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Analysis of Amazon.com

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This force describes the ability of the firm’s suppliers to dictate the terms under which they operate. Weak suppliers may have to accept the terms that the firm offers, which allow the firm to appropriate some of the value of the product for itself, effectively taking some of the profit from a firm higher up the production chain. However, strong suppliers can push prices of their goods higher than the firm wants to pay and reduce the profit margins.

Amazon’s suppliers range from the publishing and media houses to electronics’ manufacturers. Amazon buys all their books, videos and audio CDs from the multimedia houses and publishing giants such as Time Warner, Doubleday etc. Amazon also has alliances with other bookstores to cover orders that they cannot serve.

Amazon in its efforts to sustain its market leadership in the online retailing industry has tied up with various online organizations. Netscape Navigator and Amazon will offer members of Netscape Netcenter a co-branded storefront where Earth’s Biggest Bookstore will be easily accessed through Netscape Netcenter (home.netscape.com). In addition, Amazon.com has multi-year exclusive and premier bookseller relationships with 5 of the top 6 sites on the World Wide Web: AOL.com, Yahoo!, Netscape, GeoCities, and Excite. These partnerships widen Amazon’s presence in the World Wide Web.


Buyers can have a similar effect on profitability as suppliers, just in the other direction. A strong buyer can force prices down, reducing those profit margins, while weak buyers can be exploited for all they’re worth. Again concentration is an issue. If the firm has only a very limited number of customers they are likely to wield more power than the customers in, say, a retail environment.

In the case of Amazon; the consumers of this industry can be found in every corner of the population. These are mostly people who have had some form of higher education and have access to the Internet and computers. The segment of online shoppers has increased dramatically in recent years due to the convenience of shopping in the comforts of the home and the accessibility of the Internet. These developments have made it easier for consumers to log on and buy on the Internet. Consumers also tend to compare prices among the retail leaders such that buyers are able to buy products with very big discounts compared to ones bought in “actual” retail outlets. The bargaining power of the consumer is based on the competitive strategies of each active firm in the industry. Thus, consumers can challenge one firm for charging more than the other one such that the firm will beat the price of the competing firm.

The consumers of this industry can be found in every corner of the population. These are mostly people who have had some form of higher education and have access to the Internet and computers. The segment of online shoppers has increased dramatically in recent years due to the convenience of shopping in the comforts of the home and the accessibility of the Internet. These developments have made it easier for consumers to log on and buy on the Internet. Consumers also tend to compare prices among the retail leaders such that buyers are able to buy products with very big discounts compared to ones bought in “actual” retail outlets. The bargaining power of the consumer is based on the competitive strategies of each active firm in the industry. Thus, consumers can challenge one firm for charging more than the other one such that the firm will beat the price of the competing firm.


Obviously, the last thing established firms want is someone else taking their profits, but this is always a possibility if other people can enter the industry easily. High profits in incumbent firms always attract attention, so profitable firms in easily accessible industries are constantly under pressure from new competitors. The most profitable industries are those that are very difficult to enter. They have barriers preventing entry by other companies. These barriers may take the form of exclusive access to raw materials, or the requirement of massive investment in technology, or patent protection; anything that gives the incumbent an unfair advantage.

The online bookstore industry that Amazon.com has pioneered in was, at first, very hard to penetrate. There were different barriers such as distributing capabilities and the variety of the selection offered that are supposed to be hurdled. Amazon successfully solved the tricky parameters as being the first one to get into the whole idea of online retail. With being the first, they had the luxury to set what were the norms for the industry. Factors that may lower these barrier tactics would be a wider selection and the ability to go to an actual bookstore to exchange or return books or other products. This network of “actual” retail spaces makes it easier for the consumer to return or exchange the products they were not satisfied with. These handicaps of Amazon were the basis for the emergence of book retail giants Barnes and Noble and Borders in the online shopping industry.


