Amazon.com founded by the legendary Jeff Bezos was one of the pioneers of e-commerce phenomenon when it launched the world’s biggest online book store. Thereafter it went on to upscale its business to offer music, software, office products, electronics, health products and much more. Although Jeff Bezos did not have enough experience about the dynamics of the retailing business, the exponential growth of the Internet made him envision a huge growth opportunity waiting to be tapped. He opted to start the company from Seattle as it was a repository of a huge talent pool and also nearer to one of the largest book wholesalers operating from Rosenberg, Oregon. From very humble beginning within the confines of a garage, to becoming the largest virtual bookstore, Amazon.com has seen it all. (Kotelnikov, 2011)
(1) (i) Identification and evaluation of Amazon’s Strategic position in the context of its internal and external environment:
Strategy is associated with aligning organizational resources and capabilities to the opportunities which arise in the external environment. Overall it has been observed that greater the rate of change in an organization’s external environment, the greater likelihood of the organization’s internal resources and capabilities to provide a secure base for long-term strategy. In case of Amazon.com, as it is a fast-moving, technology-based company, new companies are launched around specific technological capabilities. When a company is encountered with the imminent obsolescence of its core product, whether its strategic focus on continuing to cater to the basic customer requirement or on deploying its resources and capabilities in other markets, Amazon has diversified from its core business of books to include other merchandise like music, health products etc. (Grant, 2007)
(1) (ii) Assessment of Amazon’s internal and external environment to describe its current strategic position and strategies.
The external environment was never favourable for Amazon as it was a contemporary company during the dotcom era. With a lot of companies going bust during that era, Amazon was among the few winners to have emerged colourful from being a $4 billion company in 2002 to about $20 billion in 2008. The company was able to survive the dotcom bust since it was equipped with a feasible and innovative business model which it built around a market-changing customer value proposition. Besides, it has expanded its business beyond books to cover all types of consumer articles as well. Concurrently, it has also worked out a new value proposition of offering buyer and sellers of used books based on an agreed commission-based brokerage service. It has also strategically developed a model to cater to a completely different category of customer i.e. third party sellers. (Johnson, 2010)
In yet another strategic move, the company by selling merchandise of other retailers which were direct competitors, has graduated its business from a direct sales model to a model based on sales plus service thereby aggregating a cluster of sellers under a single virtual entity. This model has been good revenue grosser as it has helped it earn commission from the sales of products of other companies. Amazon went a step further in 2007 and launched its killer product the ‘Kindle’ an e-book reader which was completely outside the realm of its core business. In order to launch product based offering as opposed to service-based business, the company had to become an OEM — original equipment manufacturer. It dovetailed this technology in a completely integrated digital media platform akin to Apple’s iTunes combining transaction as well as subscription-based content delivery. Amazon collaborated with content producers in newer ways to facilitate independent publishers to generate novel content for Kindle. The product did very well in the first year itself selling roughly 500,000 kindles. Amazon has immensely broadened the market for e-books and positioned itself for success not just in this market, but in the daily newspaper as well as journals. (Johnson, 2010)
(1) (iii) Industry Analysis (Porter Five Forces, Value Chain, Technology Life Cycle & Product Life cycle) Threat of new entrants:
Amazon operates in the Electronic Commerce space which has low entry barriers and hence no specific skills or permits are needed to enter the online retail business except for modest capital requirements. Although the industry is highly fragmented, of late there has been a marked trend towards consolidation wherein personalised service offered by Amazon has become the key differentiator. Its “one-click” shopping makes purchase duration short which stores and recalls customer billing and shipping information. It profited from cheap financing opportunities available during late 1990s to raise more than $1 billion in debt helping it to build a huge distribution network. In the present era of credit squeeze for Internet start-ups, a new company would not be able to challenge the warehousing prowess of Amazon. This apart, few would be able to match Amazon’s current policy of offering free shipping on orders more than $25. Therefore Amazon faces negligible threat of new entrants. (McAfee, 2003)
Buyer Power: Two distinct buyer groups comprise Amazon’s business model, both having moderate power. The end consumer constitutes the largest buyer pool and to garner revenue Amazon competes with physical book stores as also other websites offering identical products. Buyer power is extremely limited to collectively bargain with Amazon as regards price, discounts and other freebies. On the other hand Amazon has no control if individual buyers abandon the site to shop elsewhere. The other buyer group include retailers contracting Amazon to offer them a web presence distribution service. Their choice as also ability to changeover to rivals is varied and they can bargain for good terms from Amazon albeit individually. Here Amazon can offer differential terms to the retailer community, favouring one at the cost of the other. (McAfee, 2003)
Supplier power: Supplier power is also limited because the supplier community represents various brands covering numerous product categories. Amazon can always dictate terms and prices due to its huge size and the suppliers’ keenness to offload the products to Amazon due to its growing popularity. (McAfee, 2003)
Substitutes: The threat of substitutes is high as Amazon’s customers can exercise other choices. Traditional book stores are a substitute for Amazon as also Malls, other e-retailers like eBay and Wal-Mart. However, Amazon has protected its turf by offering some products which are available directly from the respective manufacturers thereby giving customers a distinct cost advantage. (McAfee, 2003)
Rivalry: Amazon faces competition from small regional stores as also large national chains like Wal-Mart which is its most formidable challenger. Internet being an enabler, Amazon is fully dependent on consumer’s ability to access the Internet. Presently, 56% of U.S. households are online implying that Amazon can be accessed by a sizeable population. However the explosive growth witnessed in the 1990s will be far from present and growth will largely be incremental. In Amazon’s case, persistent profits appears negligible given the low barriers to entry, moderate bargaining power of buyers, high threat of substitutes and high rivalry. But Amazon’s strong brand name and its predominant Internet retailing presence will ensure that it will corner any profit that the industry will earn. A graphic showing Porter’s Five Forces is shown in Exhibit-I. (McAfee, 2003)
Product and Technology Life Cycle: Amazon apart from running the world’s largest virtual bookstore and allied products has immersed itself in the product life-cycle chain through its launch of the Kindle e-book Reader in 2007- a year later than Sony. Sony being the pioneer launched the product at a price point of $349 but later slashed it to $299. Amazon’s Kindle launched in Nov’2007 was priced at $399 which is higher than Sony. It is interesting to note that although Sony’s product was priced cheaper and it had the First Mover Advantage — FMA, it was Amazon’s Kindle that became the preferred purchase and caught buyer community’s fancy in the U.S. Hence being cheap did not become the route to wining market share for Sony, but presenting a superior value offering by Amazon was. Although both Amazon and Sony relied upon e-ink Corp technology, Amazon quickly offered a differentiated product to be ahead of the technology curve by launching 3G downloads of books. (Tim, 2010)
Amazon went on to offer Kindle DX at the global level with more feature rich capabilities including increased storage. Sony users still had to download their books through their PCs. The year 2010 changed the dynamics when Barnes and Noble launched ‘Nook’ followed by Apple’s revolutionary iPad. Nook was priced cheaper at $149, but iPad’s price range from $499 to $829 surpassed everybody with more features, unique User Interface and added benefits than the competition had to offer. Although prices on entry-level products tend to ease with the evolution of new product categories, newer player do not have to compete at entry
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