Amazon study case

 AMAZON CASE STUDY

Defining the organization strategic direction

Plan:

Introduction

Part I: Amazon’s current position

Part II: Amazon’s core competencies and dynamic capabilities

Part III: Amazon’s strategic intent

Conclusion

References

Introduction

What is Amazon?

Jeff Bezos founded Amazon in 1994 as the biggest bookstore you could ever find on Earth. It made it online. Amazon soon expanded and became a giant in the online retail industry by global domination.

But Amazon is much more than the largest e-commerce market place. It is also one of the leaders of cloud computing services with AWS (Amazon Web services) and it runs many other businesses like Amazon Advertising Services, Amazon Prime, Alexa, etc.

Amazon is a multiple businesses company operating in various industries which have no link with each other.

Therefore, I would not base my analysis about Amazon’s current position on its external and internal environment (using Porter’s five forces model/Stakeholder analysis/the value chain model).

In my opinion, the complexity of Amazon requires to fully understand their strategy and how they managed to make profit out of all their businesses.

It will give us a better understanding about their strategic direction as one of the Big Five (GAFAM: Google, Apple, Facebook, Amazon, Microsoft).

Part I: Amazon’s current position

What is Amazon business strategy?

Unlike other companies, Amazon does not to focus on profit but on customer satisfaction.  Since day one, Amazon’s selling strategy has never changed: to build customer loyalty by providing low prices, fast delivery and easy shopping – even if it implies to sacrifices profit in the short-medium term. Their goal is to have market leadership.

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Figure 1https://www.locusassignments.com/courses/unit-1-business-skills-for-e-commerce/

Is Amazon a profitable company?

From 1997 to 2002, Amazon was losing money and it only started to gain profit in 2003.

They were focusing on making lots of sales rather than profit in order to gain more customers in the long-term.

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Figure 2https://www.youtube.com/watch?v=vC5x9rIIdAc&frags=pl%2Cwn

Still, from 2003 to 2017, Amazon did not make lots of profit. Nevertheless, their sales were growing expediently.  

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Figure 3 https://www.youtube.com/watch?v=vC5x9rIIdAc&frags=pl%2Cwn

2018 was a turning year for Amazon. They reported a record net income of $10.1 billion, more than 3 times that in 2017 with $3 billion.

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How Amazon makes money?

To understand how Amazon has getting is recent huge profitability we first need to look at its net revenue by product groups.

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Comments:

Online stores have always been the core part of Amazon’s business.

Amazon is taking advantage of cash conversion cycles to invest in other industries and grow.

The company based its online stores revenue on very tight profits margins and high-volume sales.

To generate enough cashflow, Amazon collects payments quickly from its customers and pay its vendors with relatively longer payment terms.

Therefore, Amazon uses its short-term liquidity to invest and expand in its other industries.

It allows Amazon to development its others business like Amazon Prime (subscription service), Amazon AWS (cloud computing services) and Amazon Advertising Services (other).

Those businesses run with much higher margins and make the company more profitable in the long run:

• AWS category

Amazon Web Service is a cloud computing services that provides processing and storage. Its clients, which include Netflix, Airbnb and Yelp, are charged for their volume of usage, the features they subscribe to, and the services they use.

AWS’s growth started in 2015 and become a significant force in computing. In 2018, AWS brought in $25.7 billion in revenue.

Over the years, AWS has continually getting bigger as a percentage of overall revenue and it is a highly profitable business for Amazon.

• Other category

The other group is also growing fast. It concerns its advertising business. By becoming the center of commerce for many businesses, Amazon provides them advertising services on its platform. More and more businesses are selling on Amazon marketplace, which guarantee the company to have advertising income in the long -term.

• Retail third-party sellers’ services category

In the third-party marketplace, outside companies pay Amazon to sell their goods on its platform.

Amazon takes a margin between 15 and 20% of the sales and also collect fees for providing storage, shipping and customer services.

The third-party marketplace is more profitable for Amazon since they are making higher margins than the traditional Amazon retail model.

What about Amazon’s current position?

Amazon is now one of the biggest retailers of the world and one of the giant technology players as a Big five member.

The company has been able to enter one industry after another and is now competing with the toughest players.

Its mains competitors are: Google, Microsoft, Salesforce, Oracle, Walmart, eBay, Alibaba, etc.

Part II: Amazon’s core competencies

Amazon distinguish itself in the marketplace with 2 main core competencies. Those combinations of abilities have provided Amazon a significant source of differentiation from its competitors that is hard to imitate.

1. Scale businesses and market leadership

What makes Amazon rare is not its wide range of products and services itself but its scale. Amazon is the world’s most powerful large-scale company.

Bezos once declared: “We believe scale is central to achieving the potential of our business model”.

It is a part of Amazon vision: “Big things start small”. One of the biggest strengths of Amazon is to make each industry a massive business in the long run, by taking time and going step by step.

Having as much as scale businesses as Amazon is almost unachievable as they are gaining more and more market market share every day.

1. Putting customer at the center of its Universe

Since day one, Amazon made customer satisfaction its core business value.

From the beginning their focus has been on offering their customers compelling value by improving the shopping experience, customer service and excellence.

Amazon has gained customer’s trust and their loyalty over the years. For the 8th year Amazon has been ranked #1 as the American customer satisfaction.

Jeff Bezos’ company never stop on making their customer more satisfied. In 2017 annual letter for the shareholders, Bezos wrote: “One thing I love about customers is that they are divinely discontent. Their expectations are never static – they go up. It’s human nature.”