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Amazon Case Analysis

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Introduction

To: Jeff Bezos, CEO of Amazon From: Chris Smith Date: 7 November 2007 Subject: Recommendations to keep Amazon profitable EXECUTIVE SUMMARY Amazon is in an excellent position to be competitive within its given industry. It has spent millions of dollars over the last several years building its brand and taking over a majority of its industries market share. Amazon is considered to be the premier online retailer in the world. The products they offer range from books to electronics and clothing to kitchenware. Along with their retail division Amazon also operates a services division. Amazon's services division is responsible for online auctions, partnerships, zShops, and website management. At the present time Amazon has a limited number of opportunities it can use to expand its business. How the company reacts to opportunities and threats within the industry will determine the future of the company. Amazon is facing threats from increased competition in an industry where profit margins can be very thin. Amazon is also facing threats from state governments and interest groups presenting the financial industry. Amazon's ability to react to a changing marketplace and develop alternative strategies to deal with this change will help separate it from its competitors. I have examined Amazon's current business strategy and I offer the following recommendations. 1. Use Amazon's brand name to expand into untapped markets 2. Use Amazon's superior technology to expand its online auction business 3. Use Amazon's previously established relationships with other businesses to implement a business to business (B2B) exchange for suppliers, manufactures, distributors, and retailers to use 4. Create a strategic plan to combat any change in the states sales tax policy 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 6. Develop a plan that will maximize Amazon's ability to license its patented 1-Click technology 7. ...read more.

Middle

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. ...read more.

Conclusion

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. ...read more.

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