Again, this is very similar to the threat of new entrants. If customers can get another product that does a similar job, they will not accept excessive profits in an industry. For example, if oil producers started charging too much for petrol, there would be swathes of people moving to riding bicycles instead of driving their cars. For the firm, the most desirable position is where there are no substitute products.

The substitutes for Amazon and other online bookstores are the “actual” book retailers and music stores such as Barnes and Nobles, Virgin Megastore, Tower Records, Sam Goody and other small mom-and-pop outlets. With the rise of online retail, there will be little impact from these substitutes. One impact would be some consumers who would like to hold or listen to their purchases prior to buying and those who are into the whole “shopping experience”. Barnes and Nobles have jumped into online retail and have succeeded into diversifying into the new e-commerce industry.

Focused largely on the sale of books, music, software, magazines, prints, posters, and related products, the company has capitalized on the recognized brand value of the Barnes & Noble name to become the second largest, and one of the fastest growing, online distributors of books. Their “advantage” to Amazon is the brand name and the availability of actual retail outlets in which consumers could go in to exchange or return products easily. They also have an established book selection based in their retail operations.

Borders is another multi-media retail store found in major cities around the country. Started out as a small bookshop in the college town of Ann Arbor, Michigan, it has since expanded into one of the finest bookstores. In 1992, Borders was bought by the Kmart group which further flourished the company into a Multi Media Giant with a wide selection of Audio, Video and Books found throughout the United States.

The Online Bookstore industry have become a fierce business which involves discounts, varied selections and fast delivery in which all three companies are challenging each other.


This is the force that can really swing things in favour of, or against, a profitable industry. An industry where all the incumbent firms hotly contest every little piece of custom is not going to be as attractive as an industry where the firms are just happy with the customers they’ve got. It is certainly far easier to carve out a consistent niche in the latter which allows profits to continue more certainly into the long term.

The major competitors of Amazon are Barnes and Noble and Borders. Barnes and Noble is a retail giant offering books and CDs both in their outlets all over the country. It opened their online industry in 1997 and has become the fourth largest e-commerce sites today.

Due to the shift of focus for Amazon, it has become the “Earth’s biggest anything store”. Its competitors have expanded from just online book retailers Barnes and Nobles and Borders to top audio retailers CDNOW.com and online auction house EBAY.com. Amazon has an overall lead of 40% market share against the other online retail firms. Their international business has more than doubled over the past 2 years and this growth increased Amazon’s share in the online business market.

Amazon.com has remained on top of the online retailing business despite the entrance of giants such as Barnes and Nobles and Borders. Their success is attributed to two factors; timing and continuing to invest heavily into the inventory and distribution systems. Amazon, by being the first of its kind, has a big lead over the nearest competitors due to their experience and its reputation as the first movers. Their thrust remains on improving efficient delivery systems across borders and to build name recognition as the number one retailing firm in the Internet. They have also ventured into different retail options to keep that lead. Marketing, Innovative inventory and distribution systems, and name recall have helped Amazon build a sustainable competitive advantage.

In order for any online retail company to remain prosperous and income generating, they must invest a lot of time and money into research and development of more efficient operations and distributions systems. This proved to be key for the Market Leader in online retailing, Amazon.Com.

From a Value Chains perspective, Amazon decided at the outset to build its own warehouses in order to increase the speed and reliability of its delivery of online orders. Amazon has sought to add value in the sales and fulfillment activities, seeing this as a core competency (Amit & Zott 2001). However, the investment in new facilities required to serve new markets or to offer a step change in capacity have carried a crippling cost, and indeed Amazon has closed several facilities where capacity has been under-utilised. More recently, Amazon has adopted a more flexible approach and also acts as a marketplace for other sellers that supply other goods and services alongside its own, even offering lower prices from other suppliers on goods it sells itself.

Of course, with greater analysis and experience of these markets, it has been found that to serve markets in volume, whilst there may have been disintermediation, there has also been reinter-mediation. Businesses like Amazon have had to build new distribution capabilities that have been by no means cheaper than traditional methods.



