Internal and External strategy of retailer Amazon

Amazon.com is one of the largest online retail superstores in the world. From its humble beginnings in a garage to an international business employing thousands of people, the company has enjoyed tremendous growth and success. The question that is asked is how did Amazon become a role model in the online retail industry?

History, Development, & Growth

It all began in 1994 when Jeffrey Bezos saw an opportunity in the Internet industry. Bezos decided the bookselling market offered the best opportunity for his startup business. At that point Jeff Bezos’s vision was an online bookstore that could offer millions more books to millions more customers than a typical bricks-and-mortar bookstore. Bezos decided the best location and talent for this type of business would be in Seattle, Washington alongside Starbucks and Microsoft. The vision that Jeff Bezos had for his new company 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 lower prices. Overall, Bezos’s original mission was to use the Internet to offer books “that would educate, inform and inspire”. (Hill, Jones, pg C115)

Jeff Bezos’s Internet bookselling business all began with a handful of employees in his garage in Bellevue, Washington. Bezos launched his company in 1995 with seven million dollars in borrowed capital and because Amazon was one of the first major Internet or dot-com retailers, it received a huge amount of free national publicity, and Amazon quickly attracted more and more book buyers. Within several weeks, Bezos had no choice because of the success to relocate to a larger premise and hire more employees. Once again, six months later Bezos was moving to a larger facility and hiring more people. Finally, after using venture capitalists’ money he decided to take Amazon public and issue stock. On May 1997, Amazon.com’s stock began trading on the NASDAQ.

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Therefore, in 1998 Amazon’s market capitalization was 6.8 billion dollars, almost twice that of its two largest competitors, Barnes & Noble and Borders. In 1999, the competition increased as Barnes & Noble and Borders began a price war with Amazon that resulted in falling book prices. An example of this took place in the spring of 1999, Amazon along with Barnes & Noble and Borders announced a fifty percent discount off the price of new best-selling books to defend their market shares. This battle would give the consumers a glimpse of which company would dominate the bookselling industry in the upcoming millennium.

During this time, Bezos realized that his backbone to his website and company could be used to sell other kinds of products. At the same time, many of Amazon.com’s stockholders were complaining about the company not being on track to becoming profitable fast enough. Jeff Bezos could see that another online business that was growing was music CDs. He knew that books and CDs were a good fit with each other, so in 1999 he announced his company’s intention to become the “earth’s biggest book and music store.” (Hill, Jones, pg. C118)

Next, Bezos decided that he had to create more than just a bookstore if he wanted people to come back as customers. He added the option for buyers to write their own book reviews, which the customers enjoyed and could look at prior to ordering the book. People began to look at Amazon as an online community instead of a retailer.

At the end of 1999, Amazon had raked in over a billion dollars in sales. Amazon began to explore other kinds of online retail ventures as well to try to diversify itself. Nevertheless, starting in 2000, Amazon’s stock plummeted because many people thought that Amazon.com grew too large too quick. Bezos was also receiving a lot of static about not utilizing Amazon’s brand name and core skills to sell other products online. Bezos responded to the critics that he had to make sure his company’s business model would work successfully before he could commit his company to a widespread expansion into new retail ventures. No matter what he wanted to do or if he wanted to wait a little longer Amazon’s stock price continued to fall and Amazon began expanding its storefronts and selling more products. Amazon also took advantage of companies who found that operating a virtual site was too expensive to operate. Many of these companies like Target, Toys R Us, and Old Navy jumped onto the bandwagon of working with Amazon. These company’s would redirect their customers through Amazon where they could purchase the product and have it sent to them via shipping or the consumer could go to the closest store to pick it up.

Overall, by the beginning of 2003 Amazon had developed twenty-three different storefronts. By 2006, the company had grown to supporting thirty-five storefronts and selling a wide variety of products. It was this point in the world of shopping that consumers were going to the brick-and-mortar stores to view the product and then they would go online and purchase the product for much less.

Internal Strengths & Weaknesses

Amazon.com has strengths that have continued to help them out throughout the hard times in the economy and in the industry. One of the strengths that are noticeable is the fact that they are the first mover in the industry and has established many repeat customers. Bezos has stayed ahead of the competition so far by utilizing the current technology and by constantly watching the industries trends. Bezos seems to understand that by staying innovative and collaborating with other companies will guarantee his company’s success. Global expansion has helped with keeping Amazon.com ahead of its competitors. Another big part of Amazon’s success is its customer-friendly website. Amazon.com also has a strong infrastructure with effective automated distribution centers.

Although Amazon.com has strengths that benefit them, there are many weaknesses that they have as well. Sometimes I get the feeling that Amazon.com is trying to diversify itself so much that they do not have a well-paved direction. We understand from the mission statement, “We seek to be Earth’s most customer-centric company for three primary customer sets: consumer customers, seller customers and developer customers.” that the company’s focus is on three primary customers. However, it does not distinguish what business or industry they are concentrated. Amazon.com offers free shipping on many of their products where during this slow economy it could jeopardize their position and financial outcome. Lack of diversity on Amazon.com’s website includes not having different language versions of their website.

