Answer to Question 1
Virtual merchants are single-channel e-commerce firms that generate almost all their revenue from online sales. They face a number of challenges. They must build a business and brand name from scratch quickly, and face many virtual merchant competitors. They also face large costs in building and maintaining an e-commerce presence, building an order fulfillment infrastructure, and developing a brand name. Customer acquisition costs are high, and the learning curve is steep. Facing low margins, virtual merchants must achieve highly efficient operations to preserve a profit, while building a brand name quickly to attract sufficient customers to cover their costs of operations. Most merchants in this category adopt low-cost and convenience strategies, coupled with extremely effective and efficient fulfillment processes to ensure customers receive what they ordered as quickly as possible.
Answer to Question 2
In 2016, Amazon finally began to show investors and analysts sustainable profitability. Following up on its 596 million profit for 2015, the company reported a landmark 879 million profit in the second quarter of 2016, up from just a 92 million profit over the same period in 2015. The profitability of its AWS unit is also a major positive for Amazon, with that segment showing continued rapid growth. Amazon Prime is also a key component of the company's strong performance. While the company continues to spend heavily on future products and services, Amazon at last appears to have turned the corner to profitability.
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