Situation Analysis

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Michelle DeGirolmo
University of Florida
Strategic Communications
Amazon, Inc.
Introduction
Amazon is one of the largest electronic commerce website currently on the
Internet. This online giant prides itself on its excellent business-to-business, business-toconsumer, and consumer-to-consumer relationships. The company sells new and used, as
well as rents, multiple products ranging from books, electronics and computers to
clothing, toys, and gardening tools. Amazon’s presence in the online shopping industry is
well known. Please note: Amazon is a strong player in the e-commerce industry as well
as the tablet and book industry. This report focuses on the e-commerce market and those
direct competitors.
Industry Analysis
Electronic commerce, more commonly referred to as e-commerce, involves the
sale of products and services via electronic means. The concept was first brought into
fruition in the early 1990s when the Internet opened up its usage to commercial users. It
was not for another decade though until this industry started to really boom (“ECommerce Industry”). While this is a relatively new concept, the e-commerce and online
auctions industry has become an extremely popular form of purchasing behavior in a
short amount of time. The Internet has become a major platform for e-tailers, retailers
that primarily sell online, which for some businesses accompany their brick-and-mortar
stores and threatens others.
According to Imran Khan, managing director of Goldman Sachs, e-commerce is
benefiting from several positive trends, including technological advances and changes in
the market. First, the continued rollout of broadband provides people around the globe
with instantaneous access to the Internet and these e-commerce websites. The stores are
now at an arms reach. Second, more and more people are becoming accustomed to
shopping online. There is an increase of user comfort, especially from older generations,
of shopping online that is aiding e-commerce growth (Davis).
There are other factors driving the supply chain for e-commerce as well. The
increasing percentage of households with at least one computer paired with the continued
rollout of broadband is a huge benefit. The US Census Bureau’s Current Population
Survey, CPS, questions people on their computer ownership. With the cost of computers
decreasing, household computer ownership steadily increased. Within a decade, the
ownership of computers increased tremendously, with 56.3 percent of Americans owning
a computer in 2001 and 75.6 percent in 2011 ("Current Population Survey, July 2011").
Furthermore, in 2008, 71.1 percent of Americans owned a computer compared to the
estimated 78.5 percent who owned one in 2013 (IBISWorld). The increased number of
households with a computer and wider access to broadband access has increased Internet
traffic overall as well. In the late 1990s, Internet traffic nearly doubled every 100 days for
three successive years. This growth has been steady and continuous in the years to follow
as well (Carayannis, Alexander, and Kirkwood). In the upcoming years to 2018, it is
predicted that the total Internet traffic volume will increase another 21.3 percent, totaling
108.4 exabytes per month (IBISWorld).
The opportunity that is brought to both businesses and consumers is what drives
the e-commerce industry. Small businesses are now able to sell specialized products that
consumers are generally unable to find in stores. This allows these small businesses and
entrepreneurs to stay in business for little to no overhead costs (“E-Commerce Industry”).
Consumers are also able to easily compare products features, benefits, and prices with ecommerce. The ease of moving about from one store to another is not a hassle as it is just
