Amazon Case Analysis

3. A solid executive team

• Amazon boasts a solid executive team that includes the founder and CEO, Jeff Bezos. Mr. Bezos is responsible for the idea of Amazon.Com and largely responsible for its progression from a startup company to a multi-billion dollar corporation.

4. Partnership relations (which could be considered a core competency)

• Amazon’s original business plan was to sell products, specifically books, to online users.  In order to create new revenue streams Amazon has partnered with other merchandise retailers to provide web hosting services so that those retailers can sell their products to online customers without the expense of managing their own websites.  Amazon offers another service called zShops, which allows small to medium size businesses to advertise and sell their products through Amazon’s website.  These partnerships allow Amazon to carry less inventory in their distribution centers, which helps create more savings that are passed on to the customers.

5. Access to suppliers

• Amazon offers thousands of products for sale on their website.  The products for sale include books, movies, music, electronics, and toys.  In order for Amazon to provide products to the customers they have to rely on third party suppliers.  Amazon has developed relationships and built networks with thousands of supplier. The partnership that Amazon has with its suppliers creates an opportunity for future business on other ventures.

6. Low overhead because they do not operate any brick and mortar stores

• Since Amazon is strictly an online retailer it saves millions of dollars a year on overhead charges.  Amazon can provide thousands of products to millions of customers while operating out of only a few strategically placed distribution centers. If Amazon wishes to open a new store it’s as easy as creating a new website.

7. Excellent customer service which could be considered a core competency

• One of the biggest advantages that Amazon has over its competitors is its excellent customer service.  Amazon’s customer service is one of the reasons Amazon.com became successful.  Amazon took several steps in order to become the industry’s most customer friendly company.  The steps Amazon took included; informing customers of product shipping dates, it allowed customers to read reviews products, it provided an area where customers could write their own reviews, it sent emails offering suggestions on other products, offered numerous ways to search for products, and they developed a patented cutting edge technology to allow its customers to operate with a one click ordering process.
• Other customer friendly services offered by Amazon included their “share the love” program.  This program provided an incentive for customers to refer products to their friends or family with a 10% discount.  It also gave the referring customer a discount on future purchases if the referred family member purchased a product.  Amazon also established an A-to-Z Guarantee program that provided buyer insurance for any product offered through its market place, auctions, or zShops sellers.  Amazon recognized early that customers had concerns about how safe it was to use a credit card for online purchases.  Amazon dealt with this concern by establishing its safe shopping guarantee.  Amazon used SSL encryption technology to process customer transactions and guarantees any liability on unauthorized use of customer credit cards.

Weaknesses

Overall Amazon is in a position of strength.  They have well established partnerships, access to a network of suppliers, and are finally seeing a profit from their venture.  While the future looks bright there are a few weaknesses the company needs to take a look at.  The company’s current weaknesses include:

1. While not operating brick and mortar establishments saves Amazon millions of dollars in overhead expenses, it also limits its customer base to online computer users.  The online retail industry is growing at a rapid pace, but it still hasn’t reached the number of customers that continue to shop at brick and mortar businesses.
2. A large part of Amazon’s services sector includes its online auction website and its zShop customers.  Amazon has to continually monitor products that are offered through this part of its business or else risk the possibility that some of the products might be inferior in quality or the possibility that they may be competing against themselves with products other vendors are offering.
3. It’s a possibility that Amazon could shift too much of its focus to its services division and lead to distractions from its core competencies which is its ability to sell products through its website.
4. While Amazon has started to show a small profit, it’s still at risk of losing money.  The online retail business is ultra competitive with companies coming and going every day.  In order for Amazon to continue its growth and superior status it must continue to show a financial profit on a more consistent basis.

