7. Key information
20,700 staff
$645 million, a staggering 35.5% increase
in net profit over FY2007
32.61% increase in revenue over FY2007
for international markets
10. Porter’s Five
Level of Threat Low Moderate High
Threat of New Entrants √
Bargaining Power of
√ √
Suppliers
Bargaining Power of
√
Buyers
Threat of Substitutes √
Intensity of Rivalry
√
Amongst Competitors
11. Threat of New Entrants
Moderate
Threat of New Entrants depends on the
type and scale of new entrants
12. Threat of New Entrants
Ability to Ability to
Type of Scale of Threat of New Ability to handle
overcome compete against
Entrance Entrance Entrants retaliation
barriers of entry strong brands
New company Large Medium √ √ ×
launching a new
business Small Low × √ ×
Existing
company
Large High √ √ √
expanding sales
into the e-
commerce
Small Medium × √ √
space
13. Bargaining Power of
Suppliers
Low to Moderate
Standardized goods
Low, many suppliers
Specialized goods
Moderate, few suppliers
Supplier industry tend to be more concentrated
than online retail industry
Low threat of forward integration
14. Bargaining Power of Buyers
Low
End consumers : mainly individuals
No threat of backward integration
Switching costs
Depends on location and type of products
purchased
Large factor increasing bargaining power
Security of online transactions
15. Threat of substitutes
Moderate
Mainly the brick and mortar equivalent of
online retailers
Eg: Borders vs Amazon
Depends on location and variety
16. Intensity of Rivalry
Amongst Competitors
Moderate
Industry is largely fragmented
Factors that increase rivalry
Price comparison websites and enhanced features of
search engines
Rapid increase of industry growth
Factors that decrease rivalry
Low fixed costs
Low exit barriers
18. Competitive Environment
2 main competitors
Barnes & Noble
Book retailer
Relatively narrow product range : books, gifts,
entertainment
eBay
Online platform that allows for market exchanges
through its market spaces
Broader product range: almost any item that can be
shipped across borders
19. Barnes and Noble
Type of competitor : Indirect
Low Market Commonality
Lack of international presence
Narrower product range
20000
Moderate level of Resource Similarity
15000
Similar resources → warehousing 10000
and distribution
5000
Dissimilar resources → financial
resources 0
Revenue
BN’s revenue: USD 5,121 m
BN
Amazon’s revenue: USD 19,166 m Amazon
20. Barnes and Noble
Intensity of rivalry : High
BN’s target market is
Amazon’s most important
target segment
Competitive edge
Branding from brick and
mortar stores
Concentration of
resources into one
business area
Example : BN’s nook
21. Barnes and Noble
Intensity of rivalry : High
BN’s target market is
Amazon’s most important
target segment
Competitive edge
Branding from brick and
mortar stores
Concentration of
resources into one
business area
Example : BN’s nook
22. eBay
Type of competitor : Direct
High Market Commonality
International presence
Wide range of products
20000
Low level of Resource Similarity
15000
Dissimilar resources
10000
Does not have warehousing
and distribution facilities 5000
Financial resources 0
Revenue
eBay’s revenue: USD 8,541m
ebay
Amazon’s revenue: USD 19,166m Amazon
23. eBay
Intensity of Rivalry : High
Competitive edge
Strong branding and market positioning
88 million active users, 150 million active listings
Growing customer base
Due to effective integration of different business
segments
Example: Amazon’s attack of eBay’s source of biggest
revenue growth -- PayPal
26. Customer-centric
business
Source: The American Customer Satisfaction Index
27. Customer-centric
business
Lean operational
structure
High BP with
Low prices suppliers
Technology &
accuracy
“1-Click® Shopping”
Convenience
Package tracking
Ordinary brick-and-
mortar bookstores
(200,000 titles) vs
Variety Amazon (3.1 million
titles)
Millions of products
28. Customer-centric
business
Lean operational
structure
High BP with
Low prices suppliers
Technology &
accuracy
“1-Click® Shopping”
Convenience
Package tracking
Ordinary brick-and-
mortar bookstores
(200,000 titles) vs
Variety Amazon (3.1 million
titles)
Millions of products
29. Customer-centric
business
Lean operational
structure
High BP with
Low prices suppliers
Technology &
accuracy
“1-Click® Shopping”
Convenience
Package tracking
Ordinary brick-and-
mortar bookstores
(200,000 titles) vs
Variety Amazon (3.1 million
titles)
Millions of products
30. Customer-centric
business
Lean operational
structure
High BP with
Low prices suppliers
Technology &
accuracy
“1-Click® Shopping”
Convenience
Package tracking
Ordinary brick-and-
mortar bookstores
(200,000 titles) vs
Variety Amazon (3.1 million
titles)
Millions of products
31. Innovation & Technology
Spent more on technology than on
warehousing or marketing
Hiring of engineers and programmers etc.