Amazon’s main threat comes from substitutes. Although Amazon has been spending heavily on marketing, some customers are still in favour of shopping at BN bookstores while chatting with other book-lovers. Threats of new entrants are also obvious. As Amazon rapidly expands business into products other than books, it becomes a new entrant to those areas and has trouble creating meaningful brand recognition. On the other hand, many new entrants are mimicking Amazon’s business model trying to steal some market share. Rivalry among existing competitors is getting fierce, because other smaller e-sellers are forming alliances to take on the market leader and the current online retail monsters Buy.com is growing fast as well. Bargaining power of customers is not a pressing issue, whereas the bargaining power of suppliers is quite powerful. Amazon can’t get large quantity discount due to low inventory and the nature of small retail orders.

Amazon.com has remained on top of the online retailing business despite the entrance of giants such as Barnes and Nobles and Borders. Their success is attributed to two factors; timing and continuing to invest heavily into the inventory and distribution systems. Amazon, by being the first of its kind, has a big lead over the nearest competitors due to their experience and its reputation as the first movers. Their thrust remains on improving efficient delivery systems across borders and to build name recognition as the number one retailing firm in the Internet. They have also ventured into different retail options to keep that lead. Marketing, Innovative inventory and distribution systems, and name recall have helped Amazon build a sustainable competitive advantage.


Factors beyond Amazon.com global acceptance and success can be categorized into four categories:

Price: Offering competitive prices

Web Design: Straight forward web design and friendly interface

Convenient Payment: A convenient Payment System

Shopping Experience: The unique shopping experience.

1. Price

Amazon differentiates itself mainly on the basis of price and by making sure that it offers the same quality products as any other company with a noticeably lower price. In addition, sellers do not pay any fees for product listing and it cost nothing until the product is sold.

In order to make this happens, Amazon.com is doing great effort with wholesalers and tends to “connect to resources that give it scale rather than adding internal physical mass.” The online bookstore allows lesser geographical constraints and easier expansion. According to John Jordan, Amazon is roughly 10% cheaper than a physical retailer with more cost saving with order size. Independent sellers or affiliates play a major role in selling the products and they constitute about 40% of the entire sales.

2. Web design

Amazon is considered an undisputed leader in online shopping; with a well defined website. The organized visual hierarchy, page organization, and friendly interface and

layout allow easy navigation and enjoyable shopping. Amazon believes in customer differentiation and consumers easily recognize and differentiate Amazon.com experience from others. Personalized shopping experience is on of a kind in which users get recommendations and summary related to the user’s interest and purchasing or search history.

3. Convenient payment

All payments are handled securely by Amazon.com itself. Sellers do not have to establish different payments account as in eBay and Paypal. Amazon.com provides a convenient “1-click” ordering that allow customers to make purchases without getting into the hassles of other online checkout payment systems.

4. Extraordinary Convenient and Unique Shopping Experience

Wide selection: being exclusively online, Amazon was able to provide access to 1.5 Million new books and about 1 million used ones. This is estimated to be 100 times the size of typical mall bookstore. Moreover, Amazon expanded into a variety of categories beyond media.

Search inside: one great feature is the easy access to the catalogue via web services by the “search inside the book” to help users to search for a keyword inside the text. Amazon cooperated with around 130 publishers for this service.

Reviews: The ability for people to rate products and leave reviews worked as an important highly influential tool.

EDoc: this new feature allows customers to have their document viewed electronically on screen. Customers do not have to pay for shipping or handling.

Customer service, support, and help: although the buying or selling procedure is usually trouble-free, the website provides rich amount of online help and FAQ system.


Amazon.com opened its virtual doors in with a mission to use the Internet to transform book buying into the fastest, easiest, and most enjoyable shopping experience possible.

