Free Essay Sample «Amazon Case Study»

«Amazon Case Study»

Introduction

Amazon stands out as an apt example of effective business model due to its high performance and global reach. The company is a globalized consumer electronics an Internet-based company headquartered in the United States. As of May 2016, Amazon was the largest Internet-based retailer on the United Sates. Amazon operates in three segments: electronics, media, and other merchandise. For this reason, the company competes with companies locally and globally. In its media segment, the company competes with eBay, Apple, Google, and Netflix. In the general merchandise and electronics segments, the company competes with Alibaba Group, Target, BestBuy, Delia, Citrix Systems, Sear, RadioShack, Google, Accenture, and Walmart among others. At the center of Amazon’s success is the implementation of the coopetition-based business models (Ritala, Golnam and Wegmann 236). Coopetition-based business model entails cooperation between business rivals. The practice has been at the center of the business due to its increasing relevance in the present-day globalized and competitive business environment. The company’s coopetition-based business model includes Amazon Web Services (AWS), Marketplace, and the partnership between Amazon and Apple (Ritala, Golnam and Wegmann 236). Evidently, the company’s value has been created by involving its business rivals in the company’s business model. The success story of the company is also marked by some business failures. For example, Amazon’s Fire Phone and Amazon Destinations are some of the recent projects that failed. The two projects proved to be commercially inviable, which made the company close them in a span of less than two years after their inception. Some of the reasons behind the failure of these mega projects are low price markdowns and lack of market testing. It is important to note, both Fire Phone and the Amazon Destinations were a result of rapid expansion without an effective business model. Business expansion is indispensable for any company to remain competitive. However, visionless expansion of any sector that is perceived to be profitable, as well as expanding more rapidly than a company can manage, are inefficient strategic business practices. Observably Amazon is implementing both strategies leading to unexpected outcomes. Being profitable at present, over-diversification without a strategic business model could lead to the company’s downfall in the future. Consequently, the current paper explores alternative business models to secure Amazon’s competitiveness as it develops and expands in the current volatile global business environment. For this reason, the paper analyses the company and evaluates its existing business model. At the same time, it explores two business model alternatives that can improve company’s performance without compromising its revenues and profits.

Analysis

To conduct a detailed analysis of Amazon’s business models, the current section focuses on the company’s financial statements, annual reports, and news releases for the past decade. The analysis is broken down into several subsections to improve understanding.

Challenges in the Existing Strategies, Systems, Structure and Technology

Amazon depends on its senior management and other important personnel. Consequently, the loss of key personnel presents a threat to the company. Having acquired and invested in several companies, the company faces problems relating to the retention of key personnel, disruption of business, impairment of assets and goodwill, and additional operational expenses and losses of the entities it invested in or acquired. The other reason for this is the growing tendency to enter into joint ventures with other companies. In other words, the rapid expansion of Amazon’s global operations, including product offerings and scaling the company infrastructure to support service and retail business, places significant strain on Amazon’s financial, operational, management, and technological resources. Amazon’s expansion into new technologies, products, services, and geographic regions presents additional legal, financial, and business challenges.

Operations

Since 1997, the company has worked hard to develop and expand its business infrastructure to support the ever-growing service levels and traffic (Amazon 10). As per the 2015 Annual Report, the company’s employee base expanded from 158 to 614, implying that its operations have expanded significantly. Further, Amazon’s distribution capacity has grown from 50,000 (1997) to 285,000 (2015) square feet. Such growth includes the company’s expansion of its Seattle facilities, as well as the launch of the Delaware distribution center. According to Amazon (10), the company’s inventory titles grew to over 200,000 at the end of 2015, enabling it to improve availability.

Efficiency and Financial Performance

In 2015, Amazon became the fastest multinational company to attain $100 billion in annual sales (Amazon 2). In the same context, Amazon Web Services (AWS) reached $ 10 billion in annual sales. According to the company, such growth in sales was faster than it has ever recorded. Amazon’s investment and cash balances at the end of 2015 were $125 million, which was a subject to its initial public offering (IPO) in 1997, alongside with its $75 million loan affording the company a significant strategic flexibility.