a few mouse clicks away instead of potentially miles away.
With all of these changing trends towards digital media, it is no surprise that the
number of online retailers and auction sites has increased at an average annual rate of 2.5
percent to an estimated 51,073 businesses in the past five years (IBIS World). Morgan
Stanley’s research team conducted research to report on global e-commerce. The study
shows that e-commerce currently generates approximately 6.5 percent of all retail sales
with it predicted to increase to 10 percent by 2016 (Kawa, 2013). The story also
identified companies that were best positioned to remain in the e-commerce industry. The
two key players of this industry are Amazon and eBay. While not listed on Morgan
Stanley’s list, Overstock and Bidz are both close competitors for Amazon as well.
Furthermore, the e-commerce industry has low barriers to entry, making it easy for small
businesses and entrepreneurs to compete (Gendler).
The Company
In 1995, Amazon opened its doors as one of the largest e-commerce retailers in
the world. The company is headquartered in Seattle, Washington but has operations and
an active website in the United States, Canada, Europe, and Asia ("Timeline History
Amazon.com", 2012).
The history of Amazon is one of growth. From its conception to present day the
company has acquired new companies and expanded. Jeff Bezos wrote the business plan
for Amazon as part of his entrepreneurial dreams. The company was originated as an
online bookstore that sold exclusively on Netscape and America Online websites
(DataMonitor360). In fact, the company’s 1990s slogan was “Earth’s largest bookstore”
(Stone, 2011). In 1999, Amazon was no longer solely a seller of books. The company
acquired drugstore.com, pets.com, exchange.com and homegrocer.com. Along with that,
Amazon formed an alliance with Toysrus.com to create a co-branded store
(DataMonitor360). By this time, Amazon had received market capitalization (Hoovers).
The company was proving to be a threat for traditional brick-and-mortar stores. In 2002,
Amazon began working with other retailers like The Gap and Nordstrom to integrate
clothes into their product line-up (Hoovers).
Amazon continues to diversify their products. Now, Amazon is a Fortune 500
company and is known for its wide range of products and online sales on its trademark
website, www.amazon.com. These products include books, DVDS, CDs, software and
electronics, apparel, furniture, toys, food, and more. All of these products are bought and
sold include merchandise that has been purchased for resale from vendors as well as
products offered by third party sellers. It engages in business-to-business, business-toconsumer, and consumer-to-consumer sales.
The company continues to grow and expand. Currently, Amazon employs about
88,400 people throughout the world (DataMonitor360). Along with that, the company’s
financials has been improving. As of the fiscal year end in December 2012, Amazon
documented total revenue of $61,093 million, which is a 27.1 percent increase from the
fiscal year end in December 2011 (DataMonitor360). The year 2013 was no different in
regards to increased and better financials for the company. In a press release at the end of
January 2014, Amazon announced they were booming with $74.45 billion in total
revenue. Furthermore, their operating cash flow increased to $5.47 billion, approximately
31 percent, and the company’s free cash flow increased $2.03 billion ("Amazon Booms
in 2013 With $74.45 Billion in Revenue", 2014).
The company continues to stay in the top of the market be continuously
innovating old services and devising new ones. Some of these newer products and
services that Amazon now offers include Amazon Prime, Prime Instant Video, Amazon
Kindle, Amazon AutoRip, Amazon Studios, AmazonSmiles, and more.
SWOT Analysis:
Strengths
Weaknesses