Amazon wants to become the world’s biggest e-Commerce company. Amazon tries to assemble nothing less than earth’s biggest selection of goods then make them available on their website for people to find and buy. They also seek to become friendly to customers. Amazon focuses on how to personalize services for their customers. Bookstore policy is personalization and customization. Amazon has good browser tools to let the customer find books and any other product easily and quickly on the Internet through their platform to shorten the delivery flow and speed delivery time.

Amazon provides customers personal services and discount prices. Customers can find and discover anything they might want to buy online. Competitive pricing is the most important strategy. Discount prices attract customers to consume and repeat their purchasing again. Through Amazon Marketplace, zShops, and Auctions, any business or individual can sell virtually anything to Amazon’s millions of customers. With Amazon.com Payments, sellers can accept credit card transactions, avoiding the hassles of offline payments.

Amazon uses new technology to simplify the delivery flow through which customers buy online and deliver the products to customers. This improves the online user’s confidence and their spending habits. They have a truly unique relationship with the supply chain. The key is aligning your goals so that if one participant does well, the other does better also; this way Amazon believes you have to create a financial win- win for both parties.

Since there is a fierce competition among this industry; online book sales will likely increase in the years to come. Amazon.com has been using the cost leadership strategy offering books at lower cost. If they continue their discounted and lower pricing system, more customers will take advantages of these savings. However, pricing cannot, and will probably not, continue to be a key competitive point because now many online book sellers offer their products at very low cost.

Amazon.com forced the traditional physical world brick and mortar retailer in the book industry to change the way they target the industry’s consumers and then epitomized Business-2-Consumer e-retailing.

Although, Amazon.com started as an online bookstore, the bricks and clicks mantra revolves around the idea that the winning and profitable formula for electronic commerce success is leveraging the best of the physical and virtual worlds.

In theory, it should give physical retailers venturing on to the Web an edge over pure dot-com e-commerce companies because they can efficiently extend their existing infrastructure and complement their real world stores. So far, the most successful retailers have been those that have taken an aggressive approach to the Internet like Amazon.

The bricks-and-clicks model is gaining momentum as the e-commerce market matures. A growing number of retailers have finally gotten serious about doing business on-line, now that fast-moving dot-com players such as Amazon.com Inc., eBay Inc. and eToys Inc. have carved out market niches.

By creating an independent on-line unit that has the freedom to develop its own merchandising and marketing strategies, Amazon has the freedom and flexibility to capitalize on opportunities. Toys “R” Us Inc. stumbled when it decided to protect its stores and offer only a limited selection of merchandise on its Web site. That gave eToys and Amazon.com a window of opportunity to win customer loyalty and rapidly grow sales, while Toys “R” Us struggled to play catch-up.

The Market is moving toward a system where it is no longer going to be only Internet or only bricks and mortar, Amazon’s mandate is not focused on where the business was, but rather where the opportunities are.

Amazon.com has parlayed its Internet expertise to compete very successfully against traditional “bricks & mortar” book retailers such as Barnes & Noble, and Borders; Price line has leveraged its e-commerce patents and business model to challenge the incumbent travel agent industry.

Thus, this is what caused Amazon to change its strategy. The pure Internet plays are very well-positioned to leverage the Internet to overwhelm their incumbent competitors who are locked into their “bricks & mortar” channels. However this is not necessarily true for all industries. If an incumbent can update its business model and supporting organizational infrastructure, it can successfully leverage the Internet just as effectively.

From a global strategy perspective, Amazon’s strength internationally lies within its networks in major ports and cities around the Globe. Amazon first started out in Seattle but as soon as they have established a niche market, they have opened shop all over the nation and in cities such as London, Berlin, The Hague, Paris, Tokyo, Singapore and many more. These branches overseas improve their delivery service to a wide consumer base.

The main purpose behind Amazon’s strategy constantly changing; this is to stay ahead of the rivals. By being one step ahead of your rivals you able to retain market shares. Also by changing your focus to expanding your portfolio to incorporate more diverse offerings; you are able to capture a wider and new market.

