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Amazon.com Strategic Analysis

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Amazon.com Strategic Analysis

  1. 1. !   Corporate Strategy !   E-Retailing Industry Analysis !   Business Level Strategy !   SWOT Analysis !   Strategic Alternatives !   Action Plan
  2. 2. 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
  3. 3. 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
  4. 4. !  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
  5. 5. Sellers Enterprises Content Consumer Creators Amazon
  6. 6. !  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”
  7. 7. 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
  8. 8. Concentric Diversification Creating value for customers by using their technology expertise The “Lowest cost customer centric online marketplace”
  9. 9. !  The strategy performs well, and is appropriate for the business !  There is a high potential for long term success
  10. 10. !  Economies of scale (high) !  Differentiation (high) !  Total Capital Requirements (high) !  Access to distribution (high) !  Government policy (medium) Barriers to entry = high
  11. 11. !  Specialized assets (medium) !  Fixed cost of exit (medium) !  Management commitment (medium) !  Contractual commitment (low) Barriers to exit = medium
  12. 12. !  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
  13. 13. !  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
  14. 14. !  Brick and mortar retail stores (high) !  Catalogs (low) !  Rental services (high)
  15. 15. !  “Content creators” !  Shipping industry: FedEx, UPS !  Internet service industry !  Computer industry
  16. 16. Amazon Sales revenue eBay Target.com Walmart.com Overstock .com B&N.com Range of products offered
  17. 17. !  Economies of scale (global) !  Customer needs (global) !  Competition (global) !  Channels (global) !  Transportation costs (global) !  Product standards (global) Industry globalization = high
  18. 18. !  Technology   Expertise in technology   One-Click System !  Economies of Scale !  Talented workforce   Company Culture !  Marketing   Brand name and reputation
  19. 19. !  Extensive product offerings !  Extremely low prices   Shipping/deliveryadvantages   Manufacturing of Kindle as lowest-price e-reader
  20. 20. !  Most sustainable competitive advantages include:   Economy of Scale   Expertise in Technology   Talented workforce and culture of company
  21. 21. !  Difficult to differentiate products !  Copying the business model !  Can’t offer “instant gratification”
  22. 22. Competitive Advantages Be Better Than Avoid Competitors Competition Attractive Industry Attractive S.G. Attractive Niche Cost Differentiation Advantage Entry Barriers Isolating Mobility Barriers Mechanisms
  23. 23. !  “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
  24. 24. 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
  25. 25. 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
  26. 26. 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
  27. 27. !  New skills through acquisitions !  Strong IT system !  Extensive product lines at low prices !  Strong brand image
  28. 28. !  No product differentiation !  Low profit margins !  Lose Focus
  29. 29. !  Global expansion !  Online movies !  Expand the technology service market !  Growth in Cloud computing
  30. 30. !  Dependence on vendors !  Fierce competition !  Government
  31. 31. !  Find new areas of growth !  How to maintain long term profitability
  32. 32. Consistency Consistency Growth with Amazons with Strategy Marketplace Consistency Short and Competitive with Long Term Advantages Resources Profitability
  33. 33. 1. Eliminate Kindle Fire 2. Expansion to Scandinavia 3. Expansion of AWS
  34. 34. Discontinue the the Kindle Fire, in favor of the Kindle and licensing media content to existing devices. VS Kindle Fire Kindle
  35. 35. 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
  36. 36. Would Amazon Want to Engage High would enter the Consumers expected make a lot tablet into Online returns of money market Retailing on Media
  37. 37. 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
  38. 38. Expand E-Commerce Globally into the Scandinavian Market
  39. 39. Modern ICT Sophisticated and IT High Use of Infrastructure infrastructures High Income Internet for Importing to support and Exporting services
  40. 40. !  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
  41. 41. Experienced Not as High Online 4 Different Growth as Shoppers Exchange the BRIC can find Rates Nations other Alternatives
  42. 42. !  Result in 5-20% Adverse Change $50 $220 Million Million for 5% for 20% $110 Million for 10%
  43. 43. 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
  44. 44. Expanding Amazon Web Services (AWS) to Meet the Needs of Developers
  45. 45. 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
  46. 46. Short-Term Long-Term Profitability is Low Profitability is High because of Large because it is a high Capital growth market Investments
  47. 47. Expanding Large Our Market Available Industry Customer Leader Capital Growth Base
  48. 48. Large Short Life Investment Untested Span of in Fixed Market Technology Capital Assets
  49. 49. 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
  50. 50. 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
  51. 51. Expanding Amazon Web Services (AWS) to Meet the Needs of Developers
  52. 52. Moving from Simply Moving from Infrastructure to Infrastructure as a Offering Platform Service to Platform as Services a Service (IaaSPaaS)
  53. 53. Offering a Free Package Promoting to meet the Freeware vs AWS through needs of Trial-ware Freeware Basic Developers
  54. 54. Expanding Data Centers Globally to Necessary to Keep Up Increase Data Storage with Increasing and Throughput Demand
  55. 55. • 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
  56. 56. 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
  57. 57. !  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
  58. 58. !  Liquidating un-needed data centers to an IT competitor (Azure) !  Modifying the Freeware offering of AWS to Trialware
  59. 59. questions?
  60. 60. 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

