Amazon.com was founded in 1994 by Jeff Bezos. The firm started as an online bookshop but diversified later and started selling MP3 downloads, video games, software, audiobook downloads, toys, etc. The company has been ranked as the largest e-commerce marketplace and cloud computing platform. Globally, Amazon is the largest internet firm by revenue and has been credited as the second largest employer in the USA. In the early 90s, Amazon competed with other online booksellers such as computer literacy. Jeff Bezos discovered that more people were willing to read more books, but they could not access them.
The company went public in 1995 July where the founder declared the company as the ‘largest bookseller on earth.’ However, the firm was not able to meet consumer demand since it took time to deliver the books to the customers. Bezos and his team would assemble books to the post office for distribution. In 1996 the firm made total revenue of $ 15.7 million. Consequently, the firm became familiar in 1997 hence generating more revenue which amounted to $54 million. In 1998, the firm started selling music and movies CDS. Due to the high revenue generated by the end of 1998, the company decided to venture in the sale of new products such as electronics, tools, and toys.
Since 2002 to date, the firm has significantly developed thus making more profit. It has partnered with various companies thus enabling it to penetrate new markets. For example, Amazon introduced service delivery in200 where individual sellers were allowed to market their products besides the company’s products. In 2006, Amazon.com introduced cloud computing services, 2011 the firm introduced tablet computers, etc.
Amazon.com had significantly grown since 1995 when it dominated in bookselling. The firm has remained competitive in the international markets for more than 20 years. Amazon has dominated in various sectors such as logistics, data storage, hardware, e-commerce, and media and. The company operates in multiple industries. Amazon.com has created a platform which encourages sellers and buyers to interact. Recently, the firm has adopted the “flywheel” philosophy which was proposed by Jim Collins; – business consultant. The policy introduces a cycle in which entities can cut the prices of their products to entice the existing customers, increase the volume of sales and attract new customers. As a result, the company enjoys economies of scale and reduces the prices even more thus spinning the flywheel afresh.
Amazon offers a wide range of services and products and intends to join more sectors in the future. Consequently, the firm will generate more revenues and threaten new entrants. The following are examples of industries within which the company operates; grocery, since August 2017 the company has dominated the whole food market. The firm delivers commodities to their clients thus posing a challenge to local groceries. Secondly, Amazon is a leading company in the technology sector. Initially, the firm focused on online bookselling. However, in the present, the firm offers data storage services, manufacture of Fire Tablets and televisions and e-readers. Amazon is, therefore, a key competitor to companies such as; Samsung, Apple, Nokia, etc. Additionally, the firm intends to venture into the medical industry. Notably, this will be achieved through the acquisition of PillPack; – a setup which mails prescriptions to individuals taking multiple medications.
The paper uses the PESTEL model to analyze the company’s external situation. The model consists of political, economic, social and environmental, and legal factors. The Porter’s Five Forces Analysis reviews competitive rivalry, bargaining power of suppliers, buyers and consumers as well as the threat of substitution and threat to new entrants.
Amazon operates along legislative powers. Political considerations are concerned with governmental activities and how they influence business operations and their macro-environment. Amazon.com is affected by the following political factors; political stability, government support for e-commerce and increased government support on cyber-security. Political stability positively impacts on Amazon.com. Political stability offers an opportunity for the firm to diversify its business in developed countries.
Similarly, increased governmental support for e-commerce is also beneficial to the firm since it can continue to expand its market. However, this may also act as a threat to Amazon.com due to increased competition from other firms. For example, Chinese online retails have significantly increased their operations with the USA thus posing a threat to Amazon.
Amazon’s performance highly depends on the economic situation. Changes in global economic trends affect the online e-commerce business. Amazon is influenced by the following economic factors; economic stability of the developed nations, increased disposable incomes in the third world countries and potential economic recession in the Chinese economy. Economic stability in the developed economies such as the USA reduces economic issues in macro-environment thus increasing chances of Amazon’s success. Increased disposable income in developing countries creates a business opportunity for Amazon. High disposable income encourages the importation of products. Therefore, the firm would tap the opportunity. China is one of the biggest economies which offer a great opportunity for the firm. However, potential economic instability would affect Amazon’s performance.
Amazon is influenced by the following sociocultural factors; increased wealth disparities increased online buying and increased consumption behavior in the developing nations. The gap between the rich and the poor has greatly widened in many countries. Notably, this offers a potential threat to the firm since the company’s performance in the future is likely to stagnate. Increased consumption behavior in developing markets offers a potential growth opportunity for Amazon.com. An increase in technology, particularly in the developing countries has positively influenced the expansion of Amazon online business. Consumers’ willingness to purchase products from the internet has increased.
The soul of e-commerce is technology; therefore, Amazon is directly affected by changes in technology. The firm’s performance is determined by the following technological factors; improved IT competence, increased cybercrime, and fast technological outmodedness. The high rate of technological changes forces the company to update their assets continuously. However, this is an opportunity in business optimization. Cybercrime affects consumer experience as well as the integrity of the firm. Consumers demand confidentiality, mainly in medical issues which may be violated through cybercrime.
