From a small garage startup, Amazon has grown into one of the largest online retail stores in the world over several decades. Among the company’s sources of growth has been technological advancement, which enables the firm to develop better ways of providing a seamless experience for its consumers. Since its establishment, Amazon has ventured into a diverse product portfolio, including online book retailing, streaming multimedia, manufacturing electronics, and offering cloud computing services with the primary purpose of satisfying customers’ desire to fully access goods under a single shopping platform (Rothaermel, 2017). However, this operational advantage is prone to several challenges. Today, the corporation faces multiple threats from other giant technological organizations, such as Alibaba and Walmart, and is trying to develop new ways of thriving in the industry. The following report comprises a description of Amazon’s business model, an analysis of its core competencies, and recommendations to outperform competitors, which the firm needs to be more vigilant about as it identifies the fourth pillar of operation.
Managerial Report: Amazon Inc.
Amazon operates under a broad business model with all components integrated to achieve its vision of becoming the most customer-centric company. The first segment comprises direct sales with inventories sold to buyers through the firm’s website. For instance, AmazonBusiness, which was launched in 2012, offers consumers a wide variety of products, such as mechanical, janitorial, and medical supplies (Rothaermel, 2017). To aid direct sales, the corporation has an extensive network of storerooms in various parts of the world where pre-ordered goods are stored. For example, in 1998, Amazon acquired additional fulfillment warehouses in the United Kingdom and Germany to facilitate timely deliveries and save on cost component shipping in Europe (Rothaermel, 2017). The primary source of revenue for the corporation’s direct sales is the small markup charged for the products. Through the model, the firm manages to lower prices associated with direct sales by owning centrally-located silos.
The second part of Amazon’s business model is a sales partnership. Apart from selling products directly to consumers, the company also offers other firms an opportunity to sell their items through its online platform. An example includes the 2002 sales partnership between the establishment and clothing retailers, which initiated a clothing sales department (Rothaermel, 2017). Apart from working with small vendors, Amazon also collaborates with its competitors. For instance, Google products, including Chrome Cast and Nexus devices, can be purchased on Amazon’s website (Rothaermel, 2017). Industrial convergence provides a win-win opportunity for the two corporations because Amazon generates commission from the sales, while Google markets its products to consumers who visit the website.
In addition to direct sales and partnerships, the company operates a subscription-based Amazon Prime model. The program, which was launched in 2005, allows subscribers to receive free two-day shipping from the firm by paying an annual fee of $99 (Rothaermel, 2019). Prime enrollees can access the corporation’s instant video services. Over the years, Amazon has tried to restructure this model to satisfy the needs of its broad consumer segment. For instance, in its plan to penetrate the college bookstore market, the business plans to charge students an annual Prime membership fee of $49 for guaranteed access to next-day delivery and other benefits, including discounts on hardware and free streaming of media content (Rothaermel, 2019). While consumers appear to be the main beneficiaries of this business model, the enterprise also generates consistent revenues from annual subscriptions.
Amazon’s core competency is embodied in its vision. Although part of Amazon’s goal is to generate high revenues and profits in the long run, it envisions being the most customer-centric company. Therefore, the firm invests highly in resources that benefit all its consumers. Over the years, the corporation’s key competence has been its web services, commonly known as AWS. Although some investors perceive AWS as an obstacle to future revenues, the subsidiary has shown progressive growth of approximately 40% each year (Rothaermel, 2019). AWS has been the corporation’s source of competitive advantage against other giant techs, such as Google, which began as a cloud provider.
One factor differentiating AWS from products offered by other companies is its multi-faceted utility. The company launched the infrastructure in 2006 to accelerate software development processes, enhance operations in its retail business, and meet its growing market demand (Rothaermel, 2019). After realizing its efficiency, the management decided to sell it to other firms that rely on in-house infrastructure. Consequently, the corporation has managed to generate revenue from the subsidiary by renting server space, storage, and computing capability to technology startups and government agencies (Rothaermel, 2019). In general, AWS is one of Amazon’s key pillars that distinguishes the firm from its industrial rivals.
Competitors That Bezos Needs to Pay Most Attention to
To maintain its market position, Amazon’s management should be vigilant about its rivals’ practices and market performance. Jeff Bezos, the company’s founder, president, and CEO should be particularly watchful of Alibaba, one of the fastest-growing e-commerce companies in China. Although the corporation lacks a considerable following in some of the regions where Amazon operates, such as Europe, the two companies share a common market strategy. Just like Amazon, Alibaba’s main focus is achieving cost leadership, which can be realized through its asset-light model (Rothaermel, 2019). On the other hand, Amazon owns inventory, an operational technique that makes it challenging to optimize its cost-cutting tactic. Hence, Alibaba is a significant threat to Amazon’s international activities.
Besides, both companies indulge in annual promotional practices, which makes them huge competitors. For instance, in 2009, Alibaba launched Single’s day, a yearly shopping holiday, for customers to enjoy considerable discounts for purchasing goods through its websites (Rothaermel, 2019). Similarly, Amazon launched Prime day, which is a 24-hour discounted sale for its users (Rothaermel, 2019). While the programs appear to be alike, Alibaba has a competitive advantage as it offers discounts across all its e-commerce sites. On the other hand, Amazon’s deal solely benefits Prime subscribers. In light of these disparities, Bezos should not only pay attention to Alibaba’s operations but also develop strategies for reacting to its operational tactics.
Bezos should also be watchful of Walmart’s operations. Recently, the firm launched a Shipping Pass similar to Amazon Prime. Unlike Amazon, which charges $99 for membership, Walmart’s annual subscription fee costs $49 (Rothaermel, 2019). Such a move may have a competitive edge against Amazon, given that both companies operate in the e-commerce industry. Besides, Walmart has several brick-and-mortar stores from which customers can collect and return goods ordered online. While Walmart and Alibaba are the two main competitors that Amazon should monitor carefully, the company should also be prepared for other industrial entrants that may disrupt its activities.
Where to Next?
Although Amazon holds a strong market position in the e-commerce sector, the firm is still exposed to industrial disruptions and internal pressure from investors and other stakeholders. One of the steps that the management can take to minimize these uncertainties is conducting pilot tests for its new ideas across the company’s product mix. For instance, Bezos should launch a small-scale trial to determine the efficiency of using drone delivery of various goods. In addition, teams deployed to conduct the tests should seek consumer feedback to identify whether they are receptive to the innovation. Depending on the information gathered during the fieldwork, Amazon may adopt an incremental strategy of using the distribution method in new and existing inventories.
The management should also consider reviewing the business strategy because both Walmart and Alibaba appear to pose potential threats to Amazon’s operational approach. Amazon Inc. may experience considerable difficulties trying to penetrate China’s market because of the country’s stringent laws against foreign firms. Hence, the organization should react to Alibaba’s disruptive practices in the global arena. To achieve market advantage, Amazon may restructure its annual promotions to match its competitors. Rather than offering discounts to Prime subscribers, the corporation can identify better deals for all its platform customers. The establishment may also focus on an omni-channel approach of operation, a tactic that Walmart is currently experimenting with. While Amazon embraces a combination of brick-and-mortar stores and online storefronts, the physical structures are fewer than those of its rival companies. As Bezos contemplates on the next step for the firm, he should consider capitalizing on its physical presence and retaliating to its competitor’s industrial actions.
Rothaermel, F.T. (2019, May 25). Amazon.com, Inc. New York City: McGraw Hill Education.