Amazon.com

Amazon.com is a company that sells all kinds of books and most recently music through their website at discounted prices.  It was founded by Jeff Bezos and began taking orders in July of 1995(Derie).  Since then, Amazon has acquired five businesses that range from virtual database technology to videos while expanding to the European market. Its massive amount of sales can be attributed to its low competitive prices and ease of shopping conveniently from home.

  The business level of Amazon.com is cost leadership. Best selling books are sold at a 30 to 40 percent discount and other books are discounted at 10 percent (Bade).

Amazon.com’s corporate strategy was in the form of single business to dominant all of business, but has since moved towards unrelated because they are offering more than just books at their website, ranging any where from kitchen and house ware to toys and games, DVDs, and herbal supplements.

Amazon.com has increase in size since it began operations in July 1995, doubling in size every 2.4 months with an 838 percent increase in sales form 1996 to 1997.  To keep up with this extraordinary growth, Amazon had 800 employees on its payroll as of August 1998(Bade).

Amazon.com has plans in the works to capitalize on its increased market share by expansion into European e-commerce with already having 22% of sales from outside the United States.  By acquiring previously established global companies, Amazon’s expansion into international localities should be smooth.  Part of Amazon’s cooperative strategy is strategic alliances through acquiring businesses to expand into new product and market areas.  They differentiate themselves while at the same time achieving their strategic mission:  convenience, selection, service, and price.  This has also been Amazon’s CEO Jeff Bezos’ intent form the initial thought and continued to this day.

The general external environment for Amazon.com is large and complex.  Major geographical distribution is the United States where Amazon’s sales are 78% in 1997, although they are not limited to this with 3 million customers from 160 countries(Maranjian).  Age structure and population size are not of major concern with Amazon because their business is solely on the web and anyone with a computer can access their company.  The economic segment does have an impact on Amazon because people will spend less money on recreational activities such as reading if there is a recession or inflation rates go up, though many people will continue to purchase books for the passage of time and entertainment.

A recent trend in social-cultural values has helped Amazon with a swarm of potentially new and innovative people wanting to work for computer companies and getting the training to do so. Many people enjoy working at Amazon because of its laid-back style and the environment which Jeff Bezos sets out for his employees, even if most of them work from 8 am to 8 pm.  The most important segment of the external environment is the technological area.  This is the life of Amazon, and any other company that sells products strictly through the Internet.  They have many software engineers who are developing first of their kind technologies so the public can have the easiest and most enjoyable experience while on Amazon.com.

Jeff Bezos states, “There are lots of barriers to entry.”  These include start-up costs for software and its development, warehouses to store products, obtaining contracts with wholesalers and publishers, finding the right employees who can continue to evolve and expand with the company, etc.  The bargaining powers of suppliers are weak because they just want to sell the books they publish.  This means that if a bookstore, says Amazon.com, buys a pallet full of the same book but is unable to sell 25 % of them; the publishing company will buy them back.  This insures that all the risk is on the publisher with the 100% refund on all unsold books.  The bargaining power of suppliers is increasing as the amount of competition increases.  The more stores on the web, the deeper the discounts will become because everyone is seemingly trying to undercut the next in order to have the lowest prices and ultimately gaining market share.

Amazon recognized this when Barnes & Noble made their first presence on the internet and offered the same books as Amazon but at cheaper prices.  As long as people are willing to purchase books on the web, their power will be fairly large.  As for threats of substitute products, Amazon has little to worry about.  If people want to read a book, they are going to have to buy the book or check it out from a public library or some other media outlet.  The rivalry among competitors is getting increasing strong and shows no sign of slowing done.  As of August 1998, if you went to a search engine such as Yahoo! and looked up bookstores, you would find as many as 475 online bookstores offering similar services as Amazon(Bade).  This has created a large pool of possibilities for consumers which have increased their power and also their savings.

Being an online distributor, Amazon has many opportunities that lie before them.  One such opportunity is the expansion of products they offer incorporating other sections of various markets such as cellular phones, palm pilots, health products, etc.  This could be done in much the same way as selling books; purchase goods in mass quantities and sell them at discounted prices.  Another example of an opportunity for Amazon is to utilize the technological resources they have to continue to make online shopping easy and enjoyable for the mass public to come back time after time and purchase from them:  currently, Amazon estimates repeat buyers consist of 63% of their business (Maranjian).

A major threat for online booksellers is that, with the ease of distributing products online, book publishers could begin to allocate their books through their own websites, eliminating the middleman, and reaping greater profits at the same time.

Another threat for Amazon.com is the fact that through the four years they have been in business they have yet to turn a profit or even come close to turning a profit which has led them into debt with no signs of gaining a profit in the near future.

Amazon.com being a company who distributes products through the web, the capabilities is endless.  For Amazon, these capabilities include being able to produce easy to use websites, e-commerce products, electronic mailing services that are superior to those in existence, and other items that utilize the advanced knowledge of electronic engineers who work for the company.  In order to obtain a sustainable competitive advantage they must continue to use and expand on their core advantages and find new ways to implement changing trends and updated networks.

A major strength that Amazon.com holds is that they were the first company to change the way people view book selling.  Amazon is a highly noticeable name and by noting that Internet usage was growing at 2300 percent per year, CEO Jeff Bezos saw an opportunity and jumped at the chance(Consumer Reports.org).  By doing so, his company has achieved a name that stands for low prices, great customer service, easy-to-use websites, great selection of titles, and the convenience of shopping at home, which is its biggest strength.    A weakness is that Amazon has very little in terms of concrete assets such as buildings and resources of its own which could become disastrous in the future if the market goes sour or people turn to other avenues to achieve their reading pleasures.  Another weakness is that they may be losing business to those who do not like to shop online and enjoy the personal interaction of shopping in stores.

As I have noted previously, there are many opportunities that Amazon has before them.  One idea that I have touched on and believe to be their best alternative is to increase the products they offer online.  They can do this by concentrating on their strengths; quick-moving, innovative, price leadership, and customer service.  By incorporating these into other product lines, I believe they could turn a profit in a shorter time than they could if they solely concentrated on books.  Another possibility that is before Amazon is to create their own physical bookstore.  They have the resources, name recognition in the book industry, and capabilities to do just that and this could also increase profits if done the right way.

The mounting competition has forced other smaller competitors such as Half.com to enter the price battle against amazon.com. Amazons large scale corporate strategies and mass sales has so far allowed it to become one  the largest and therefore through sheer quantity sales the cheapest source for your online shopping needs. So when you need a book, or even herbal supplements, amazon.com will probably be your cheapest and best alternative to conventional shopping.