1. Using Porter's five-forces model, what does the competitive structure of the online retailing industry look like? What are the implications of this structure for the long-run profitability of Amazon in the market?
2. What internal factors and macroenvironmental factors will impact Amazon's competitive advantage? Are there threats?
3. To what extent is Amazon's competitive advantage sustainable?
Since 1995, Amazon.com has grown from an online bookseller to a virtual retail supercenter. Today, along with being the leading online retailer, Amazon is the world's biggest provider of service oriented software (SOA) along with cloud computing solutions. As a result, Amazon is in the top five of the best recognized dot-com companies. Founded by Jeff Bezos, a Princeton University graduate, the company did not become profitable till the early 2000s. Bezos' vision was to build an online bookstore that would be customer-friendly, easy to navigate, provide buying advice, and offer the broadest possible selection of books at low prices. Being one of the first major Internet or dot-come retailers, buyers were quickly attracted which forced Amazon's relocation, larger space requirements, and need for greater distribution capabilities. Developing and maintaining the physical brick and mortar (B&M) side of Amazon's value chain became the source of the greatest proportion of its operating costs, and these high costs were draining its profitability with its low price approach. With competition heating up, Bezos made appropriate strides to meet demand through warehouse and distribution expansion, increase employee motivation through decentralized decision making, empowerment, and team building.
At the onset, Amazon.com was the bookselling industry changer but was soon faced with price wars and more online retailer imitators. Bezos soon realized that Amazon's IT competencies could be used to sell more than books.
Despite stock drop-offs and marketing hesitancy,by 2006, Amazon had developed thirty-five different storefronts selling products as varied as books, software, electronics, kitchen items, tools, toys and games, baby products, apparel, sporting goods, gourmet food, jewelry, health and personal-care items, musical instruments, and industrial and scientific supplies. But the rise of online retailing, and consumers' increasing comfort level with ordering online, also led to more transparency and ease of price comparisons. In response, Amazon offered free shipping and "deals of the day." Other companies developed online shopping robots, which could scour the sites of retailers such as Amazon, and report all the prices from different retailers on a single page. To make its service more convenient, Amazon began to forge alliances with other B&M companies like Toys 'R' Us, Office Depot, Circuit City, Target, and many others. Now, customers could buy products online at Amazon's website, but if they wanted them immediately they could pick up their purchases from these retailers' local B&M stores-Amazon would of course have to share the profits with these B&M retailers. As the dot.com boom turned into a bust, Amazon had more financial strength and resolve to remain standing due, in part, to providing online storefronts for small and medium sized companies using its software platform. Branching off into all these new retail market segments allowed Amazon to more fully utilize its expensive warehouse and distribution system.However over the years, its aggressive moves also led to a string of failures; for instance, its attempt to gain a leading position in providing an online auction market. In response to the failures, Amazon was able to rebuild its competencies, add new services, and launch fixed-price retail marketplaces. With their Internet presence, Amazon, launched operations in other countries, such as the UK and Germany, through acquisitions. By 2006, the company operated websites in Canada, France, China, and Japan and established software product and service development centers all over the world. Amazon has since taken advantage of numerous business opportunities in the area of entertainment. Along with the movie industry and the Unbox, Amazon started its own online music store in 2007 selling downloads in the MP3 format after securing agreements with the four major record companies. Theyentered the grocery delivery business when it launched Amazon Fresh, a new grocery storefront that sold a wide variety of nonperishable food and household items that, once ordered, can be reordered using Amazon's shopping-list software By entering into the search engine market, improving services, refining its SOA business software solutions, increasing its repeat users, creation of the Kindle book reader, and moves in cloud computing,
Amazon believes revenues may reach $3 billion by 2015 as individuals and companies outsource more of their data center needs. It has over 34,000 employees and in 2010 it earned $700 million on $10.7 billion revenues. Its revenues, in 2011, had increased by 50% compared to the same quarter in 2010 as its product sales increased and its Kindle e-reader and digital-media services revenues soared.
With a drop in profits by 8% and operating expenses rising by 54%, can Amazon continue to grow profitably? What new strategies will Bezos pursue to take Amazon to the next level? Are any new mergers and acquisitions on the horizon? How many more B&M companies will Amazon drive out of business?