History and Products
Amazon is a Seattle-based Fortune 500 company that was founded in 1994 by Jeff Bezos and launched the next year. Back in the day, the company has become one of the first large Internet sellers. Looking at the industry giant that Amazon has grown to be over the last 25 years, it is difficult to believe that the business had humble beginnings.
It started as an online bookstore; however, thanks to Jeff Bezos’ thoughtful guidance, the range of goods offered on the platform was quickly diversified. Soon, Amazon’s customers were enjoying DVDs, electronics, video games, and clothing. Amazon turned competition with fellow online sellers into mutually beneficial collaboration by offering its platform on favorable terms (Ritala, Golnam, & Wegmann, 2014). In 1998, Bezos became Time’s “Person of the Year” for his contribution to online shopping.
The client’s interests take front and center of the company’s strategies which capitalize on using every opportunity to harness the unprecedented tech revolution. The passion to serve the customer and gain a competitive advantage over numerous contenders was the impetus to innovation. It resulted in the creation of such products as an electronic library Kindle, a virtual assistant Alexa, Dash Button for one-click purchases, and a fast shipping service Amazon Prime (De Jong & van Dijk, 2015). As of now, Amazon is planning on building a flying warehouse for drones – an idea that might be disruptive to the entire logistics industry.
SWOT Analysis
Strengths
Amazon’s key asset is its pristine reputation with customers all over the world, which ensured the company’s steadily growing profits over the last two decades. According to Statista (2018), in 2018 alone, the Seattle-based company increased its revenue by $55 billion, or 23% – from $177 to 232 billion while the number of customers worldwide amounted to 310 million. Amazon’s growth in 2018 that surpassed that of the rest of the US e-commerce market solidifying the fact that the company has definite competitive advantages.
The three pillars of Amazon’s superiority in the world of supply chain retail are low-cost structure, merchandise selection, and a vast number of third-party sellers. Amazon depends on online sales – in 2018, this segment for more than 50% of total annual revenue. By reducing the number of physical stores to the bare minimum, the company can maintain favorable pricing policies. These factors resulted in a large variety of products at lower prices and, hence, excellent customer experience.
What makes Amazon a tight-knit community of people that share the same vision is Bezos’ brilliant hiring strategy. The CEO argues that the traditional hiring method that aims at bridging the gap between the employer and the candidate by asking questions about academic credentials and experience is not entirely foolproof (Denning, 2018). Instead of merely looking at a person’s CV, Amazon’s human resources development team tries to build a personal connection and find admirable qualities that will unfold and benefit the company in the long perspective. By concentrating on what drives a person to succeed, Amazon was able to attract talent from all over the world.
Weaknesses
Despite its overall success and adequate cash flow, Amazon is not debt-free: between 2015 and 2016, the company saw an almost 220% increase in debt from $7.6 to 24.7 billion. By 2018, Amazon had managed to pay some of it back but still owed around $23 billion in long-term debt (Macrotrends, 2018). To stay afloat, the company will have to elaborate a long-term plan on how to overcome this issue.
As for other weaknesses, Amazon’s competitors might have an edge when it comes to fashion. In a recent survey, only 6% of respondents were searching for unique, statement pieces on the e-commerce platform (Griswold, 2018). The overwhelming majority would shop for basics but go elsewhere to find an item with some personality. Amazon has already tried to address this issue by cooperating with clothing lines which usually rely on direct sales. They seem to be reluctant to enter a professional relationship: they do not want their products to be associated with cheap and casual clothes that Amazon is best known for and lose part of their allure.
Another reason which applies not only to upscale fashion brands but to third-party sellers, in general, is the fact that Amazon imposes its pricing policies onto each new member. New stores are forced to sell their goods at lower prices as compared to their official website and physical stores and are offered few tools for standing out among their contenders.
Opportunities
Within the theoretical framework of strategic planning proposed by Abraham (2012), the key approaches that Amazon appears to be adopting are creating a new product for an existing market and finding a new market for an existing product. Recently, Amazon won a patent for building giant flying warehouses that would hover thousands feet above the ground and communicate with each other.
The company aims at making delivery by drone widely available and has already proceeded with trial shipping in the UK. By introducing flying warehouses, Amazon might as well be the first retailer to make immediate delivery possible. For instance, such a warehouse might be strategically placed above a football stadium and dispatch food and drinks to the visitors in an instant. By using drones, Amazon will meet customers’ rising expectations that are no longer ready to wait for days to receive what they ordered.
Over the past few years, Amazon has been gradually solidifying its presence in Europe. As of now, Europe is Amazon’s largest overseas market: for instance, in 2017, the UK and Germany accounted for at least 17% of total sales (Kim, 2017). The company delivers to 50 countries and has made Amazon Prime, a two-day shipping service with access to online music and movies, available for France, Germany, Spain, Austria, Italy, and the UK. Nine cities in the UK and six others in the European Union are now enjoying Amazon Prime Now, fast delivery by drone. It is projected that Amazon will expand its leverage in the Old World. What is interesting is that despite growing profits, the company might not want to pay back the debt immediately as having it on its balance sheets helps reduce taxation.
Threats
No matter how big and successful, Amazon is not immune to external threats. First, a large e-commerce platform is many hackers’ favorite target. Amazon keeps unbelievable amounts of data on its customers’ financial information. Even a minor breach in safety and confidentiality might alienate customers and ruin the company’s reputation.
Second, the exponential growth of the number of products offered and uncontrollable diversification might make it increasingly difficult for Amazon to harness its growth. The company plays several fields at once: clothing and electronics industries, online entertainment, and logistics. Trends and tendencies in those differ greatly, and some more specialized companies, for instance, Netflix for online entertainment, might have more tailored strategies and solutions.
Third, in the long perspective, Amazon might lose part of its staff due to reported job insecurity and managers’ poor attitude (Cao, 2018). Third-party sellers might as well consider other platforms if they offer cooperation on better terms. As a result, Amazon might start losing its competitive advantage and leave out more space for emerging local retailers’ growth – for instance, Saudi Arabia’s Souq and Turkey’s Trendyol.
References
Abraham, S. C. (2012). Strategic planning: A practical guide for competitive success (2d ed.). Bingley, UK: Emerald Group Publishing.
Cao, S. (2018). Amazon’s Employee Satisfaction Rate Soars Ahead of HQ2 Revelation: Study.Observer, Web.
De Jong, M., & van Dijk, M. (2015). Disrupting beliefs: A new approach to business-model innovation. McKinsey Quarterly, 3, 66-75.
Denning, S. (2018). How Jeff Bezos hires great people. Forbes, Web.
Griswold, A. (2018). No one buys clothes on Amazon because they’re fashionable. Quartz, Web.
Kim, E. (2017). This map shows how quickly Amazon has expanded in Europe.South China Morning Post, Web.
Macrotrends. (2018). Amazon long-term debt 2006-2018.Web.
Ritala, P., Golnam, A., & Wegmann, A. (2014). Coopetition-based business models: The case of Amazon.com. Industrial Marketing Management, 43(2), 236-249.
Statista. (2018).Amazon – statistics & facts. Web.