries used this globally. The central bank of almost every major country uses this SWIFT system. The USA, Japan, India, China, any country you can think of. But the SWIFT system doesn’t actually move the money. It merely communicates the source, amount, and destination when money is to be moved. You can think of it as SMS, or like FB Messenger of the payment transfer. It gives instructions to a bank to transfer the amount of money to the destination bank. That’s why every bank has a SWIFT code. You might already know this. The SWIFT code is 11-digits long.

The first four of the 11 characters represent the name of the bank. The next two are the country code. Seventh and eighth represent the location code,.And the last three are for the branch code where the money is to be transferred to.

For example, SBI’s main branch in Delhi has the SWIFT code SBIN IN: India’s country code. BB: the location code, and 104 is the branch code. Overall, the SWIFT code can be considered as the postcode of a bank. If you have to transfer money from SBI to an American friend’s account in an American Bank, along with their account number, you will write down the SWIFT code of the bank, and when you send the money,

SWIFT will work by communicating to the bank the fact that money is being transferred and the amount of transfer.

Since Russian banks have been cut off from SWIFT, it means that neither can Russian banks accept money from international sources nor can they send money. But the interesting thing is that, Russia isn’t the first country this has been done to. Before this, Iran was blocked from SWIFT access. It resulted in Iran losing one-third of its foreign trade. But it isn’t like Russia wasn’t prepared for this. Because when Russia invaded Crimea in 2014, lighter levels of SWIFT sanctions were imposed on Russia.

Since then, Russia worked on creating its domestic messaging system for payments. This would lead to severe effects in the short term, but in the long-term, Russia will come up with some way or the other, it will develop its payment processing system. Another major example of these sanctions is freezing the assets of Russia’s central bank.

The thing is, the central bank of every country has some foreign exchange reserves. Known as Forex Reserves. It basically means that the banks keep some money in foreign currency. The reason for maintaining forex reserves is that payments have to be made to other countries or for facilitating any global trade. Like every country, Russia’s central bank maintains reserves in US Dollar. It keeps some amount with itself in US currency. America and other countries have freezed these dollar reserves.

They have said that they wouldn’t accept the USD Russia has. That the forex it has will now be a complete waste. It amounts to $630 billion. There’s another very shocking and interesting way to impose sanctions. Putin, his friends, and Russian billionaires, own assets outside Russia.

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They have properties in foreign countries. Private airplanes and huge yachts, the US and other countries have decided that all these assets these properties and these private planes, would be seized. As a specific example, a Russian oligarch named Egor Sechin, had a superyacht worth $120 million, think of this as a uber-luxury boat, the French government has now seized it. They’ve kept the yacht with them. The news also had that a superyacht worth $600 million, owned by the Russian billionaire Usmanov, was seized by the German government. But this turned out to be false. But fearing this, the Russian billionaires, are moving their yachts to countries where the Western governments cannot seize them.

Like the Middle East or the Maldives. According to the news, at least 5 superyachts of Russian billionaires were found in the Maldives. Apart from this, any property they own in foreign countries, is being seized.

Flight bans are imposed on the Russian oligarchs. They wouldn’t be allowed to travel anywhere outside Russia. There’s a simple reason behind taking these actions, to pressurize Putin to stop this war. When these Oligarchs and Russian billionaires are targetted, people who are said to be controlling Putin, it’s possible that they can convince Putin into stopping this war. One thing that proved very hard to cut off from Russia, was oil and gas.

For European countries, one-third of their gas supply is from Russia. They import gas from Russia. And if they cut that off, the gas price in the European countries would skyrocket.

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And where would they get gas from?

Despite that, Germany suspended the approval of Nord Stream 2 Pipeline, a pipeline that’s already built, but they hadn’t begun using it.

They are trying to come up with alternatives. America said that they have large oil and gas reserves, that they are willing to send to Europe, so that Europe can cut off their dependency on Russia. But anyway, as I told you earlier,

what is the result of this?

