Advantages of Amazon.com being the first mover in E-commerce
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E-commerce (electronic-commerce) refers to business over the Internet. With the growth of commerce on the Internet and the Web, e-commerce often refers to purchases from online stores on the Web, otherwise knows as e-commerce Web sites. The e-commerce marketplace is intensely and savagely competitive. Mellahi and Johnson (2000) noted that major sustainable competitive advantages are almost non-existent. That means that firm’s market advantage such as economies of scale are no longer enough to make a firm secure in the e-commerce marketplace. According to McCrohan (2003), the e-commerce market has raised the level of market dynamics such that firms face constant challenges, disequilibrium and change. This also means that firms must adapt accordingly by providing superior customer satisfaction and shifting the rules of the game constantly.
Amazon.com was the first company to move book retailing from the bricks and mortar industry on line (Machlis, 1998; Munk, 1999). In addition, no company so far has done more to show how the Web overturns conventional assumptions about distribution than Amazon.com. (Fortune, 1997). The Economist (2000) noted that the name Amazon.com has become synonymous with e-commerce and it is one of the few Internet brands recognized world over. It added that the company is the most visited e-commerce Website in the USA, and one of the top two or three in the UK, France, Germany and Japan. Rapid and continuous innovation in the electronic commerce area has been Amazon’s heritage (PC Week, 1999). For instance, in 1995 Amazon was the first company to truly harness the power of the rapidly expanding Internet to provide an online book retailing service to consumers. Amazon has also been the first company to enable consumers to search for, and order, hard-to-find books as easily as best sellers (Postrel, 1996). Amazon followed up this innovation rapidly by offering its customers “one-click”. The “one-click” programme streamlines the buying process by storing detailed customer information, including credit card numbers.
Furthermore, Amazon has been the first online company to use collaborative-filtering technology, which analyses a customer’s purchases and suggests other books that people with similar purchase histories have bought. Such valuable information has proven very effective in capturing new markets online and mass customization. In addition, Amazon has been the first online company to introduce two innovative processes to facilitate customer purchases. Through its acquisition of Junglee Corp in August 1998, Amazon has developed comparison-shopping that gives customers a way of finding products that Amazon does not sell directly.
Reciprocally, Amazon’s affiliates programme, which numbers over a quarter of a million participants, directs customers from other sites to the Amazon store site. In this programme, participants receive a commission for each referred purchase made from their site (Warner, 1999). Amazon has also been the first online company to provide customers with reminders and tracking of their orders through e-mail alerts (Hof et al., 1998). Consequently, Amazon’s innovative history suggests that the company could become a dominant provider of online shopping behaviour in the future (Deck, 1999). As such, Amazon has stayed ahead of the competition by rapid and continuous innovation.
It must be pointed out all these innovations are quickly imitated by other e.commerce companies. It is worth noting that imitation is not a one-way traffic. Amazon.com has been accused of designing a front page for their online toy-retailing venture that looked as if it had been taken directly from eToy.com store site (Armstrong, 1999). Moreover, in October 1988, Wal-Mart filed a lawsuit against Amazon.com alleging violations of trade secrets, relating to Amazon.com targeting a specific combination of individuals for their expertise and insider knowledge of Wal-Marts distribution, data warehousing, and merchandise management systems (Gannon, 1998). In brief, although competitors were able to free ride on the technology and Amazon’s innovations, Amazon.com’s 20 months head start online over its closer rival, Barnes and Noble.com, has resulted in Amazon retailing over five times as many books, and acquiring five times as many customers. Thus, waiting and watching the first mover in order to free ride on the technology or other innovations translate into automatically losing market share.
Being first to market and continuous innovation have enabled Amazon to achieve a highly recognizable and trusted brand name (Economist, 2000). This is not surprising given the fact that the company spends approximately 40 per cent of its revenue on brand building due to its firm belief that customers first and foremost look for trusted brands when they deal online (Margolis, 1999). In addition, Amazon.com is customer centric. Jeff Bezos, founder and manager of Amazon, reported that Amazon’s vision “is that we want to be the world’s most customer-centric company, that we focus increasingly on trying to get the customer experience right. Within that, we want to build a place where people can come and discover anything they might want to buy online” (Business Week, 1999). The company marketing expenses increased threefold between 1998 and 1999. Amazon.com is seeking to capitalize on its brand and diversify its business to become the best place to buy, find and discover any product or service online. Indeed, the company claims that its online diversification strategy into other product category markets has arisen as a direct listening to customer requests.
In addition to that, being the first mover also enables Amazon.com to assemble a great store of information on the buying habits of each of its customers. As such, the company has been able to be proactive and second-guess what customers want. For instance, it recommends books and CDs to customers on the basis of their previous purchases. Amazon is able to forecast demand more accurately and thus is able to get a better deal from publishers as its return rate is less than 0.25 per cent compared to 30 per cent for the industry average overall (Mellahi, Johnson, 2000). By being first to market, Amazon.com has set the industry standards. So far, it seems that being first to market has allowed Amazon.com to capture more customers and market share, with other online competitors playing catch-up. Psychological switching cost for customers resulted in high repeat customer purchase surpassing 66 per cent of orders (Machlis, 1998). Enders and Jelassi (1999) provided examples to suggest that customers, once they get used to Amazon.com, become reluctant to switch to another one and equate themselves with new content and layout.
Few lessons can be drawn from the Amazon.com case. The three critical factors to stay ahead of late movers are speed, continuous innovations and patenting. The case of Barnes & Noble, a company with deeper pockets than Amazon.com, showed that if two companies or more recognize the opportunity to create a new advantage at the same time, the company that can create the advantage faster would win. The latter could only be achieved if the company has the best human resources and the capability to use them effectively. As Amazon.com has been creating a series of temporary advantages, its ability to move quickly from one advantage to the next before competitors imitate it better is crucial. Continuous innovation to disrupt the status quo is the second critical factor. Amazon has been disrupting the status quo by developing new innovative ways to serve the customer on line.
This has created temporary advantages for Amazon.com. The case provides evidence to suggest that these advantages are based to a large extent on better knowledge of customers and technology, than competitors and effective utilization of highly talented human resources. Although these advantages are short-lived and quickly eroded through imitation, they continuously put latecomers at a disadvantage for a short period and force them to play catch-up, reacting to Amazon.com rather than shaping the future of online shopping. A third factor is patenting. Despite doubts about their importance, Amazon.com and many other e.commerce companies are leveraging patents to protect their innovations and sustain their first mover advantages.