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SVM Implications:An Amazon Case Study
SVM & Economic Value Creation – Amazon (AMZN)
Online shopping is exempt from state sales tax (absent retail operations) which helps Amazon
practice discounted price-leadership strategies that increase demand – with lower consumer costs
(price, transportation, and transaction) that improve its value perception and capability to
generate greater sales output. Aside from competing on price, Amazon has significantly
expanded its product selection (economies of scope) and has implemented superior after-sales
services such as refunds with no or return-only shipping charges, tracking portals, and
satisfactory dispute settlements.
This strategic response – to harness demand by offering new product segments as a supply
aggregator at low prices to capture greater market share/demand growth – has heightened
revenues and brand equity (value perception) to help sustain its competitive advantage in low-
price and product selection differentiation (Porter, 2001). This increases market power and value
creation strategies to remain a dominant e-commerce leader. Subsequently, AMZN is an
optimizer in that its product selection provides many alternative products, reducing the treat of
substitutes from a different e-commerce supplier. This has increased demand and value-added
growth from generating additional sources of income in comparison to its key rivals – bolstering
growth and strategic management effectiveness.
AMZN’s degree of product selection, services, extensive value chain network of AMZN and
third-party sellers, and website functionality provide upside potential in regards to demand and
profitability. Both price and differentiated leadership – comparative to other e-commerce and
dot-com rivals – is imperative for sustainability in its value creation initiatives (Porter, 2001).
Amazon’s value, revenue, and logistical streams enhance its market position as a leader
and create competitive advantages. Bypassing intermediaries has generated additional profit
growth – increasing market power (by mitigating intermediary mark-ups) and optimizing its
supply chain management to produce greater (but still minimal) returns at lower prices. Dis-
intermediation resembles a low-cost structure by competing on lower prices; magnifying
additional economies of scale, supply chain cost effectiveness (as the logistics stream is
shortened), and heightened sales turnover. This results in lower consumer prices and low
margins to improve sales volumes as AMZN employs a near-break-even pricing strategy. This
defies the typical strategic business model of low prices and higher margins (Sharma & Gupta,
2004). This offers AMZN a competitive advantage in revenue growth over its key rivals –
leveraging a truly consumer-centric approach to demand fueled by lower prices.
This near-break-even strategy improves its competitiveness in terms of sales volume and
perceived consumer value – leveraging purchasing sentiment with low mark-ups. This business
model strategy is sustainable in the long-term as long as AMZN can continue to make money
or profits else ware in its value chain channels (i.e. AMZN Prime, partners, third-party seller
fees, and affiliates) or the majority of its product sales generate a minimal profit margin as

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SVM Implications:An Amazon Case Study
opposed to strictly breaking-even. AMZN must continue to grow its active customer’s year-over-
year in order to generate increased profitability without distorting low pricing and low-margin
strategies. The continued acceptance of AMZN Prime membership and increasing logistical
stream and operational cost efficiencies will also improve the sustainability of this near or break-
even strategy to magnify sales volume at lower prices. Investments like Amazon Studios, web
services, logistics, M&A activity (Zappos.com), and product innovations (such as the Kindle)
must continue to develop in the future to produce greater returns and not significantly
cannibalize its direct product revenues – where this excess profit would become nullified.
This sustainability in profitability stems from the motto “sell everything to everyone” and is a
direct trade-off between higher margins and its consumer-centric approach to improved
affordability at low prices to bolster demand growth and remain a dominant market leader. This
motto/position puts constraints on the necessity to generate low profit margins and constantly
derive demand from advancing to new product segments (economies of scope), but is feasible as
long as AMZN continues to maximize revenue growth, expand its client and product domain,
and improve economies of scale and scope – creating value.
Dis-intermediation also improves flexibility and agility with respect to business processes and
logistical integration – improving the capability to effectively and quickly respond to market
changes and competition (Sharma & Gupta, 2004).
NIT and business strategy are hard to integrate. Flexibility and agility are key determinants to
improved responsiveness which AMZN has clearly enjoyed in regards to its market share
accretion and supply chain integration (Sharma & Gupta, 2004). According to Goldman Sachs,
AMZN is currently poised to generate strong web services growth, cash flow growth, strong
ROIs, and increased market share comparative to its rivals. Additional investments in web
services and logistics are projected to be key mediators (Moskowitz, 2016).
Flexible core processes, workforce, tech infrastructure, and integration will pioneer agility – a
key determinant of strategic success in enhancing e-business strategy, functionality, and core
capabilities. E-Strategy growth is dependent upon effective and responsive strategy, capability
advancement, core competencies, and optimizing the supply chain as AMZN has proven to do
via dis-intermediation. Superior customer service and CRM integration leverage AMZN’s
consumer-centric model for success – increasing its consumer lifetime value or its future revenue
stream. Real-time data, CRM, and supply chain management integration must be cost effective
and focused on core-value business drivers and the internal and external environment to increase
flexibility and e-strategy effectiveness – e-Business enabled. Continuing to effectively integrate
people, processes, and IT with flexibility and agility will leverage the economic success
dependent upon its value, revenue, and logistical streams (Sharma & Gupta, 2004).
Amazon’s value stream has increased perceived consumer value and decreased search and
transaction costs – while offering convenience and virtual e-commerce community engagement