Amazon’s activities are affected by the following environmental factors; rising interests in environmental programs, the growing emphasis on business sustainability and increasing popularity of low-carbon lifestyles. The high demand for corporate social responsibility creates an opportunity for the firm. Notably, this would improve the entity’s sustainability hence building strong and competitive brands. The firm has also endorsed an energy saving strategy which help to reduce carbon emission.
The firm has to adhere to the legal requirements of the countries within which it operates. Globally, there is an increased demand for product regulation, reduced import and export barriers and improved environmental protection regulations. In response to increased product regulation, the firm has greatly reduced and avoided counterfeit products hence attracting more customers and manufactures. The business also has an opportunity to expand its market share due to the reduced import and export regulations. Amazon has imposed strategies of corporate social responsibilities which enable it to address environmental protection. Consequently, the company produces high-quality products.
The five forces analysis includes;
Competitive rivalry; Amazon faces tough competition from other companies which aims at profit maximization. The competition arises due to great aggressiveness of firms, low switching cost and high availability of substitutes. Retail companies are generally aggressive hence exerting competition over one another. Amazon directly competes with other large companies such as Wal-Mart. In the e-commerce sector, there is a high force of substitution. For instance, Amazon’s online retail services can be substituted by Wal-Mart’s brick-and-mortar stores. Switching cost is low; – this implies that the consumer can move from one retailer to the other at a low cost.
Bargaining power of amazon’s consumers is affected by low switching cost, great quality of information and high substitute availability. The consumers’ access to high standard information shapes their decisions. In case the consumers get alternative information, they may decide to shift to the rival company. Notably, this is attributed to the low switching cost as well as the availability of substitutes.
The bargaining power of Amazon’s suppliers is moderate due to the small number of suppliers and moderate forward integration. Suppliers are generally few thus imposing a strong force on Amazon Company. For example, Amazon’s cost of operation would increase due to the change in prices of tools supplied. The suppliers have a moderate power to control their sales to Amazon.com hence, moderate forward integration limits the suppliers’ impact on Amazon.
The threat of substitution is high due to the low cost of substitutes, low switching cost and high availability of alternatives. The company’s performance in the e-commerce industry is profoundly affected by the availability of substitutes and low switching cost. The consumers can easily opt to purchase cheaper substitutes from other retailers. Finally, the threat of new entrants is low. Remarkably, this is attributed to the low switching cost, high economies of scale and the high cost of brand development. Consumers can easily switch to new firms thus causing stiff competition to Amazon. The cost of brand development is high. Consequently, this limits entrants into the market. Similarly, new entrants face a lot of challenge to build high economies of scales to compete with the existing firms.
Internal environment (VRIO)
The VRIO model helps to analyze the internal environment of an entity. The model starts by identifying a resource which can either be tangible or intangible. The model consists of a value, rarity, inimitability, and organization. The components of the model form a strong framework for competitive advantage. The firm in question has more resources which can be analyzed through the VRIO model. However, for the sake of this assignment, this paper evaluates two key resources which include; Brand name and Distribution network.
Brand name; – this is a valuable resource. The firm provides high-quality brands at a competitive price to the consumers. The brand is also relevant to the firm since the company has been in the market for a long time.
Rarity; the company’s brand name is a rare resource. Amazon’s competitors are comparatively small and their brands are not globally recognized. eBay is the key to Amazon’s rival. However, eBay’s brand name is losing popularity while Amazon’s is gaining popularity.
Inimitability; in the online sector, Amazon’s brand name is inimitable. The company has a strong reputation compared to other firms. The small firms competing with Amazon experiences cost disadvantage particularly advertisement cost. eBay is the primary competitor to Amazon through its brand is less competitive.
Organization; the company has an outstanding organizational capacity to achieve their brand name. The firm is globally known thus acts as a competitive advantage to attract more customers.
Value; the distribution network is valuable to the firm. Amazon’s distribution chain is consists of suppliers on one end and consumers on the other end. Other sellers from various fields decided to collaborate with Amazon so as to get reach to many customers. The rivals find it hard to compete with the firm.
Rarity; the distribution network is rare since most of the companies rely on Amazon to penetrate new markets. The firm is also able to sell millions of products across the world thus serving as a competitive advantage over the competitors. The shipping policy is a remarkable distribution network which ensures that services and products are delivered in 2 days’ time. Rivalry business has found this challenging although Wal-Mart has effectively implemented the policy.
Inimitability; the distribution network is costly. The competitors experience cost disadvantage to imitate Amazon’s distribution channel. Different firms have opted to reach their consumers indirectly through collaboration with Amazon.
Organization; Amazon has the organizational capacity to utilize the resources they have continuously developed over the years. The firm is also in a position to penetrate a new market and continue to expand its market share.