        

3. The Company’s Current Environmental Opportunities and Threats

Opportunities

The current opportunities for Amazon revolve around the company’s core competencies.  A core competency is defined as something that a firm can do well and includes; providing customer benefits, it must be hard for competitors to imitate, and it can be leveraged widely to many products and markets.  The core competency can include technical matter know how, the reliable process, and close relationships with customers and suppliers.  Amazon’s core competencies include its relationships with its suppliers, manufactures, distributors, and retailers.  Another core competency is its technological advantage over its competitors.  The technological advantages include its patented 1-Click ordering method and its zShops.  A third core competency would be its superior customer service.  Amazon prides itself on having the best customer service in its industry.  Current opportunities for Amazon include:

1. Create partnerships with bigger corporations. By creating partnerships with bigger corporations Amazon can position itself in more markets. Having a larger market presence will give Amazon access to more product sells.  Amazon has to rely on large sales volumes to compensate for low-cost business model.
2. Amazon’s core competency in technology will allow it to use its patented technology to attract more businesses that it can license its products to.  By entering into license agreements with more retailers Amazon can use the technology that they’ve already developed to create more revenues for the company.
3. Amazon has spent millions of dollars marketing their brand in both the domestic and international markets.  Now that Amazon has a foothold in the United States, Canada, and some European countries they can focus their energy on building a customer base in Southeast Asia and South America.  In order for Amazon to continue to grow it only makes sense to market to customers from some of the largest populated countries in the world.
4. Amazon has the opportunity to use their existing technology to expand Amazon.com’s business in online auctions.  Since Amazon already offers a service providing online auctions, it wouldn’t need to spend any more money developing this technology.  Expanding upon existing services will attract new customers which will provide Amazon the opportunity of creating more sales from both the online auction website and its retail website.

        Threats

Amazon is a company that is succeeding in a business where many others have faltered.  Amazon’s original business model has put the company in a position where they are finally seeing a profit.  The company faces several threats that could stunt its growth and cause it to lose money in the near future.  Some of the threats that Amazon is facing include:

1. Increase in competition

• There has been an abundance of online retailers entering the industry and competing against Amazon for market share.  Amazon is one of the few dot.com companies to survive into the millennium, but just because they survived this long does not mean that they will continue to make a profit. Amazon needs to continue to change its business plan when necessary to combat new players in its industry.

2. Repeal of sales tax moratorium

• Amazon is facing a situation where state governments may impose taxation on e-commerce transactions.  Up until this time e-commerce transactions had been immune to state sales tax.  If states begin to charge sales tax, Amazon will have to raise the price of some of their products or pass those costs along to the customer.  Either way this presents Amazon with a decision that could affect future sales.

3. Accounting for stock options

• One method that Amazon has used to attract talented employees is to offer stock options as an alternative to higher salaries.  In the past, companies had no problem issuing the stock options because they were not listed as an expense on the income statement.  Due to pressure from outside sources more companies are starting to show these options as an expense.  The stock option situation is a threat that Amazon needs to address.

4. Poor economic environment

• At the present time Amazon has positioned itself where most of its revenue comes from either its own website (retail and services division) or its website management of other online retailers. If the economy takes a downturn and customers don’t have the discretionary funds available to purchase the items that Amazon and its partners are selling online, then Amazon would most likely face a decline in profits.

4. Stakeholder Analysis

1. Government Agencies – Amazon is a company with a global presence. The company headquarters is located in Seattle, WA, but they have an international division that operates in several countries around the world. Strategic company decisions will be greatly affected by rules and regulations implemented by local, state, and national government agencies. The most concerning issue dealing with government agencies at this time is the rules regarding how states will manage sales taxes for e-commerce transactions. The actions taken by government agencies on this and several other matters will have both positive and negative affects for Amazon.  

2. Labor Unions – Any company that deals with as many suppliers, manufactures, distributors, and retailers as Amazon does is sure to have contact with labor unions at some point in time. Even though Amazon may not have union employees at this time, they do have partners that have union employees. Problems that could arise from labor unions with direct suppliers or partners could be detrimental for the company. Amazon relies on thousands of other business to meet their customers’ demands. It’s in the best interest of Amazon’s management to keep an eye on union affairs with all of its major partners.

3. Competing organizations – Amazon faces a tremendous amount of pressure from competing organizations. There are numerous companies that offer similar services to Amazon. Companies competing to take away some of Amazon’s online market share include; eBay, Yahoo, UBid, and other online retailers. Amazon also faces competition from brick and mortar stores. The brick and mortar stores are not competing directly with Amazon’s online customers, but they are competing with Amazon’s market share in the products they offer. Amazon has to continually monitor changes and trends for both online and in-store retailers. Any changes in these areas will require a response from Amazon if it wants to continue to be known as having the “earth’s largest selection”.  