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SVM Implications:An Amazon Case Study
in regards to online order fulfillment services. Information intensity is supposed to increase
competition, but AMZN’s response to low price leadership and enhanced value perception are
key indicators of its market share accretion to out-pace its rivals growth. AMZN’s experienced
learning curve/developed knowledge and relationships with key stakeholders have fostered
superior intellectual capital. As its value stream enhances its perceived value for customers and
other channel members, it leverages long-term revenue sustainability and market dominance;
price and cost (supply chain) leadership; and product segment diversity - as it is hard to replicate
(Sharma & Gupta, 2004).
One key limitation to Amazon’s revenue stream is as follows. A lot of the direct revenues
AMZN receives from its partners and affiliates have been in the form of stock-based
compensation rather than cash which increases the risk of revenue sustainability – especially in
turbulent market/fluctuating demand conditions or stock market/company share price declines
(Porter, 2001).
AMZN has encountered failures as does any other company. Before 2007, AMZN struggled to
produce a profit and showed very little stability in its business model’s profitability which
concerned shareholders as its investments weren’t realizing its profit potential (Lashinsky, 2012).
Investments like Amazon Auction (to compete with eBay), Fire Phone (to compete with Apple
and Samsung; write-off of $170M of unsold phones), WebPay (to compete with Paypal), and
Amazon Destinations (hotel booking site) – have all been discontinued excluding the Fire Phone
which has had little, if any, success (Kim, 2015).
In 2015, AMZN generated $107.01B in revenues representing tremendous growth in revenue
year-over-year since 2007 (Statista, 2016). Specifically, AMZN has generated a 122.57%
revenue growth grate over the last 5 years at an average annualized growth rate of approximately
25% or a CAGR of 17.35% (Statista, 2016). As long as revenue/demand growth and costs are
sustainable, profitability should continue to be sustainable if AMZN’s investments, product
sales, services, mark-ups, cash provided by operations, and write-offs produce a net advantage
in profits. Lastly, AMZN’s brand value $98.988B - in 2016 significantly trumps Alibaba, eBay,
Walmart, and Target at a combined $97.383B (Statista, 2016). This reflects AMZN’s ability to
continue to generate future earnings in excess of key competitors at a lower brand discount rate.
As AMZN continues to grow in terms of size and scope, the following are challenges managers
will face as they attempt to increase performance, profitability, and future sustainability in its
value, revenue, and logistical streams. Market saturation, competing market share dilution, or
reduced demand/fluctuations serve as a risk to continued revenue growth. Profit sustainability
poses a major risk considering it reached a peak in 2010 with consistent growth from 2007, but
couldn’t sustain its net income growth (negative in 12’ and 14’). Fortunately NI was $596M in
2015 – slightly reassuring investor confidence and sentiment – even though it incurred foreign
subsidiary losses not tax deductible in the U.S that resulted in a significantly higher effective tax
rate of 60.6% on its EBT or earnings before taxes (Statista, 2016; Downie, 2016).

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SVM Implications:An Amazon Case Study
Additional Challenges: Increase brand value and equity; keep costs low; continue to out-
innovate and integrate its people, processes, and IT systems to promote flexibility and agility to
effectively respond to competition; deliver value-added growth in terms of out-innovating its
competitors with more profitable in-house products such as the Kindle; enhance its value,
revenue, and logistical streams; continue to deliver superior services; increase economies of
scale and scope to improve profitability with a low cost structure, low prices, and low margins;
grow its active customer base; ensure investments and product innovations generate additional
per-unit profits; capture additional profitability in other revenue channels (i.e. AMZN Prime,
partners, third-party seller fees, and affiliates); advance its intellectual capital in terms of
knowledge and relationships to enhance inimitable resources; and transform threats/opportunities
into realized growth – all fostering expanded success, consistent earnings growth, and long-term
sustainability.
Ultimately, Bezos’ approach to leading effective change and implementing strategic value
management have added considerable value for the reasons above – despite times of uncertainty
in relation to AMZN’s defiant business model, unsuccessful ventures, and profitability concerns.
After all, Bezos is dubbed the ultimate disrupter and has made a fortune from the net value of his
founders shares – recently passing Warren Buffett in terms of net worth. Previous failures are a
prerequisite to future success – clearly evident of Amazon’s past and potential future successes
and value creation in terms of profits (competition), growth (innovation), and intellectual capital
(resources). The net result: AMZN’s business model is sustainable with effective SVM.

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SVM Implications:An Amazon Case Study
References:
Downie, R. (2016, July 18). How do Apple's taxes compare to other tech giants? Investopedia.
Retrieved from http://www.investopedia.com/articles/insights/071816/how-do-apples-
taxes-compare-other-tech-giants-aapl.asp?utm_source=facebook.com
Kim, E. (2015, October 21). Jeff Bezos says Amazon is not afraid to fail - these 9 failures show
he's not kidding. Business Insider. Retrieved from
http://www.businessinsider.com/amazons-biggest-flops-2015-10
Lashinsky, A. (2012). Jeff Bezos: The ultimate disrupter, Fortune, 166(9). 34-41.
Moskowitz, D. (2016, July 28). 4 stocks vulnerable to Amazon (AMZN,CONN,WMT,TGT).
Investopedia. Retrieved from http://www.investopedia.com/articles/investing/072816/4-
stocks-vulnerable-amazon-amznconnwmttgt.asp?utm_source=facebook.com
Porter, M. E. (2001). Strategy and the internet, Harvard Business Review,79(3), 62–78.
Sharma, S. K. & Gupta, J.N.D. (2004). E-strategy model for creating flexible
organizations. Global Journal of Flexible Systems Management, 5(2/3), 1-9.
Statista. Brand value of the leading 20 most valuable retail brands worldwide. (2016). Retrieved
from http://www.statista.com/statistics/267870/brand-value-of-the-leading-20-most-
valuable-retailers-worldwide/
Statista. Net income of Amazon.com from 2004 to 2015. (2016). Retrieved from
http://www.statista.com/statistics/266288/annual-et-income-of-amazoncom/
Statista. Net sales revenue of Amazon from 2004 to 2015. (2016). Retrieved from
http://www.statista.com/statistics/266282/annual-net-revenue-of-amazoncom/