Amazon.com Strategic Analysis

!   Corporate Strategy
!   E-Retailing Industry Analysis

!   Business Level Strategy

!   SWOT Analysis

!   Strategic Alternatives

!   Action Plan

Began as one of the first
major companies to sell
goods over the Internet

Started as solely as
an Online Bookstore

Due to success diversified
into many other product
lines and services

Multinational e-
commerce
company

Worlds Largest
online Retailer

RETAIL NON-RETAIL

 Books, Music & Movies
!
!  Referrals/Commission
!  Consumer Electronics
!  Computer & Office
based selling
!  Tools & Automotive !  Amazon Web Services (AWS)
 Food & Household
 Fulfillment by Amazon
!
!
!  Home Improvement
!  Toys & Video Games
(Services to businesses)
!  Sports & Fitness
!  Clothing and Jewelry
!  Kids and Baby
!  Kindle

!  IMBD Helps Amazon to
compete with
!  Exchange.com Google, Ebay,
Apple
!  Bibliofind.com
Absorb
!  Musicfile.com Technologies and
employees into
!  Planetall.com Amazon’s IT
operations
!  Junglee.com Improve retail
software
services

Sellers Enterprises

Content
Consumer
Creators
Amazon

!  Customer Obsession: We start with the customer and work
backwards.
!  Innovation: If you don't listen to your customers you will fail.
But if you only listen to your customers you will also fail.
!  Bias for Action: We live in a time of unheralded revolution and
insurmountable opportunity--provided we make every minute
count.
!  Bezos’ Goal is to be a Cost- Leader
!  Committed to leveraging Amazon’s core competencies in
whatever ways they can find to realize the value of the
company’s assets

Mission statement: “Earth’s most customer centric
company”

Providing high value using technology to offer low cost
solutions to the customer
!  Common technology and channel is what makes the
businesses ﬁt
!  Amazon can use its core competencies to full effect in
all areas of business

Concentric
Diversification

Creating value for customers by using their
technology expertise

The “Lowest cost customer centric online
marketplace”

!  The strategy performs well, and is appropriate for
the business
!  There is a high potential for long term success

!  Economies of scale (high)

!  Differentiation (high)

!  Total Capital Requirements (high)

!  Access to distribution (high)

!  Government policy (medium)

Barriers to entry = high

!  Specialized assets (medium)

!  Fixed cost of exit (medium)

!  Management commitment (medium)

!  Contractual commitment (low)

Barriers to exit = medium

!  Concentration (high)
!  Growth rate (high)
!  Fixed costs (high)
!  Storage costs (high)
!  Differentiation (high)
!  Switching costs (low)
!  Capacity additions (medium)
!  Diverse competitors (medium)
!  Exit barriers (medium)

High Rivalry

!  Relative industry concentration
!  Importance of what is sold to the quality and
success of final product (supplier)
!  Switching costs (buyer)
!  Threat of vertical integration (supplier)
!  Product differentiation (buyer)
!  Availability of substitutes (buyer)

High buyer power

!  Brick and mortar retail stores (high)

!  Catalogs (low)

!  Rental services (high)

!  “Content creators”

!  Shipping industry: FedEx, UPS

!  Internet service industry

!  Computer industry

Amazon
Sales revenue

eBay
Target.com
Walmart.com
Overstock
.com

B&N.com

Range of products offered

!  Economies of scale (global)
!  Customer needs (global)
!  Competition (global)
!  Channels (global)
!  Transportation costs (global)
!  Product standards (global)

Industry globalization = high

!  Technology
  Expertise in technology
  One-Click System

!  Economies of Scale

!  Talented workforce
  Company Culture
!  Marketing
  Brand name and reputation

!  Extensive product offerings

!  Extremely low prices
  Shipping/deliveryadvantages
  Manufacturing of Kindle as lowest-price e-reader

!  Most sustainable competitive advantages
include:
  Economy of Scale
  Expertise in Technology

  Talented workforce and culture of company

!  Difficult to differentiate products

!  Copying the business model

!  Can’t offer “instant gratification”

Competitive
Advantages

Be Better Than
Avoid Competitors Competition

Attractive Industry Attractive S.G. Attractive Niche
Cost
Differentiation
Advantage

Entry Barriers Isolating
Mobility Barriers
Mechanisms

!  “Lowest possible prices”
  “Amazon prime” members
  Customers can avoid state sales tax

  Free shipping offers

  Small companies and individual sellers

  Selling Kindle at a deficit

  Amazon’s Price Check App

Consolidated Net Sales (millions)
25,000

21,372

20,000

15,497
15,000

11,681

10,000

5,000

0

2009 2010 2011

Overall net sales increased 41%, 40% and 28% in
2011, 2010, and 2009

North American Net Sales (millions)
25,000

21,372

20,000

15,497
15,000

11,681

10,000

5,000

0

2009 2010 2011
North American sales growth rate was 43%, 46%, and 25% in
2011, 2010, and 2009

International Net Sales (millions)
25,000

21,372

20,000

15,497
15,000

11,681

10,000

5,000

0

2009 2010 2011

International sales growth rate was 38%, 33%, and 31% in
2011, 2010, and 2009

!  New skills through acquisitions

!  Strong IT system

!  Extensive product lines at low prices

!  Strong brand image

!  No product differentiation

!  Low profit margins

!  Lose Focus

!  Global expansion

!  Online movies

!  Expand the technology service market

!  Growth in Cloud computing

!  Dependence on vendors

!  Fierce competition

!  Government

!  Find new areas of growth

!  How to maintain long term profitability

Consistency Consistency
Growth with Amazons with
Strategy Marketplace

Consistency Short and
Competitive
with Long Term
Advantages
Resources Profitability

1. Eliminate Kindle Fire

2. Expansion to Scandinavia

3. Expansion of AWS

Discontinue the the Kindle Fire, in favor of
the Kindle and licensing media content to
existing devices.

