Amazon.com, Inc. was founded in 1994 in Seattle, Washington by Jeff Bezos, a computer science and electrical engineering graduate from Princeton University (Datamonitor, 2008). He started as an online book retailer and as the online market was growing steadily at that time, Amazon quickly expanded its range of goods and offers next to books today also electronic products, food and health and beauty products but also services such as those to third-party retailers, marketing and promotional services and web services for developers (Datamonitor, 2008).
When founding his company, Bezos had the vision to create a place where you can get “everything from anywhere online” (Laudon and Laudon, 2006, p. 104). Consequently, a core characteristic of Amazon became the customer-centrism, which Bezos defines through three goals: Firstly, he wants Amazon to be the most customer-centric company on earth, secondly innovation should be on behalf of the customers and thirdly the store should be personalized for each and every individual customer (Gillespie, 2005).
For example, if a customer wants to buy something at Amazon.com, he can always see in the product description what other customers who bought this article also bought. This data comes directly from Amazon’s data warehouse, so Amazon uses its data warehouse as well for giving information to its customers. Ever since its foundation, Amazon has been collecting and storing data in order to perfect its knowledge and to base its managerial decisions on the most complete set of data that is possible (Gillespie, 2005).
Amazon’s customer base has been growing rapidly and there is a high level of repeat customers as they quickly developed trust in the company and Amazon has become a strong brand name (The Economist, 2008). In addition to that, the high grade of personalization and the convenient ways to buy and track orders for example bring along a high customer satisfaction (The Economist, 2008).
So today, Amazon is known next to Ebay Inc. or Barnes & Noble Inc. as one of the most successful online retailers. Through its quick responses to market trends and changes over the past few years which were possible because of the extensive data Amazon had collected about its customers, it has steadily expanded its position on the online market (The Economist, 2008).
Moreover, Amazon saves warehousing costs as it concentrates only on the online sale and has no traditional branches. Hence, warehouses and packing stations can be build where the ground is cheap and the overhead costs are lower (Laudon and Laudon, 2006). Amazon passes these cost advantages on to its customers and invests the saved money into developing new innovations. For example, Amazon invented and patented the one-click-buy method to pay for a purchase with a single click which makes the shopping experience much more convenient for customers (Laudon and Laudon, 2006).
Through standardized data and software applications, Amazon has furthermore created one of the most sophisticated supply chain systems in the world (Bacheldor, 2004). If a customer for example buys a CD or DVD on Amazon.com, the order-management system communicates with the inventory and warehouse-management system and the customer momentarily knows when the goods will be shipped and whether they come for example in one or two packages (Bacheldor, 2004). This on the one hand enhanced Supply Chain Management also improves the customer relations as it increases the transparency of an order and gives the customer all the information he might require (Bacheldor, 2004).
Summing it up, Amazon’s competitive advantage lies within the customer-centrism, the personalized services and the ability to react to changes quickly, in fact to initiate these changes by being innovative on its own. A good example for this is the “e-nightmare before Christmas”: in high peak seasons, there were often delays in deliveries as the distributors dealing on behalf of Amazon were backlogged with orders. Hence, Amazon build up over 4 million square feet of warehouse space in the US to have its own distribution centers and by 1999, 99 % of the holiday orders on Amazon.com arrived on time (Gillespie, 2005).
This example clearly shows Amazon’s strong ambition to satisfy the customers which is quite successful as now they have a very loyal customer base which is continuously cultivated by lowering prices, giving special offers and adding new features to the Amazon.com website (Gillespie, 2005). Amazon is a brand name everyone knows, a site that is easy to navigate and the company has build up a reputation for reliability (Gillespie, 2005).
However, Amazon still has to face competition. One of their most important competitors is most certainly Ebay Inc., although it is not an online retailer but an online bazaar.
Basically, Amazon.com, Inc. and Ebay Inc. are using the same data warehousing technologies. However, Ebay Inc.’s business model differs from Amazon’s as it mainly concentrates on auctions (Datamonitor, 2008).