These measures are so harsh that the Russian Ruble, Russia’s currency, is crashing so fast that you wouldn’t believe it. In 2012, $1 was equal to ₽30. At the beginning of 2022, $1 was around ₽70, but since this war began, as of the day of this recording, $1 is poised to cross ₽150. Their currency is losing its value this rapidly. The money that people had earned and saved is now losing value. There’s high inflation. People fear hyperinflation. Apart from this, people can’t use the basic payment systems.

People are trying to get cash from the banks but can’t. It has a terrible impact on the common citizens of Russia.

What can the citizens do?

People are going to supermarkets.and are buying electronic items like laptops and smartphones, because these are the assets whose value isn’t depreciating. The money they have with the banks is losing its value, but the currency is losing its value. But if they hoard the electronic items at home, they’d be sure that they wouldn’t lose value. They’ll be able to sell it in a foreign country at the same price. People started doing this. In the near future, the standard of living of an average Russian would fall. Many people would be pushed into poverty because of this. Unemployment and inflation are also rising. Knowing all this is important for those people who think that starting a war is a good thing for the country.

Russia invaded Ukraine. The war is being fought in Ukraine. But the common Russian people are paying the price with their own money.

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Conclusion

Hope you enjoy the article How Russian Economy is Now Permanently Destroyed. Effects of War ? Hope this article helps you to find some information about the war between Russia and Ukraine. If you like the article please share it with your friend and if you have any Queries or Questions related to it definately you will give suggestions to us because it helps us to improve our Content.

 

Business Model of T20 World Cup. How ICC Earns Billions from it ?

Wants to know business model of T20 World Cup and revenue Sources of ICC and BCCI from it. Then you are at the right article because here you will get to know Business Model of T20 World Cup. How ICC Earns Billions from it ?

Did you know that despite India not being in the World Cup the Indian Cricket team will get prize money of $120,000 from the ICC.Have you actually wondered,whenever this T20 World Cup takes place,

So Read the Full Article to know that business model of T20 World Cup.

who earns the most money?

Does the winning team get the most profit? Or the organisers of the tournament, Or the country hosting the tournament? Or the International Cricket Council aka ICC? In today’s video, let us understand the business model of this T20 World Cup. “It has been confirmed by the ICC now that the venue for the ICC Men’s T20 World Cup 2021 has been shifted out of India to the UAE and Oman.” “Because of Corona, the tournament has been shifted to the UAE.” Let’s start with the most basic and the simplest thing that everyone knows about. The Prize Money. The team that will win this T20 World Cup will get a cash prize of $1.6 million. The losing finalist team will get a cash prize of $800,000.

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And the two semi-finalists, will get the prize money of $400,000. In addition to this, every team in the Super 12 stage, that wins any match, will get a prize of $40,000 for winning each match. This is the reason why despite India being out of the World Cup, since India won 3 matches, $40,000 per match, the Indian team will get a cash prize of $120,000. In total, the prize money amounts to $5.6 million that will be given in this tournament. And who will bear the cost of this prize money?

ICC. The International Cricket Council. The international governing body of cricket. Apart from this, there will be several other expenses to be borne by the ICC. The salary of the umpire. The salary of the commentator. ICC has to pay for all of this. Because this entire tournament is organised by the ICC. ICC has formed an elite panel of Umpires and has classified the commentators into 3 categories.

For example, the annual salary of an umpire can be in the range of $35,000 to $45,000. That is approximately ₹2.4 million to ₹3.1 million. In addition to it, for every match, the umpires get a fee. For a T20 match, the average salary of an umpire is about $1,000. But from where does ICC get funds for these expenses?

What are the sources of revenue of the ICC when the World Cup is organised?

The primary source of income for them is broadcasting rights. That is sold to TV channels and streaming services. Basically, the permission to stream this match on their channels.BThrough which you can watch the match. In exchange, the TV channels and streaming services, pay the ICC.

For example, nowadays you watch the matches on Star Sports because ICC has struck a deal with Star Sports that all the major tournaments of the ICC will be exclusively broadcast on the Star Sports channel. This deal will be in effect until 2023. As consideration, Star Sports paid ICC $1.98 Billion.