were up 52% in the 2006 to US$485
million
Access for external Web site developers
Proprietary rights and protection
32. Distributive efficiency;
inventory management
25 fulfillment centers worldwide which
span some 12 million square feet
Borders
2 inventory turns a year at 400 outlets
Amazon
12 inventory turns a year with only 25
fulfillment centers
33. The Amazon Brand
Most visited e-commerce website in the US, and one of the
top two or three in the UK, France, Germany and Japan
Rare, non-substitutable and costly to imitate
High switching costs
Repeat clientele ≈66%
Marketing
Word-of-mouth
Amazon Affiliates Program
Personalized advertising
36. From the Annual Report
Our pricing objective is to earn customer trust, not to optimize
short-term profit dollars. We take it as an article of faith that pricing
in this manner is the best way to grow our aggregate profit dollars
over the long term. We may make less per item, but by
consistently earning trust we will sell many more
items. Therefore, we offer low prices across our entire
product range. For the same reason, we continue to invest in
our free shipping programs, including Amazon Prime. Customers are
well-informed and smart, and they evaluate the total cost, including
delivery charges, when making their purchasing decisions. In the last
12 months, customers worldwide have saved more than $800
million by taking advantage of our free shipping offers.
37. Cost Leadership
Low costs allow Amazon
to price products as the
Low costs cost leader. This allows
Low prices them to gain higher
market share in the long
High volume run and achieve high sales
volumes.
38. Low Costs
Cost leadership: continuously reduce costs of value chain
activities
Buying
Better terms with suppliers
Selling
Technology
Economies of scale with website expansion
Distribution and supply chain
Improving operating efficiencies
Negative working capital
39. Low Prices
Low costs enable Amazon to offer lowest
prices online
Free shipping
Loss leader products
41. Low Prices: Case study
Under the Dome
Amazon makes a
loss on each
copy of the
above they sell
42. High Volume
Low costs and even lower prices:
profits generated with long term
perspective and high volume
Reach, richness and affliation
Easy to buy stuff
Unlimited shelf space
43. Reach
Alexa.com Ranking
Amazon 25
Barnes and Noble 827
eBay 23
Google 1
Amazon.com: One of the most visited sites
44. Richness
Highly personalized
recommendations and
relevant shopping info
make for a rich
customer experience
46. Easy to buy stuff
One Click in action (choose one):
You Found Me by The Fray
Get On Your Boots by U2
Relax Max [with Naturally 7] by Michael Bublé
Guiding Light by Muse
48. Cost leadership in
relationship to five forces
Rivalry: Threat of new entrants is low
Rivals follow the lead of the Significant fixed costs
market leader because they
cannot retaliate in price wars Scale
Efficiency and cost
Buyers have low bargaining
reduction
power:
Low prices actually build Substitutes:
customer loyalty With continuous reductions
Low power of suppliers: in costs, customers find it
less costly to shop online
Amazon can absorb price than at brick and mortar
increases as cost leader shops
Suppliers are forced to hold
down prices, especially in the
long run
52. Address low margins
5% 4%
13%
Low margins
Cut costs
Pricing Strategy
78%
Cost of Revenue, Total
Selling/General/Administrative Expense
Research & Development
Operating Income
58. Recommendation: Streamline
Peripheral Businesses
Focus on businesses that either indirectly or directly affect
revenue stream
Indirectly impacts revenue
Drive traffic to Amazon’s main webpage
Eg: IMDb
Gain new competencies in other related areas to its
business
Eg: Alexa.com
Directly affects revenue
Introduction of e-book reader Kindle
60. Amazon is currently
present in seven countries
Amazon.com
Amazon.ca
Amazon.cn
Amazon.co.jp
Amazon.co.uk
Amazon.de
Amazon.fr
61. Amazon is currently
present in seven countries
Amazon.fr
French limits
on price
discounts for
books
Mademoiselle, no free shipping for
you if Amazon loses lawsuit
(but you still have your baguettes)
62. Recommendation
Enhance the existing global strategy
In 2008 Amazon exported products to
over 200 countries
Focus should be on larger countries
Amazon has transferable capabilities, such
as reputation and distribution chain
knowledge
63. Conclusion
3 areas of improvement:
Business level strategy: streamline
operations, improve margins
Corporate level strategy: caution against
over-diversification
International strategy: consider local
context
68. “If there is going to be a ‘Wal-Mart of the
Web,’ it is going to be Walmart.com…Our
goal is to be the biggest and most visited
retail Web site.”
-- Walmart.com CEO, Raul Vazquez