Internal and External Communication

Amazon’s communication strategy is a vital part of its daily operation as it frames the company’s media activities, such as external and internal communications. Furthermore, its integrated communication strategy illuminates organizational priorities, target audience, technologies, communication channels, and human capital assignments. Besides the values, vision, and goals that form the core of Amazon’s integrated communication strategy, other critical elements include a written work plan, material to be generated, and financial reports. In Amazon’s Securities and Exchange Commission (SEC) filings, the company points that the aims of its comprehensive communication strategy are to increased customer traffic to its websites, promote repeat purchases, broaden, and strengthen its brand name, create awareness of its products and services, and develop incremental service and product revenue opportunities (Amazon).

Current and Future Risks

Seasonality affects the business, resulting in varied sales. For instance, the company registers 33%, 33% and 34% in its fourth quarter revenues in 2015, 2014 and 2013 correspondingly (Amazon 14). The company faces numerous risk factors, which may affect the company’s financial condition, cash flows, business, and operating results. It should be noted that the prevailing volatile global economic condition exacerbates such risks. As the business rapidly evolves and becomes competitive intensely, it faces severe competition from various participants from diverse industries, including digital content, e-commerce service, infrastructure, and web computing services. Competition may also intensify as the company’s competitors embrace coopetition-based business models with established entities in other segments. Additionally, innovative technologies, such as infrastructure computing services, electronic devices, and digital content may increase competition. According to the company, international operations expose it to various risks (Amazon 17), including local political and economic conditions, restriction of distribution or sales of certain product, government regulation of electronic commerce, competition and electronic devices, and restriction of foreign ownership. Other risks linked to international operations include business licensing requirement, limited technology infrastructure, laws and regulations pertaining to data and consumer protection, network security, payment and privacy. The company could be harmed by security breaches, data loss, system interruption, infringement of IP rights of the involved parties, and turnover of strategic senior management personnel.

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Evaluation

Considering the rapid growth in the company’s annual sales, it is seen that the company is a success in online retail business. Using Amazon Web Services and Amazon retail as a point of reference, the company has grown organically into a large and meaningful business without significant acquisitions. At the core of the company’s success is the strong organizational culture that is customer-centric and eager to pioneer and invent. Amazon’s culture and the resultant business model are marked by the patience to think in the long-term perspective, the willingness to fail and maintaining professionalism in operations. Prime, AWS and marketplace are apt examples of the bold steps that the company has taken and emerged as the pillars of the company. Such pillars have helped the company grow and build services for customers around the world. For example, Prime’s two-day delivery selection has expanded from 1 million to over 30 million items (Amazon 3). In the same context, the company has introduced Free Same-Day Delivery of numerous products for the company’s customers in over 35 markets globally. Marketplace is effective for customers in the sense that it presents unique selection. In addition, marketplace is great for sellers, as it supports more than 70,000 sellers and has created more than 600,000 jobs. According to Amazon (3), Amazon Web Services has grown tremendously, offering over 70 services for storage, computation, mobile, databases, enterprise applications, and Internet of Things. AWS is offered in 33 Availability Zones in 12 geographic regions globally.

Considering such facts, it is arguable that the company is performing effectively. However, the increased diversification of investment in various sectors poses a threat to the company’s future financial health due to the uncertainty of the consequences. In other words, the company needs flexible strategies and business models that can create new competitive advantage and maintain the existing one. For example, flexible strategies, effective business model, and various iterations of the AWS have allowed the company to rapidly expand into the world’s widely implemented and most wide-ranging cloud service. Additionally, AWS is inventive, customer-centric, long-term oriented, experimental, and focused on operational excellence. Despite its successes, lessons from the failure of the Fire Phone and Amazon Destinations projects prompted the design of a comprehensive business model that presents flexibility and agility to sustain competitive advantages. For this reasons, the following section recommends two alternative business models that have the potential to create and sustain Amazon’s competitive advantages as it continues diversifying in other volatile sectors.