Almost ₹140 Billion. Additionally, ICC gets money from their sponsors. Nissan, Oppo, MRF Tyres, Booking.com, Byju’s and Emirates are the global partners of the T20 World Cup 2021. These are the top sponsoring companies. It is an ad for the company for this sponsorship, they pay the ICC. There are various types of sponsors and they are divided into categories as well. Like the Global partners, Category partners, and social media partners. The exact amount that ICC gets from these sponsorship, is not publicly available.

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I’d tell you a fair guess of the income from sponsorship. But everything I’ve told you till now, was from the perspective of the ICC. Now, let’s understand the things from the perspective of the host country. The country where the tournament is organised, what does the country get? What does the government of the country get? The answer to this isn’t straightforward. There are many indirect benefits that are difficult to be calculated.

Directly, obviously, the money from tourism. The country that hosts this World Cup, is visited by foreigners that want to watch the match in the stadium. And when there is an influx of tourists in the country, then obviously, tourism brings in money as well. In short term, a lot of employment is generated. Because of the huge influx of tourists in the country. Businesses around the stadium

such as the restaurants, bars, hotels, see a lot of growth. The hotels get booked out.

And you get to see ‘full house’ in all the restaurants. Obviously, the economy of the country, the GDP of the country, undergoes a potentially positive impact. In addition to it, if the country can prove to the rest of the world that it has successfully hosted the World Cup, it proves the stability of the country. The soft power of the country increases. Because of this, more people would want to invest in the country. Leading to a growth in foreign investments. And during the preparation for the World Cup, the infrastructure needs to be upgraded, Good roads need to be built. Cleanliness has to be maintained.

Like the 2010 Commonwealth Games held in Delhi, saw a major change in the infrastructure of the entire city. But, in order to do this, to upgrade the infrastructure, to prepare for the tournament, the country has to bear huge expenses. Do you know what is the biggest expense for the country, apart from this? When a World Cup is hosted. Tax Exemptions. During the T20 World Cup, often the country hosting it, gives tax exemptions to the ICC. And it isn’t for cricket only.

It’s the same during the FIFA World Cup as well.NThe hosting country for the FIFA World Cup, declares itself to be a Tax-Free Zone for FIFA. And millions of dollars are spent on tax exemptions. In fact, for the football World Cup, it is a given condition that the country with the winning bid to be the host, will have to grant tax exemption to FIFA. For example, the 2006 FIFA World Cup was held in Germany, it is estimated that around €250 million of tax exemptions were given then. By the German government to FIFA. But the benefit from the perspective of the government is that overall, the revenue from tourism is more than this. Like in the 2006 FIFA World Cup, the German government reported that the tourism revenue due to the World Cup was around $400 million.BThis was a clear-cut profit for the government.

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Condition of FIFA World Cup

Like in the 2014 FIFA World Cup in Brazil, there was a lot of unnecessary construction there were many protests and allegations of corruption. And it is said that Brazil had to bear an overall loss for hosting this World Cup. The expenses borne by the Brazilian government was of $15 billion. But the revenue was estimated at only $13.2 billion.

Additionally, there were many protests in which the government was criticised questioning the government’s rationale to waste money on stadiums, while education and healthcare desperately needed money in Brazil. A similar situation was seen in South Africa. When the FIFA World Cup was held in South Africa. Although, the government of both countries claim that when the World Cup took place in their country, it was a success.

Why T20 World Cup Had Shifted ?

The T20 World Cup taking place now, has an interesting story too. If you look at it from the perspective of the hosting country. It was originally planned that this World Cup will be held in Australia.

But then the Covid-19 pandemic broke out. Because of it, the World Cup was initially postponed. It is taking place in 2021

instead of 2020 as planned. Then India offered to host this World Cup in India in 2021. But then there were some problems. Newspapers ran with reports that BCCI may have to pay taxes as much as ₹9.06 billion. If the Central Government refused to give complete tax exemptions to host the ICC World Cup. Even if the government gave partial tax exemption the BCCI would still have to pay ₹2.27 billion as taxes.

For hosting this T20 World Cup. Interestingly friends, the Indian government has always been quite slow at such things. For offering tax exemptions. Even for the 2011 50-Over World Cup held in India, the Manmohan Singh government had not approved tax exemptions till the last moment. But at the very last minute, it was granted when the then Prime Minister Manmohan Singh intervened. After that, in 2016,

when India hosted the T20 World Cup, the Narendra Modi government gave 10% tax exemptions only. Then, $23.75 million was withheld by ICC from the money that BCCI was supposed to get. And this issue between the two, between ICC and BCCI, that hasn’t been resolved yet.