Largest online retailer

Patent infringement issues

Diverse product line

Frequent technical outages of

Multiple services offered to
consumers

Amazon’s web hosting

Low margin business
Efficient distribution chain and
logistics
Opportunities

Growing e-commerce and e-reader
Threats

market

Growing emphasis on digital
advertising businesses

Growing interest in cloud
Intense competition for e-commerce
and e-reader markets

Risk of Foreign exchange
fluctuations
computing
The Product or Service
(IBISWorld)
As one of the largest global e-tailers, Amazon sells a large variety of both
products and services. The company has expanded tremendously from its initial origin of
an online bookstore. Below, you will see a detailed list containing many, but not all, of
the products and services that the company offers (DataMonitor360).
Books: games:
Books
Movies Kindle Books Blu-ray Children's Books Amazon instant video
Textbooks
MP3 downloads
Audiobooks Musical instruments Magazines Movies, music and
Video games Digital games Appliances Game downloads
Patio, lawn and garden equipment Electronics and computers: Home improvement supplies TVs Power and hand tools
Home audio and theater Lamps and light fixtures Camera, photo and video Kitchen and bath fixtures Cell phones and accessories
Hardware MP3 players and accessories Arts, crafts and sewing Car electronics and global positioning
Pet supplies
system Grocery, health and beauty: Electronic accessories
Grocery and gourmet food Laptops, tablets and netbooks Wine Desktops and servers Natural and organic food
Computer accessories and peripherals Health and personal care products
External drives, mouse, and networking
Beauty products Computer parts and components Toys, kids and baby: Software Personal computer games Toys and games Printers and ink
Baby products Office and school supplies
Clothing (kids and baby) Home, garden and tools:
Video games for kids Kitchen and dining Clothing, shoes and jewelry: Furniture and decor Clothing Bedding and bath Shoes Handbags and accessories Fan shop Luggage All sports and outdoors Jewelry Automotive and industrial: Watches Automotive parts and accessories
Sports and outdoors:
Automotive tools and equipment Exercise and fitness equipment Tires and wheels Outdoor recreation Motorcycle and ATV Industrial and
Hunting and fishing scientific
Cycling Services:
Athletic and outdoor clothing Web services Team sports
Order fulfillment Golf Boating and water sports Co-branded credit cards
This list shows just a glimpse of industries that Amazon takes part in selling. It is difficult
to list everything, which is one of Amazon’s strengths. People love that it is essentially a
one-stop-shop. In fact, some people call Amazon “Earth's biggest everything store.” Not
all of these products and services are available worldwide though. Amazon has regional
products and services. You are able to see a full list of what is offered where online at
Amazon Web Services.
One of Amazon’s most well known products is its e-reader, the Kindle Fire. The
Kindle, which launched in 2007, competes with the Barnes & Noble Nook and Apple
iPad. The Kindle acts as both a tablet an e-reader, unlike the Nook. Furthermore, the
product is sold at a much lower cost as the iPad. This positions the product perfectly in
the market. Amazon currently sells more e-books than they do print books. To expand
their presence online and in the e-book market even further, Amazon purchased
Goodreads in 2013, a social media online book community used by over 30,000 book
clubs (Hoovers). Moreover, Amazon entered the self-publishing industry allowing the
company to print books on a demand basis (di Stefano, 2012).
Amazon’s products consist of 85 percent of the company’s sales (Hoovers). But,
along with all of these products, Amazon offers services that make up the remaining 15
percent. These services include self-publishing, online advertising, e-commerce platform,
hosting, and a co-branded credit card.
Amazon Prime is another strategic service meant to boost membership. The
program was launched in 2005 as a customer loyalty program. The membership starts at
yearly fee of $79 that then provides customers with free two-day shipping or $3.99 one
day shipping for every order. Along with that, the service allows people at access movies
and TV shows through Amazon Instant Video, something that competes with Netflix.
The company has later defined the Amazon Student and Amazon Mom programs that are
a continuation of the original Amazon Prime (Gray, 2012).
Amazon Web Services is a great tool for web developers. The company is
continuously updating this service to stay current with technological advances and trends.
Amazon Web Services includes Cognito, Zocalo, SNS, and Mobile Analytics. Cognito
allows developers to store and manage data. Zocalo is newer than the other services. It is
a storage and sharing service that many developers can really utilize. Amazon SNS