Ebay Inc. has been holding a monopolistic position on the online marketplace via auctions for years, but in comparison to Amazon.com, the company did not come up with any innovations recently (The Economist, 2008). Ebay Inc.’s profit margins are shrinking whilst Amazons’ are steadily increasing, even if they are still smaller than Ebay Inc.s’ (The Economist, 2008).
In 2007, Amazon recorded an increase in revenue of 38.5 % and Ebay Inc. stated an increase in revenue of 28.5 %. Ebay Inc.’s customer base is shrinking whilst Amazon’s is increasing due to its strong brand name and the named customer-centrism, which also exists on Ebay Inc., but there to a far smaller extent. Amazon used the last decade to build up trust that orders will be delivered on time and cheap enough to keep customers coming back while on Ebay Inc. it is still sometimes the case that customers can not be sure what they will get (Gillespie, 2005).
Apart from the competition with Ebay Inc., Amazon also has to face rivalry with a bookstore that is not completely virtual: Barnes & Noble is a well-known publisher and book retailer operating mainly in the US.
The company entered the online book market later than Amazon, namely in 1997 (Data Monitor). Through the physical stores it still maintains, Barnes & Noble have higher overheads and their online offer is about ten times smaller than Amazon’s (data monitor). Amazon can offer a much larger selection of for example book titles as it does not have to stock all the goods but relies on distributors instead (Laudon and Laudon, 2006). The figures make it clear: Barnes & Noble announced an increase in revenue of 2.7 % in 2007 against the named 38.5 % of Amazon.
All in all, it can be said that Amazon’s competitive advantage is rooted in its flexibility and the relentless focus on the customer. Amazon constantly aims to increase customer satisfaction and convenience and invests the money it saves into new technologies and into keeping up with the times. Amazon always tries to be one step ahead of its competitors, something that for example Ebay Inc. missed for a long time. The constant data analysis combined with a flexible management allows well-based decisions and one can say that Amazon has optimized its performance by relying on a data warehouse and new information technologies rather than on physical warehouses and stores or on its monopolistic position.
References
Bacheldor, B. (2004) From Scratch: Amazon keeps supply chain close to home. InformationWeek [Online] available at: http://www.informationweek.com/news/software/enterpriseapps/showArticle.jhtml?articleID=18300054 [Accessed 2 February 2009]
Datamonitor (2008) Amazon.com, Inc.: Company Profile, Datamonitor. [Online] available at: http://web.ebscohost.com/ehost/pdf?vid=15&hid=106&sid=db8bdc47-ea9c- 4041-bf36-f9614683140e%40sessionmgr103 [Accessed 29 January 2009]
Datamonitor (2008) Barnes & Noble Inc.: Company Profile, Datamonitor. [Online] available at: http://web.ebscohost.com/ehost/pdf?vid=17&hid=12&sid=37554f2d-df9b-45f0-8cd4-7e6aa3617c97%40SRCSM2 [Accessed 29 January 2009]
Datamonitor (2008) Ebay Inc.: Company Profile, Datamonitor. [Online] available at: http://web.ebscohost.com/ehost/pdf?vid=22&hid=12&sid=37554f2d-df9b-45f0-8cd4-7e6aa3617c97%40SRCSM2 [Accessed 29 January 2009]
Gillespie, E. (2005) Amazon: E-commerce Success Story. CBS News 4 February [Online] available at: http://www.cbsnews.com/stories/2005/07/05/tech/main706351.shtml [Accessed 2 February 2009]
Laudon, C.L., Laudon J.P. (2006) Management Information Systems: Managing The Digital Firm, 10th ed., Pearson Prentice Hall, New Jersey
The Economist (2008) “Yahoo!, eBay and Amazon: The three survivors”. The Economist, 19 Jun [Online] available at: http://www.economist.com/business/displaystory.cfm?story_id=11580247 [Accessed 25 January 2009]