4. Employees - Employees will be impacted by the decisions of management and the success of Amazon. The decisions Amazon’s top management makes plays a significant role on the employee’s future. It could also be said that Amazon’s future is highly dependent on their employees.  One of Amazon’s core competencies and a main reason for its success is its customer service. Amazon has built a reputation on providing the earth’s most customer-centric company. In order to provide this type of customer service employees must be willing to buy in to the company’s philosophy. The partnership between the company and its employees create a situation where both are highly dependent on one another.

5. Suppliers – Suppliers will be greatly affected by the decisions of Amazon. Amazon’s product line includes everything from books to kitchenware. With this many products available for purchase the company has to deal with suppliers from all over the world. Not only do they have to make sure that the merchandise they are selling meets regulations, but they have to make sure that the products are available when the customer wants them. Amazon also has to rely on a supplier (i.e. UPS, FedEx, U.S. Postal Service) to get their products to the customer after purchase. Amazon is an industry where a large majority of their retail sales are heavily dependent on suppliers, therefore; any strategic decisions by Amazon would have an impact on suppliers.

6. Customers – Customers will be impacted by the actions taken by Amazon. Retail customers have come to recognize Amazon as a highly efficient online retailer. Customers can purchase books, movies, clothing, electronics, and toys. Amazon’s sales over the last several years show how the company has grown and the customer base it has built. On the services side of the company there are many 3rd party companies that depend on Amazon’s ability to manage their online retail websites. Customers on both sides of Amazon’s industries will be impacted by strategic decision made by Amazon’s top management.

7. Civic Groups – Civic groups in the local areas of Amazon’s distribution centers will be concerned with any actions taken by the company. Local Chambers of Commerce will have an interest in the job opportunities that may be created by company operations. Since all of Amazon’s retail business is done online its regional warehouse distribution centers would not be competing directly with local retailers.

8. Public Interest Groups - Public interest groups will have interest in the decisions made by Amazon. Since Amazon provides its services to the online community, personal security is always a concern. Some of the interest groups that would have concerns with Amazon’s decisions could be groups supporting more strict privacy laws and/or concerns with identification theft.  Interest groups that represent financial industries will also have a concern in the decisions of Amazon’s management since it is a publically traded company.

9. Stockholders – Stockholders are directly impacted by the decisions made by Amazon’s decisions makers. The financial choices that Amazon’s top management makes will have both an immediate and long-term impact on the shareholders of the company. If management can make solid decisions that produce profits then the shareholders are rewarded with high stock prices and the potential of future dividends. If Amazon’s key decision makers do not make sound financial decisions then the shareholders will see a decrease in the stock’s performance and ultimately lose their investment.

5. Identify Current Problems

Increased competition has created a problem for Amazon.  In the early days of online retail business there were only a few major players.  Over the last few years several companies have established themselves as real competitors against Amazon.  New technologies and services are allowing competitors to gain some of the market share that Amazon once enjoyed.  In order for Amazon to remain a leader in its industry it is important that they continue to invest in new technologies and focus on even better customer service.  Another problem that Amazon currently faces is a situation where state governments may impose sales tax on e-commerce transactions.  Amazon needs to have a strategy in place so that if the states decide to impose a sales tax Amazon can act quickly and help offset any negative affects it may have on future profits.  Amazon also needs to address the issue of how they account for employee stock options.  In the past Amazon has used employee stock options as an alternative for higher salaries when recruiting highly sought after employees. Companies had no problems issuing the stock options because they were not an expense on the income statement.  The way stock options are accounted for has recently changed and more companies are being pressured to count the stock options as an expense.  Amazon needs to implement a plan that will comply with the business standards and if this plan includes counting stock options as an expense on the financial statement, then it may have a negative effect on future profits.