Editor's Notes

  • In reference to direct competitors – online retailers, E-bay, Overstock.com, etc.Amazon has achieved its competitive advantage through developing its technology internally and with a significant investment in this which may not be available to other organisations without the right focus on the online channels.As Amazon explains in SEC (2005) ‘using primarily our own proprietary technologies, as well as technology licensed from third parties, we have implemented numerous features and functionality that simplify and improve the customer shopping experience, enable third parties to sell on our platform, and facilitate our fulfillment and customer service operations.
  • In reference to direct competitors – online retailers, E-bay, Overstock.com, etc.
  • Maintaining higher profits than competitors over long periods of time- Difficult for competitors to enter at a large enough scale to be cost competitive and it will take them a lot of time to move down the “Learning Curve”“Many of the problems we face have no textbook solutions, and so we — happily — invent new approaches”… All the effort we put into technology might not matter that much if we kept technology off to the side in some sort of R&D department, but we don’t take that approach. Technology infuses all of our teams, all of our processes, our decision-making, and our approach to innovation in each of our businesses. It is deeply integrated into everything we do”.The quote shows how applying new technologies is used to give Amazon a competitive edge
  • Easier to copy tangible assets – can’t really differentiate products being sold
  • In reference to direct competitors – online retailers, E-bay, Overstock.com, etc.
  • Industry-wide cost-leader – lowest price offerings and kindle lowest cost e-readerMain focus is on giving their customers VALUE no matter what they do.Consumers look to amazon.com for lower costs over bricks-and-mortar retailers as well as other online retailers.
  • Amazon endeavours to offer its customers “the low- est possible prices” 190, as they consider low prices as a strategic factor for future success.191 Amazon’s pricing strategy also includes free shipping offers, and since 2005, members of the “Amazon Prime” program can benefit from free two-day shipping and discounted overnight shipping.The app allows consumers to scan bar codes in local stores and compare prices directly with Amazon. Many have argued that the app gives the online giant an unfair advantage over its smaller competitors.Unlike brick-and-mortar shops, online retailers don’t pay sales tax unless they have a physical presence in a state, and they don’t have to staff an actual store either. The lower overhead allows them to undercut the competition.
  • “Creating value for the consumers”Net SalesNet sales include product and services sales. Product sales represent revenue from the sale of products andrelated shipping fees and digital content where we are the seller of record. Services sales represent third-partyseller fees earned (including commissions) and related shipping fees, digital content subscriptions, and non-retailactivities. Net sales information is as follows:Year Ended December 31,2011 2010 2009(in millions)Net Sales:North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,705 $18,707 $12,828International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,372 15,497 11,681Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $48,077 $34,204 $24,509Year-over-year Percentage Growth:North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43% 46% 25%International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 33 31Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 40 28Year-over-year Percentage Growth, excluding effect of exchange rates:North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43% 46% 26%International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 34 33Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 40 29Net Sales Mix:North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56% 55% 52%International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 45 48Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100% 100%North American sales growth rate was 43%, 46%, and 25% in 2011, 2010, and 2009International sales growth rate was 38%, 33%, and 31% in 2011, 2010, and 2009Sales growth in each year primarily reflects unit sales.Increased unit sales were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers, by a larger base of sales in faster growing categories such as electronics and other general merchandise, by increased in-stock inventory availability, and by increased selection of product offerings.
  • New skills through acquisitions– Strong IT system – We’ve been around for a long time and one of the first to operate the systemExtensive product lines at low prices – Amazon outsourced their activities to minimize costs, such as the datacenters in different countries that handle customer serviceStrong brand image -
  • No product differentiationLow profit margins – they are in the retailing business. With a wide variety of products at low prices, they must sell a lot to make a profitLose Focus – they have such a wide variety of products that they may lose focus of their core competencies
  • Global expansion – Go international in new areas. Already in some international markets such as Canada, China, Germany, UKOnline movies - Expand the technology service market – they have a strong IT system, so they can do more technology-wise to expand their businessGrowth in Cloud computing -
  • Dependence on vendors – Amazon’s main source of business are the companies and retailers that are acquired or merged with Amazon. These vendors are all on short term contracts that can negatively affect Amazon if they decide to leave usCompetition - There is a lot of competition online and in retail storesGovernment – the government is afraid is afraid that Amazon will become a monopolist in the United States. Legal issues in China due to government regulations. The government controls everything in China, so Amazon can face potential dangers from their authority.
  • Since we are becoming bigger and bigger, our e-market is becoming saturated. We need to find new areas of growth to help us maintain long term profitability.
  • providing a technology platform with broad functionality and global scal
  • lt
  • providing a technology platform with broad functionality and global scal
  • Spends 1.8B in AWS – spend another 2B

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