allows developers to send notifications to several devices. Finally, the Amazon Mobile
Analytics allows developers to track users and collect analytical information (Snyder,
2014).
The company is constantly developing newer and better strategies to stay at the
top of the e-commerce industry. This year, in 2014, Amazon is planning to break into a
new industry to compete with services like Yelp, Angie’s List, Craigslist, and TaskRabbit
(Di Stefano, 2014). The marketplace is one for local services including babysitters,
handymen, and more. The company has been speaking with startup companies in Seattle
and San Francisco that already connect service providers with customers (Seetharaman,
2014). Amazon’s strategy is to have a service paired with just about every product they
sell on their website, making it difficult for competitors to even compete.
Sale History
(Hoovers)
The majority of Amazon’s sales and profits come from the sales of electronics
and other products. In 2013, the company reported $74.45 billion in net sales, with the
majority of sales being in North America (Statista).
(Statista)
The 2014 press release by Amazon states that company had a 20 percent increase
of net sales to $25.59 billion within the fourth quarter of 2013 compared to the fourth
quarter of the prior fiscal year, which was $21.27 billion. Throughout the whole year, the
net sales were on par with that of the fourth quarter, with a 22 percent increase to $74.45
billion ("Amazon Booms in 2013 With $74.45 Billion in Revenue", 2014). These huge
financial gains were in part due to some relatively newer products and services that have
hit the market.
The press release continues to state projections for the year 2014. Amazon
predicted that the net sales would be between $18.2 billion and $19.9 billion in the first
quarter. This means that the growth would be between 13 percent and 24 percent
("Amazon Booms in 2013 With $74.45 Billion in Revenue", 2014).
(Hoovers)
Share of Market
According to Statista, almost 40 percent of Internet users worldwide have
purchased products or goods online through an electronic medium such as a desktop
computer, tablet, or mobile device. This percentage equates to over one billion online
buyers. The digital buyer penetration is expected in increase to 45.1 percent by 2017
(Statistics & Market Data).
Every sector of e-commerce has continued to grow and the trend is projected to
continue. In 2013, business-to-consumer e-commerce sales were over 1.2 trillion dollars
(Statistics & Market Data).
Amazon’s computing services platform, Amazon Web Services, maintains a large
share of the web services market. The service is a part of the infrastructure as a service,
or IaaS, market. In 2013, Amazon Web Services equated to 37 percent of the IaaS $9
billion market. Amazon Web Services is growing at a rate of 60 percent, which is much
higher than the market rate at 45 percent (D'Onfro, 2014).
In Amazon’s book market, they were also in the lead of market share. When
Borders went under, the customers were divided to other companies in the market. In
2012, Amazon’s share of book spending was up to 29 percent in the first quarter,
compared to Barnes & Noble’s, which was at 20 percent (Milliot, 2012).
Forrester research has shown growth in the future of the e-commerce market.
While the online market only accounts for eight percent of total retail sales in the United
States, Amazon’s growth shows the future growth of the market as a whole. Forrester
projects that over the next five years there will be a compounded annual growth rate of
nine percent (“How Amazon Plans On Driving Future Growth”, 2013). This is not just
limited to the United States either. E-commerce growth is a trend across the globe. In
international markets like the Asia-Pacific region, sales increased to $332 billion that is
over 33 percent in 2012 (“How Amazon Plans On Driving Future Growth”, 2013).
(Hoovers)
The Market
The e-commerce market encompasses all business-to-business, business-toconsumer, and consumer-to-consumer sales. The market is relatively difficult to calculate
the overall size due to the fact that very few research companies measure all of these
sectors.
Amazon markets to consumers of all ages and with a variety of interests. This, in
part, is due the large variety of products and services the company has to offer, as
mentioned previously. According to Forrester Research, approximately 60 percent of
consumers shop online at a quarterly basis. This shows just how large of the population
utilizes e-commerce websites. The company’s search engine is able to segment
consumers based on purchase behavior (MacLeod, 2006).
Age is one of the largest ways to segment Amazon consumers. The largest age
group of online shoppers is those between the ages of 31 to 44 with the least likely being
those who are 66 or older. While consumers between the ages of 18 to 30 are the most