As I told you about FIFA, it is the same with the ICC. ICC tries to secure the tax exemptions upfront in whichever country the World Cup is supposed to be hosted Only after that, the hosting rights are given to the country. But BCCI failed in securing tax exemption from the Indian government.

Following this, it was decided to host this T20 World Cup in the United Arab Emirates and Oman. It is assumed. Officially though, BCCI has given only one reason, Covid security and safety concerns. Because of this, this World Cup didn’t take place in India. Instead, it was held in the UAE and Oman. But several experts believe that the main purpose was securing tax exemptions. Now, look at things from BCCI’s perspective. BCCI is the Indian cricketing body. And distinct from ICC. BCCI has its own source of income. First, they get a broadcasting revenue share from ICC.

ICC does so for every cricketing board. It appropriates a part of its revenue to the other cricketing boards. But BCCI’s main source of revenue is sponsorships. The main kit sponsor of BCCI, is MPL Sports. Their deal was made till 2023. BCCI gives them the right to sell merchandise. The base price of MPL for this is ₹6.5 million per match. And ₹30 million per year. That is paid to BCCI. The merchandise partner and the jersey sponsor aren’t the same.

The jersey sponsor is the one whose name is printed across the jerseys of the Indian Cricket Team. In this case, it is BYJU’S. There’s an interesting history of the jersey sponsors of the Indian cricket team. The company that was the Indian cricket team’s jersey sponsor for the longest time was Sahara. They started in 2003 and remained the jersey sponsor till 2013.

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Here comes the interesting fact.

In the 2003 cricket World Cup, there was no jersey sponsor for the Indian cricket team then. This is because there is a rule by ICC, that the companies from which ICC gets sponsorships, the other cricket boards, cannot get sponsorships from any competitor company. The main sponsor of ICC at the time was South African Airlines. And the company Sahara was also involved in the airline business. This led to a conflict of interest. And so there was no sponsor on the jerseys of the Indian team. Sahara remained the sponsor till 2013. After that, Star India became the sponsor for 3 years. Then Oppo for 2 years. And now BYJU’S. Overall, according to the reports it is being estimated that from this T20 World Cup alone, the BCCI will earn around $12 million. Till now you’ve looked at this business model from the perspectives of the ICC, the hosting country and the BCCI.

Who remains?

The Broadcaster. The TV channels that broadcast the matches. For us, the TV channel is Star Sports. As I told you at the beginning of the article, Star Sports has paid millions of dollars to ICC to get the broadcasting rights.

What is Star Sports’ source of income?

The answer to this too, friends, are the sponsors. For this present T20 World Cup, the main sponsors of Star Sports are BYJU’S, Dream11, Vimal and Coca-Cola. An interesting thing here, 2,700 seconds of commercial airtime is allotted for one T20 World Cup cricket match. Meaning that for the one World Cup match that you watch, you watch 2,700 seconds of advertisements. But in IPL, this time is increased to 3,000 seconds. If you’ve noticed, there are more ads on TV channels in IPL, as compared to the T20 World Cup.

What is the exact rate of sponsorships?

It is reported that for this World Cup, it is around ₹1 million to ₹1.1 million for every 10 seconds of ad. If a company wants to play a 10-second ad. If a company had to co-present this tournament, it is estimated at ₹550 million to ₹600 million. And for associate sponsorships, it is estimated at ₹300 million to ₹400 million. It is estimated that in this case, the broadcaster can expect to earn ₹12 billion to ₹12.5 billion in ad revenue from this specific T20 World Cup. Since the TV channel is Star Sports, the rights for online broadcasting has been given to Disney+ Hotstar streaming app. Here, you can clearly see why IPL is more profitable. The simple reason is that for each match, more inventory is given to the ads.

It means that IPL rakes in more sponsorship revenue. And the next time you’re wondering why there is so much focus on IPL, the direct answer to this lies here.

Conclusion

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