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Recommendations

The current section borrows from the success story of Alibaba Group Holding Limited (henceforth referred to as Alibaba). Alibaba’s business model holds strategic lessons for company that is willing to risk collaborating with its rivals to transform, grow, and expand. As of the given writing, the company was the largest mobile and online retail multinational in terms of its total merchandise volume (Alibaba Group 1). Founded in 1999, Alibaba offers fundamental technology infrastructure and extensive market reach, hence, helping other businesses leverage the supremacy of the Internet to secure an online presence and conduct business with numerous consumers and businesses. Using the Business Model Canvas, the following subsection outlines several prescriptions that form the foundation of the proposed alternative models. A Business Model Canvas targets new and existing businesses. It also focusses on customers, consultants, investors, and advisors. Additionally, it lays emphasis on customer relationships, segments, and channels. Further, it forms down the infrastructure, sources of funding, and the anticipated revenue streams of the company. In term of competition, the Business Model Canvas focused on value proposition in qualitative and quantitative terms as a means of staying competitive in the market. As of consequence, the model fosters creativity understating and constructive analysis. Considering the fact that the model presents analytical approaches, which are essential in the efficiency of a company’s business model, it faces criticism, particularly due its failure to account the business model management and performance metrics. The current paper proposes that Amazon borrows Alibaba’s Tipple-A strategies to develop a comprehensive business model discussed below.

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Alibaba’s Tipple -A Strategies

Alibaba’s business model is marked by accessibility to a global platform and global distributed networks that are supported with information and communication technologies. Successful global brands have effective business models characterized by innovative communication strategies, effective supply chains, and sustainable customer relationships. In line with the success of Alibaba’s business model, Amazon should improve its innovative environment, communication strategies, and customer relationships to continue developing in regard to strong business growth and results. Efficiency and innovativeness in service delivery plays a vital role in the improvement customer services and customer experiences. In order to improve customer satisfaction or experience, Amazon considers innovation and efficiency as basis of its customer service delivery strategy. In other words, the company should strive optimize its customer service, while continuing to allocate more financial resources in the development and implementation of innovative services and technologies. As in the case of Alibaba, innovative technologies facilitate service delivery attracting and retaining customers. Consequentially, the company will grow its customer base and chase other profitable investments across its distribution networks and the emerging markets.

a. Market Development Model

In reference to market development strategy, Amazon should consider new distribution channels, new market segments developed through price differentiation, and new geographical markets. Amazon should consider expanding to Africa and Asia. The aspect of risk in adopting such option should be based on the company’s ability to use new sales channels. Alibaba has transformed its operations online by allocating more financial resources on the adoption of new technologies revolving around artificial intelligence. It calls for the training of developers so that they can have the latest skills. By employing different pricing policies, Amazon can create a new market segment. The central aspect of this strategy is to exploit the customers’ willingness to alter their purchasing behaviors. An example of this approach is to give discounts to the first subscribers of any new product. Market development strategy demands a detailed market research and competitor intelligence. In that regard, Amazon should strive to conduct regular and expert-based researches on operational success and customer demand.

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b. Diversification Model

In line with the existing diversification strategy, Amazon should continue expansion by developing new products and services for new markets. Observably, Africa can still be exploited, but the increasing development of Internet-based infrastructure should be exploited before other competitors expand to this promising continent. In this model, Amazon must develop new skills for operations and marketing and allocate substantial investment. It can be achieved through acquisition of an entity that is at present operating in the new market. For Amazon to adopt this strategy, the company must have a clear vision of its expectations in terms of business growth.

Conclusion

Amazon (AMZN) is the largest online retailer in the world. The company is a multisided platform, which requires a hybrid of business model that leverages its competitive advantages. Nevertheless, the current over-diversification practice can lead the company to downfall in the future. With lack of concentration and flexible strategies, the company may overstretch logistically and in terms of human resource. Amazon’s customer care representatives should undergo regular training regarding flexibility, diversity, and adaptation to the ever-changing and growing demand from existing and new customers. Further, Amazon should improve its value model by creating a value-based proposition around its products and services. Additionally, the company should search new opportunities for coopetition with its existing rivals, as well as cooperation with its customers. In summary, Amazon should develop a comprehensive business model committed to delivering unparalleled value.

 

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