likely to respond to online advertising and engage the most in online behaviors, this age
group has a smaller discretionary income. This age group primarily purchases items like
clothing, footwear, and electronic devices online. Those between the ages of 31 to 44, the
ones accountable for the most revenue, purchase higher-priced goods and services than
the younger group. These products are typically larger electronics and discretionary
items. Furthermore, Forrester Research shows that 68 percent of this age group shops
online on a regular basis. Those between the ages of 45 to 54 still account for a decent
amount of revenue, but they tend to care more about convenience than price. The next
age group is consumers aged between 55 and 65. This group was at one point concerned
with Internet fraud or unsure of how to work the technology. Those who have moved past
this mostly purchase collectibles and antiques because of the high amount of disposable
income. This accounts of 20.4 percent of revenue. Finally, those over the age of 66
generate the least revenue for e-commerce websites like Amazon. The is largely due to
the unfamiliarity of technology (IBISWorld).
(IBISWorld)
Income, while it does correlate with age, is another factor. Studies have showed
that consumers who are more likely to engage in online shopping have a higher income
than those who won’t engage in online shopping (Black).
Distribution
Amazon is headquartered in Seattle, Washington, but the company has offices,
distribution centers, and customer service centers across the globe (“Global Locations”).
Amazon strives to have all products in their fulfillment centers at all times to ensure
people can purchase any item they want. Their office located in Phoenix, Arizona is one
of the largest, with the equivalent size of 28 football fields (Dickey, 2012). In North
America alone the company controls 54 fulfillment centers. This number does not even
include the subsidiary companies that Amazon owns like diapers.com. Outside of North
America the company manages an estimated number of 51 fulfillment centers throughout
the UK, Germany, France, Italy, Czech Republic, Poland, China, Japan, and India
("Amazon Fulfillment Center Network").
Amazon’s strategy for locations of distribution facilities is unlike many
companies. While most companies choose to have locations based on population and
popular geographical locations, Amazon has been known to have locations based on state
tax considerations. This allows Amazon to not charge sales tax to consumers in most
states ("Amazon Fulfillment Center Network").
(“Global Locations”)
(Dickey, 2012)
(Hoovers)
Pricing Policies
Amazon follows the “low price guarantee” model and lists their payment, pricing,
and promotion information directly on their website. One way Amazon proves to be
competitive is matching prices on eligible items with select retailers. This even includes
retailers who sell goods on the Amazon website (“About Price Matching”). A second
pricing strategy for Amazon is it includes the list price on all products, which is the full
retail price of the product (“About List Prices”). Amazon does include a surcharge for
oversized or heavy items though. The company regrettably notes this on their website,
but does include the fee on the detail page for the product (“About Surcharges”). Finally,
Amazon offers a refund should you purchase a product and the cost lowers within a seven
day delivery date (Elliot, 2013).
Competition
(IBISWorld)
There are many competitors in the e-commerce industry, both direct and indirect.
The competition in the e-commerce industry is high with a steady trend. Furthermore, the
barriers to entry are low, making it easy for entrepreneurs to join and compete in the
industry. Most of the competition in the industry is from domestic companies, despite this
being a global industry (IBISWorld). This does pose a threat for Amazon.
There are some key factors that IBISWorld has identified as what are strong
contributions for companies in the e-commerce industry. This includes the ability to
control stock on hand, ability to quickly adopt new technology, provision of superior
after-sales service, and having a loyal customer base.
(IBISWorld)
While Amazon is one of the major companies in the industry, eBay is trailing
behind with a large presence. Smaller companies like Overstock and Bidz manage to steal
some of Amazon’s business as well.
Like Amazon, eBay opened its digital doors in 1995. The company’s vision was
to sell products at a fair price that anyone in the world could purchase. eBay’s business
model differs from Amazon’s as it follows an auctioning model. Here, sellers pay a small
fee to the company and make arrangements for goods to be shipped to the buyer (Sinclair
15). eBay only makes up 3 percent of market share, but they still manage to heavily
compete (IBISWorld). This strong competition is because eBay sells merchandise
worldwide and offers a variety of products just like Amazon. The company also has over