External Environment

Amazon.com has many opportunities to tap and has many threats that they encounter on a daily basis. Luckily, for Amazon.com the market they are in still young and not yet as popular as what it can and will be. I am sure there is some segment or industry that Amazon is not in that they could jump into and be successful. One place the company can look at to make more money is in their partnerships. They have lost many of these over the years to include some large players and they have not worked very hard in gaining more partners since. It seems as though anything they touch when it comes to consumers, sellers, or developers is successful. An opportunity that they may be able to get into is the possibility of collaborating with a large manufacture of a good and be the only place online the consumer can buy the good. It is evident by the percentages that Amazon.com still makes more money off their media. Another opportunity is the possibility of creating a website and branching into Mexico, and South America.

Next for the threats Amazon.com still has many competitors who on a daily basis still try to steal as much of the market from them as possible. There are competitors like Overstock.com, Buy.com, Wal-Mart, and EBay who can steal some of Amazon.com’s market share. The largest external factor that is out of the control of Amazon.com is the possibility of people reverting to shopping at brick-and-mortar stores instead of online. Obviously, Amazon.com being an online store only can hinder their success if there is an incident that occurs across the web that makes the consumers feel threatened or feel there information is not safe while ordering products online.

SWOT

Overall, Amazon.com has a lot more strength’s and an endless possibility of opportunities due to the market and the industry changing daily. Amazon.com needs to concentrate on their competition and determine how they can overcome their weaknesses. Amazon.com can further their e-commerce by expanding to every country throughout the world. They can also expand and further improve their automated distribution centers to increase their efficiency and customer satisfaction. As for Amazon’s weaknesses, they can create a Spanish version of Amazon.com and study the market demographics to ensure they understand and prevent any entry into a category that can fail. Next in order to improve Amazon’s opportunities they need to make their brand more appealing and internationally known on the web. Amazon.com needs to work on drumming up more partnerships in utilizing their software. They need to run specials to compete with the brick-and-mortar stores as well as their competition. Finally, for Amazon’s threats they should work to drive down the cost of the products and possibly strike some partnerships with UPS or FedEx on the shipping to make all products free shipping for a certain month every year or something to that effect.

Corporate-Level Strategy

The corporate-level strategy of Amazon.com is stated eloquently by their mission statement, “We seek to be Earth’s most customer-centric company for three primary customer sets: consumer customers, seller customers and developer customers.” Overall Amazon.com wants to do anything and be everything that the consumers, sellers, and developers want. Amazon.com brings all three underneath one umbrella and spits out the same result, they all walk away from Amazon.com with the true e-commerce experience.

Business-Level Strategy

Amazon.com has four categories they concentrate on in their business and they include their e-commerce offerings by category, third party selling, infrastructure technology (cloud computing software) business, and their own consumer electronics business (Kindle). This is a mirror image of their mission statement as stated above. Bezos and his managers believe that Amazon is a technology company first and foremost, and its mission is to use and develop its technological expertise to sell more and more goods and services in ways that satisfy customers and to keep its profits growing.

Structure & Control Systems – Do they match the strategy

Amazon.com made their business debut and their success off being a third party online store that sold hardcopy books. Instead of spending all their time trying to protect that business, they have a product that could one day revolutionize the entire business and industry. Amazon.com has realized that they need to pursue other avenues or they will be eaten up by the competition. They have worked hard to create innovative technologies to allow them to provide a differentiated e-commerce customer experience and they have been leaders in making that technology available to others because it is possible that one day cloud computing will be the next big thing and once again Amazon will be the leader.

Does Amazon’s structure and control system match their overall strategy? I believe that it does they are constantly looking at ways to improve their product of being a third party vendor to thousands of companies. They are innovative by looking at different ways consumers, developers, and sellers want their products handled. They have purchased many small companies in different industries to help with the e-commerce experience they offer.

Something I find unique about Amazon that is driven specifically by Bezos is that he empowers all employees to recruit and train new employees so they quickly get up to speed in their new jobs. To motivate the employees to do this Bezos decided to give all employees stock in the company. The employees of Amazon own over ten percent of the company. Bezos also implemented a policy of decentralizing significant decision-making authority to employees and empowered them to find ways of meeting customers’ needs quickly.

Finally, the last piece about the structure of Amazon and its ability to foster creativity and innovation. Bezos believes and does not allow teams within the company to be more than five to seven members. This is what Amazon calls ” Pizza Teams” meaning no team should need more than two pizzas to feed the entire team.

Recommendations

What recommendations could help Amazon.com any more than what they are doing today. Amazon needs to continue to be innovative and continue to push the industry into the cloud-computing era. In order for Amazon to continue to drive revenues up, they should work on more deals with large retail stores to use Amazon’s software for their websites. Amazon should also continue to strive to gain more retail manufacturers or stores to use them for their product sales. The next target audience or market Amazon should target should be our neighbors to the South, Mexico. This will help gain more of a market share with the Hispanic demographic. Last but not least, Amazon needs to continue to improve its Kindle and its network so people on the move can take their books with them anywhere they go and can download books at any time. Along with this Amazon should come out with a Kindle that also plays music and movies to compete against Apple and the IPad. Amazon must not lose sight of their goals, passion, and competition. The competition is fierce and given the opportunity will take the market away from Amazon.

Overall, I believe that Amazon is doing an excellent job at leveraging their core competencies in whatever ways they can find. With the vision and leadership of Jeff Bezos, I believe that Amazon will be around for a long time. They were one of not many that survived the internet bubble in the late ’90’s and the early 2000’s and I believe they can continue to make a difference and lead the industry of e-commerce. Good luck and God Speed Amazon!