6. Alternative Strategies

Amazon’s top management could consider several alternative strategies that the company could use to help it become a consistent moneymaker.  The first alternative strategy that Amazon could consider implementing is to expand its business in online auctions.  By expanding on a service that the company already offers, it would not incur any new developmental or startup expenses.  By expanding its online auction business Amazon could attract new customers and increase the number of visitors to its website.  Increasing the number of visitors to its website gives Amazon an opportunity to create sales for its retail business. Another benefit of increased traffic at Amazon’s website is the opportunity for Amazon to sell advertisement to other companies.  A second alternative strategy Amazon could consider is implementing the idea of a business to business (B2B) exchange.  This business to business exchange could serve as a link between suppliers, manufactures, distributors, and retailers.  Amazon could increase company revenues by using existing technology to host the service and collect a monthly fee from corporations that choose to participate in the service.  Amazon could use its current relationship with suppliers, manufactures, and retailers to create a comprehensive network that companies from several different industries can use to exchange information.  A third strategy that Amazon should consider is expanding in previously untapped markets.  Amazon currently operates websites in the United States, Canada, Japan, France, Germany, and the United Kingdom.  The next logical step would be for Amazon to expand into the Southeast Asian and South American markets.  Southeast Asia and South America are progressing very rapidly in the technology industry.  Getting a head start in these highly populated countries should give Amazon an increase in both their retail and services industries.

7. Recommendations

1. Use Amazon’s brand name to expand into untapped markets

• Amazon should take advantage of its global brand name and enter previously untapped markets.  These markets should include Southeast Asia and South America.  Countries located in these geographical areas have some of the highest populations in the world.  Countries located in Southeast Asia and South America are experiencing advancements in technology.  Combining the high populations and the advancement of technology in these countries creates an opportunity for millions of more customers.

2. Use Amazon’s current technology to expand its online auction business

• Amazon currently has an online auction service.  Amazon should consider expanding the service to compete with other online auction leaders, such as EBay and Yahoo.  Since Amazon already has the technology in place, they would not incur any developmental or startup expenses.  By aggressively promoting this expanded service Amazon would create new customers which should correlate to more sales.

3. Use Amazon’s previous established relationships with other businesses to implement a business to business (B2B) exchange for suppliers, manufactures, distributors, and retailers to use

• Amazon sells thousands of different products supplied by hundreds of different vendors.  This unique arrangement has allowed Amazon to build relationships with hundreds of suppliers, manufacturers, distributors, and retailers.  Amazon should consider using these relationships and implement a business to business exchange for its partners.  Amazon could create a new revenue stream by charging hosting fees and collecting commissions on completing transactions.

4. Create a strategic plan to combat any change in the states sales tax policy

• Amazon needs to create a strategic plan to combat any changes that state governments may make in consideration to how it taxes e-commerce transactions.  Up until this time e-commerce transactions had been exempt from state sales taxes.  This policy may change in the near future and if it does Amazon needs to be in a position to act quickly.

5. Create a strategic plan that would help reduce the financial hit the company may take should it choose to list stock options as an expense on the financial statement

• Amazon needs to create a strategic plan that will help reduce the financial hit the company may take should it choose to list stock options as an expense on financial statements.  In the past Amazon has used the stock options as an alternative to higher salaries to recruit and retain valuable employees.  Due to outside pressure and changes in the way companies report stock options, Amazon may be forced to list the options as an expense on its financial statement. Changing the way stock options are listed on the financial statement will cause a decrease in future profits.  The company needs a plan to deal with this situation should they be required to change their current policy.

6. Develop a plan that will maximize Amazon’s ability to license its patented 1-Click technology

• Amazon needs to take advantage of its patented 1-Click technology.  Amazon currently has license agreements with other online retailers to use its service.  In order to maximize the potential of this technology, Amazon should consider entering into more partnerships or licensing’s agreements with more businesses.

7. Continue to cut costs and reduce inventories by partnering with more companies

• Amazon should continue to create partnerships with more companies.  The partnerships allow all Amazon to reduce inventories and cut costs. Partnerships also give Amazon a bigger presence with brick and mortar retailers, because they can advertise through the partnerships thus eliminating very expensive advertising campaigns.