120 million users who actively use the website (Hoovers). The company also utilizes
PayPal and Bill Me Later as payment assets, which many consumers favor for its easy-touse functionality. Furthermore, eBay includes platforms like StubHub.com, Half.com,
and has a stake in craigslist. The company’s net income growth in one year is 9.47
percent and they had $16.05 billion in sales for the 2013 fiscal year (Hoovers).
Overstock came around a few years, in 1999, after the market dominators
Amazon and eBay. Patrick Byrne, founder of Overstock.com, wanted to create a website
for “bargain-seeking” people. The company was based on three main principles: value,
investing and fair dealing (“Who we are”). Overstock business model is to liquidate the
surplus of inventory on his website. This means that a large majority of the goods sold on
Overstock comes from manufacturers overproduction, following Byrne’s plan. While
Amazon does not actively place television commercials, Overstock has been known to do
so. These commercials have featured well-known celebrities including Jason Mraz and
Ne Yo. While Amazon employs over 80,000 people, Overstock has a much smaller
overhead with only 1,500 employees. In 2013, the company has a steady growth of 18.64
percent for one-year sales growth, a market value of $341.97 million, a net income of
$88.51 million, and had $1.30 billion in sales (Hoovers).
Bidz.com is significantly smaller than Amazon, eBay, and Overstock. The
company was founded in 1998, but acquired by Glendon Group in 2012. The business
model of Bidz.com is similar to dollar store discounts, an auction house, and online
convenience mixed into one e-commerce store. For example, a product is put up for sale
where it is then auctioned off with the starting price of $1. Even smaller than Overstock,
Bidz.com only employs 175 people and hasn’t seen employee growth in quite some time.
Bidz.com has experienced some financial rollercoasters, contributing to why it was
acquired by Glendon Group. Nevertheless, it is estimated that Bidz.com had an estimated
$43.7 million in annual sales in 2013 (Hoovers).
(Hoovers)
(Hoovers)
(Hoovers)
(Hoovers)
(Hoovers)
Promotion
Amazon does not engage in large campaigns or million dollar SuperBowl
advertisements. The company has devised a marketing strategy that is focused on six
pillars: it offers products and services, has a customer-friendly interface, scales easily
from small to large, exploits its affiliate’s products and services, uses existing
communication systems, and utilizes universal behaviors and mentalities. The logic is
simple, because the products and services are offered online the advertising should be
seen there as well. This has been something seen throughout time as the company spent
$80 million in offline advertising in the fourth quarter of 1999, but only $9.4 billion in
the fourth quarter of 2009 (“Marketing Strategies of Amazon.com”).
Amazon’s marketing techniques are primarily done online and with a strong
pronouncement of quality to the marketplace. Pay Per Click Advertising has not been one
of the company’s most beneficial methods of advertising, but the company continues to
purchase such advertisements. The company regularly places advertisements on the left
side of Google’s search page to diferct potential consumers to their website. Clickriver,
later replaced by ProductAds, was a Pay Per Click program that allowed vendors to place
ads on the company’s website. It was modeled after Google’s Pay Per Click program
(“Marketing Strategies of Amazon.com”).
As Amazon was one of the first e-commerce websites, the company continuously
makes subtle changes to their website. The company does not make any drastic redesigns
as to not upset consumers, but continual improvement is key. Amazon is constantly
seeking perfection and spending millions of dollars to recognize issues on the website
and develop solutions (“Marketing Strategies of Amazon.com”).
One of Amazon’s largest marketing strategies is actually free. Permission
marketing in the form of email marketing is an opportunity that Amazon fully engages in.
Amazon tailors marketing emails sent to consumers based on their purchase behavior.
This direct marketing really grabs the attention of potential consumers in the most costeffective way.
Sales force
With Amazon being one of the largest e-commerce websites and an international
company, it is no surprise the sales forces is equally as large. Amazon has approximately
88,400 employees (DataMonitor360). In 2012, Amazon hired an addition 50,000 people
to assist with the demand of e-commerce products in the holiday season (Dickey, 2012).
Employees assist in all areas of the company from retail, seller services, e-commerce
platforms, general operation, customer service, Amazon Web Services, digital, finance
and administration, human resources, and legal.
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