The SWOT analysis model identifies both internal and external strategic factors which influence Amazon’s performance. The model comprises of Strengths, weakness, opportunities, and threats. Strengths
The firm has the strongest brand in the online retail market. This helps the firm to strongly compete with other firms. The strong brand also helps to create rigid consumer loyalty and experience. Amazon is the leading firm in the industry in terms of revenue thus assisting the firm to venture into new opportunities. The high revenue also helps the firm to eliminate obsolete technology. Finally, the entity has an extensive product matrix which enables the consumers to find what they need from the company’s website.
The weakness refers to a factor which hinder Amazon Company from further growth. The firm’s business model can be easily imitated by other investors. Notably, this offers a chance for potential competitors. Secondly, the firm has limited entry into the developing nations. Consequently, it will be challenging for Amazon to penetrate such markets when other businesses will have fully established. Thirdly, the company is also not able to provide some products to some customers due to lack of physical stores in their countries.
The firm has an opportunity to enter into new economies particularly in the developing countries. The company will be in a position to establish physical stores in such economies thus increasing its competitive capacity. Amazon has an opportunity to apply its high level of technology to fight against counterfeit.
Cybercrime is one of the key threats to Amazon.com and other online enterprises. Imitation is also a primary threat since the rivals imitate Amazon’s business model to compete against it. Presence of aggressive rivals such as Wal-Mart and eBay is a threat to the firm in question. Consumers are rational beings and they are willing to consume commodities at a lower price, therefore the introduction of lower price commodities by other online retailers would lead to consumer disloyalty.
The company should focus on entry into developing economies. Developing nations offers an opportunity for future growth of the company. The firm should also focus on the construction of physical stores thus increasing accessibility of products by clients. The issue of counterfeit has become a key concern. the company should, therefore, fight against the vice thus increasing consumer loyalty.
Amazon’s business strategies comprise of high focus on technological investment, enhancement of logistical applications, upgrading of web services, M&A strategy, and R&D activities. To start with, the firm focuses on technological investment to better service delivery. For instance, the firm has continuously focused on robot and drone development. The firm acquired Kiva systems; – which manufacture robots. The robots were to be helpful in picking and packaging. It is also focused on the development of new generation drones which would be helpful in package delivery, floating airship warehouses and parachutes.
Secondly, the firm is determined to improve its web services. It has acquired several firms such as Gamesparks, Harvest.ai, and Thinkbox. The strategy aimed at improving the company’s cloud computing services. The third strategy involves enhancement of logistic competences. The firm has continuously opened small warehouses in support of grocery services. Due to the high demand for grocery products in Germany, the firm is determined to tap the opportunities through advanced logistic plans. The management has instituted development of Amazon Logistics App which helps to trap the drivers. The app makes it to for drivers to drop packages.
Thirdly, the policy of 2-day shipping initiative was aimed at increasing attracting more customers. Efficiency in the shipping program would encourage people to change their consumption behavior hence the demand for more goods online. The firm also provides movies, music and book subscriptions. The initiative is meant to attract more customers. The consumers would spend more time in the Amazon environment watching movies, listening to music or reading books. As a result, they spend more money thus generating more income to the firm. The shipping and entertainment strategy does not only help the firm to generate more revenue but also to reduce the cost of shipping through increased economies of scale. The strategy is also aimed at providing data which would help the firm in decision making on the best sites to establish distribution centers.
A corporate strategy involves detailed well-defined longstanding vision that an enterprise has established, aiming to create corporate values and encourage the employees to implement the appropriate action to attain consumer fulfillment. The process is continuous and requires a persistent effort to involve investors in trusting the corporation with their money thus raising the company’s equity. Amazon’s corporate vision is to be ‘Earth’s most customer-centric company where customers can find and discover anything they might want to buy online.’ The idea is clearly defined that the firm aims at ensuring the global reach of products and services, embrace a customer based approach and provide the widest range of products.
Its foundations of competitiveness advantage guide Amazon’s corporate strategy. Therefore, it focuses on technology, the actualization of economies of scale, and leveraging the efficacies from the collaborations amongst its internal resources and external drivers. The firm also employs big data analytics which helps to map the behaviors of the consumers. The big data helps other companies to identify the highly demanded products.
The strategy is also based on the convenience aspect implying that the customers do not have to go to the bookshop to purchase a given book. Instead, they are buying books online; the book for holiday gifts online etc. thus making the process convenient to the consumers. The strategy also encourages product differentiation since it focuses on the non-retail product line. Additionally, the plan is centered on the leveraging technical abilities for the achievement of the business and embracing a cost leadership strategy designed to offer optimum value for its clients at the lowest price level.
Amazon has the required assets to remain dominant in the e-commerce sector. Nevertheless, the company faces various concerns. For example, it has a minimum existence in evolving economies. It is recommendable that the firm has to intensify its tactical entrance into third world nations for growth opportunities. Additionally, to address the problems of rivalry against its rivals such as Wal-Mart the company has to escalate its brick-and-mortar stores to improve brand popularity.