The latest acquisition they’ve made is the biggest in the history of the company: he companies announced on Wednesday that Amazon was acquiring Zappos, based in Henderson, Nev., for 10 million shares of Amazon stock, worth nearly $900 million at its current level. Zappos, a private company founded 10 years ago, has won fans with perks like free shipping and personalized service. It is the largest player in that market.

Amazon has tried without much success to burnish its shoe offerings in the face of competition from Zappos. In 2007, it introduced a separate site, Endless.com, to sell shoes and handbags. But while Zappos received 4.5 million visitors in June, Endless.com got 777,000, according to comScore.

This strategic focus of moving to competing in a certain market; to acquiring that competitor in that market is a strategy that is necessary; especially if companies like Amazon want to still achieve goals of reducing costs and improving customer service


If one is preparing a list of top ten companies of the decade it would not be completed without Amazon.com. The company is considered one of the top in the e-commerce industry and has managed to continue its success. The journey towards the success and its continuous growth is huge if not phenomenal and it shows how difficult it is to even be in the competition in the e-commerce industry.

Amazon.com became one of the primary instruments of the e-commerce revolution. One of the most important one is due to its operation cost. Amazon developed its business based on its online book sell. Everyone knows that books cost relative lower, and it is can be easily and cheap to shipped. This contributes the reduction of cost of sales.

Also unlike other bookstore based on front shops sells need warehouse facilities, to operate online save the org many operating expenses, such as stock inventory cost. Indeed, though it has become a multimillion dollar business that employs 110, there is still no store front and very little inventory.

In addition, for all the e-operated company, one of their mainly administration advantages is it can solve many customer problem online, so does Amazon.

Another advantage to trade online is it is convenient. Everything can be just delivered to home, as long as u clicks the mousse. To quote Bill Gates’s words: “I buy all my books at Amazon.com because I’m busy and it’s convenient. They have a big selection, and they’ve been reliable.” It is true, comprehensive selection is one of Amazon’s features. “Our goal is that if it’s in print, it’s in stock” and a 10% to 30% discount on most books. Bezos commented that, “it’s a huge mistake not to offer discounts…Most on-line businesses fail because they mis-estimate the value proposition” (Fortune, p.170, 1996). One of Amazon’s reliable services was based on giving you, the consumer, control and providing a top-class next-day service.

What this means, in other words, even in cyberspace, customers want bargains. Bezos declines to disclose revenues but analyst estimates for 1996 reach well over $10 million. He did, however, say that Most important, since the company orders books which the customers have agreed to buy, its return rate is less than .25%, vs. 30% for the industry overall (ibid). Finally, publishers are greedy for Amazon’s ability to track customer preferences and ordering patterns, the kind of information that they would love to use to forecast demand. Thus far, Bezos has resisted sharing this information too.

The frequency Factor

Book buyers return to Amazon on a regular basis, so Amazon gradually collects enough information to make personalization effective. According to Bezos, orders have been increasing this year by 34% a month; and 40% of Amazon’s sales are to repeat customers. Amazon is developing a relationship with these people and making their data as asset, which contains information on people that are shopping online. People tend to purchase multiple books on the same subject. Similarly, many readers buy every book from a particular author. This huge database of Amazon allows firm can scarcely predict a customer’s future needs based on past purchases because their needs change as they are fulfilled. Morgan Lozier, sr. usability specialist, Modalis. “Amazon offers users the most streamlined shopping experience on the Web by providing value added enhancements such as personalized recommendations and express checkout”.

Just like Jeff Bezos, many companies are trying to more like Amazon.com and trying to be as profitable as Bezon and Amazon.com. An example of this is eBay.com, an online web auction site, that lets everyone clean out his or her attic and make a profit and the mighty Barnes and Noble trying to play catch up with Amazon as well.