VS

Kindle Fire Kindle

Cost per
Cost more to
Highly share
produce for High Cost
competitive decreased
what it is Short Term
Market since launch
sold for
of Kindle Fire

Would Amazon
Want to
Engage High would
enter the
Consumers expected make a lot
tablet
into Online returns of money
market
Retailing on Media

Inconsistent with
Consistent with the Consistent with
Strategy because we
marketplace since resources since new
are favoring Short-
we are subsidizing technologies are
term Profitability over
our own product needed
Long-term

Expand E-Commerce Globally into the
Scandinavian Market

Modern ICT
Sophisticated
and IT
High Use of Infrastructure
infrastructures High Income
Internet for Importing
to support
and Exporting
services

!  Complex Road System
  Bridges to connect
Denmark and Sweden
!  Port of Copenhagen in
the Baltic Sea
  24 hour ship handling
  Short turnaround times
and some of the lowest
storage times in Europe

Experienced
Not as High Online
4 Different
Growth as Shoppers
Exchange
the BRIC can find
Rates
Nations other
Alternatives

!  Result in 5-20%
Adverse Change
$50 $220
Million Million
for 5% for 20%

$110
Million for
10%

Consistent with Consistent with Consistent with
Strategy because the Market Place Resources
it favors long term because there is because we have
profitability over growth in Global E- the Capital to
short term Commerce expand Abroad

Expanding Amazon Web Services (AWS)
to Meet the Needs of Developers

Offers
Businesses low Offers Broad
Pay As You Go
fixed capital Functionality Reliable Data
Model Based
expenses in and Global Management
on need
exchange for Scale
variable cost

Short-Term
Long-Term
Profitability is Low
Profitability is High
because of Large
because it is a high
Capital
growth market
Investments

Expanding
Large
Our Market Available
Industry
Customer Leader Capital
Growth
Base

Large
Short Life Investment
Untested
Span of in Fixed
Market
Technology Capital
Assets

Consistent with Consistent with
Consistent with
Marketplace because Resources because
Strategy because we
it’s a Proven Area of We are Expanding on
are favoring Long-
Future Growth Where Existing Data
Term Profitability over
we are Already a Centers, and
Short-Term
Market Leader Investing Free Capital

Discontinue the Global Expansion Expansion of AWS
Kindle Fire into Scandinavia

Short-term 4 (.1) = .4 2 (.1) = .2 2 (.1) = .2
Profitability (.1)

Long-term 0 (.3) = 0 4 (.3) = 1.2 5 (.3) = 1.5
Profitability (.3)

Growth (.2) 0 (.2) = 0 5 (.2) = 1 5 (.2) = 1
Consistency with 3 (.2) = .6 4 (.2) = .8 4 (.2) = .8
Marketplace (.2)

Consistency with 2 (.2) = .4 5 (.2) = 1 5 (.2) = 1
Strategy (.2)
Totals* 1.2 4.2 4.5

*criteria weighted out of 1, alternatives scored from 1-5, for a possible score of up to 5 points total, 0 = no value,
5 = most value

Moving from Simply Moving from
Infrastructure to Infrastructure as a
Offering Platform Service to Platform as
Services a Service (IaaSPaaS)

Offering a
Free Package
Promoting
to meet the Freeware vs
AWS through
needs of Trial-ware
Freeware
Basic
Developers

Expanding Data
Centers Globally to Necessary to Keep Up
Increase Data Storage with Increasing
and Throughput Demand

• Develop and Implement a Platform (PaaS) for Developers
• Create basic version of AWS and offer as Freeware
1

• Refine Platform offering based on user feedback
• Based on Demand, invest in fixed capital asset IT infrastructure
2
• Re-evaluate the current strategy
• If strategy proves successful, allow for additional investment in
3 IT infrastructure

DEPARTMENTS Year 1 Year 2 Year 3 Total (Million of $)
R&D $30 $20 $20 $70
Marketing $15 $10 $5 $30
Data Centers $0 $100 $100 $200
Total $45 $130 $125 $300

!  Strong competition in PaaS offering from
Microsoft Azure
!  Losing paying customers with basic needs to
the free package of AWS
!  Risk of losing large investments in Fixed
Capital Assets should demand not be as
expected

!  Liquidating un-needed data centers to an IT
competitor (Azure)
!  Modifying the Freeware offering of AWS to
Trialware

Budget for Alternative 2- Expansion into Scandinavia

DEPARTMENTS Year 1 Year 2 Year 3 Total (Million of $)
Acquire CDON $150 $0 $0 $150
Marketing $35 $25 $15 $75
R&D $50 $45 $30 $125
Total* $235 $65 $45 $350

*Cost
of
to
Acquire
CDON:
856
Billion
Swedish
Kronor
=
150
Million
US
Dollars

Amazon.com Strategic Analysis

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Editor's Notes