Based on all of the above, my answer is yes, I think that Amazon can continue to be successful if it embraces and continues to live on the strategies it stated and lives out.


Technology alone is rarely the key to unlocking economic value: companies create real wealth when they combine technology with new ways of doing business.

Technology helps companies to utilize fixed assets more efficiently by disaggregating monolithic systems into reusable components, measuring and metering the use of each, and billing for that use in ever-smaller increments cost effectively. Information and communications technologies handle the tracking and metering critical to the new models and make it possible to have effective allocation and capacity-planning systems.

Amazon.com, for example, has expanded its business model to let other retailers use its logistics and distribution services. It also gives independent software developers opportunities to buy processing power on its IT infrastructure so that they don’t have to buy their own.

Amazon’s primary value chain includes purchasing/sourcing, marketing, distribution and after-sales services, which includes returns and exchanges from unsatisfied customers. Their main focus is in the purchasing/sourcing and in the distribution of the products to the consumers. Their investments are therefore, geared towards warehouses in key points of high consumer demand areas and an efficient delivery and distributing system to service all its consumers. Thus, Amazon controls most of its distributing system that spans across borders.



A firm’s value chain is linked to the value chains of its suppliers, distributors, and customers

A value web is a collection of independent firms that use information technology to coordinate their value chains to produce a product collectively

Value webs are flexible and adapt to changes in supply and demand



Online retailers have a set of advantages comparing to brick-and-mortar ones: brand flexibility, product selection, cost structure, information access. This is particularly apparent in product categories where customers may want more information about the product (like reviews and comments), wider selection and doesn’t require immediate delivery. Books and music were ideal first categories for Amazon to start their e-commerce venture. They started building their infrastructure from there, but their ultimate goal was to create system that allows them to undertake any new product category without incurring start-up costs over again. It was not easy – their vision of growth led to big initial overcapacity. They achieved leadership by huge investments in technology and developing necessary expertise in e-commerce.

When infrastructure for their model was in place, company gained significant advantages over offline businesses – they have flexibility to expand into new market faster and at a lower cost. Amazon’s ICT is that differentiating factor that allowed company to have minimal start-up costs. On the other hand they raced ahead of the Internet crowd by creating superb physical back-end operations with their distribution, order fulfillment and customer service centers. They realized the model Porter was emphasizing on – integrating virtual and physical activities.

The configuration allowed them to expand into new categories without the expertise; they avoided taking the risk of building inventories by teaming up with other companies in different categories. With all of the investment up front, the space of virtual real estate is unlimited, that’s why Amazon may allow unlimited partners to use its technology with no material cost margin. Expanding into more and more categories Amazon is increasingly becoming all-around store, which creates comfortable environment for customers and reduces the need to shop outside of it. This erects another barrier for competitors.

By creating best e-commerce technology and allowing others to use it Amazon rewards itself with opportunity to receive margins as high as 90%. And with the growing importance of third party sales, this creates a material portion of their business. They have to be careful about the downsides as well – there may be a risk for their reputation by letting others fulfills Amazon’s customers’ orders.

The vision of creating all-around customer portal even allowed them to successfully integrate non-revenue generating portals (greeting cards, address books, calendars) into the organization.


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HBR Case “Amazon.com: Exploiting the Value of Digital Business Infrastructure””The New Rich-Rich Gap”, by Robert Reich, in Newsweek Issues 2006




MARIBETH KUZMESKI (2008, March 3), Your brand defines you, National Underwriter. Life & Health, pg 18.

PEARCE, J., ROBINSON, R. (2000). Strategic Management: Formulation, Implementation, and Control (7th Ed.). McGraw-Hill.

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ROBERT FALETRA (2003, April 7), If you don’t brand your business, someone else will-and take your customers, Sciences Module, pg 82.

STEPHEN MARVIN (2007, December), From Branding toward values, Information Outlook, Pg 34.




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