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Contents

I.

Executive Summary..................................................................................... 2

II.

Synopsis....................................................................................................... 2

III.

Potential Alternatives..................................................................................... 3

IV.

Corporate Strategy SWOT.............................................................................. 4

V.

Critical Success Factors................................................................................ 6

VI.

IS/IT Assessment............................................................................................ 8

VII.

IS Function................................................................................................... 13

VIII.

IS Vision....................................................................................................... 13

IX.

Risk Analysis................................................................................................ 15

X.

Porters Five Forces.................................................................................... 16

XI.

Conclusion................................................................................................... 18

I.

Executive Summary
Amazon.com is an online retailer that began operating as a bookstore 20 years

ago, but has since expanded to become a one stop shop for nearly any product and
some services.

Amazon has expanded its product selection in order to fulfill its

mission to be Earths most customer-centric company (Form 10-K). While there


are a number of competitors to Amazon, such as Alibaba, eBay, and Walmart, no
competitor exists that offers as comprehensive of a product and service selection as
Amazon.
In regards to its information technology, Amazon has developed systems to
streamline its operations, collect information on its customers, and recommend
products, as well as information systems that Amazon uses and sells to others in
order to make a profit. Amazons information systems are growing in complexity as
the company expands its size and operations, however, the company has an
opportunity to strengthen its systems in a couple of areas to decrease its
vulnerability to intrusions, such as hackers, or system failures.
Other opportunities exist for Amazon from a business standpoint, as well. Some
of these opportunities include tiered Prime memberships with the intent of creating
more loyalty from frequent shoppers by offering a membership package that is
tailored to their specific needs, forward integration strategies such as purchasing
distributors in order to streamline its operations further, and horizontal integration
such as acquiring competitors with the intent of expand its customer base and
global market reach.
As the following report will show, Amazons information technology and related
systems are an integral part of the companys operations.

While a couple of

vulnerabilities need to be addressed within its current infrastructure, in order to be


successful going forward, Amazon needs to ensure that it dedicates the resources
necessary to keep up with the demand for its products and services and, when
building upon the systems currently in place, the company reduces the complexity
of the information structures in order to keep its systems understandable and open
for growth.

II.

Synopsis
Amazon.com was started in 1995 as an online bookstore.

The companys

mission is to be Earths most customer-centric company and four principles help


guide the company to achieve this mission: customer obsession rather than
competitor focus, passion for invention, commitment to operational
excellence, and long-term thinking (Form 10-K).

These guiding principles

have led the company to improve its website and enhance its product offerings,
whether from suppliers or creating their own, as well as integrating with other
companies in order to become more efficient in its day to day operations. Through
the use of its improved website and its customer relationship management, Amazon
has developed a keen understanding of consumer demands which has led the
company to provide information technology services to other companies for a fee.
Amazons core competencies exist in its information infrastructures and the
company has developed a way to use it within its own operations and make it a
successful business segment as well. Therefore, as the following information shows,
Amazons potential areas to improve upon exist in decreasing vulnerabilities to
its existing systems and implementing certain business strategies to carry
out the operational efficiencies established by its information systems.

III.

Potential Alternatives
Clearly, Amazon has many successful initiatives, based on its massive

earnings. Third quarter sales are up 23% to $25.4 billion in the third quarter of
2015, and they anticipate a record holiday season in the coming weeks
(Amazon.com). Even with their overwhelming success, there are alternatives that
Amazon should explore to increase their sales and customer base: tiered Prime
membership, forward integration, and horizontal integration.
Tiered Prime Membership
Amazon Prime is a paid membership that offers two-day shipping on millions
of items, and access to digital movies, books, and music. With a cost of $99 per
year, it results in not only additional revenue, but also in customer loyalty; Prime
customers spend almost three times more than what non-Prime customers spend
(Weise). Although Amazon has not released specific numbers, it is estimated that
45% of their customers subscribe to Amazon Prime based on surveys (Weise). That

leaves a substantial opportunity with the remaining 55%.

One alternative is to

introduce a tiered Prime membership, where there are different pricing options
corresponding to guaranteed delivery times. For those customers unable to justify
the $99 annual fee for two-day shipping, perhaps a $49 price tag for three-day
shipping would meet their needs. Furthermore, for those customers that will pay a
premium for next day shipping, perhaps a $200 annual fee would be successful. Of
course, actual price determinations would have to factor in shipping costs and
specific geographic regions for consideration.
Forward Integration
Increasing efficiency in a companys supply chain is not a new strategy.
Amazon is actually working on a drone-based delivery service named Amazon
Prime Air, which delivers packages through the air in 30 minutes (King).

While

we wait to see if this can become a reality, Amazon should look at other alternatives
for delivery; specifically, they should acquire one or more delivery companies, such
as DHL, UPS, or FedEx. As referenced in their September 2015 quarterly report,
they are highly dependent on shipping companies, and any issues could negatively
impact our operation results and customer experience (Amazon.com). Acquiring
one or more shipping companies will allow Amazon to prioritize their shipments and
have direct control of the reliability and quality of the delivery process.
Horizontal Integration
Another alternative that Amazon should explore is implementing horizontal
integration, where they would acquire competitors in the same industry. In Asia,
Chinas Alibaba and Japans Rakuten are e-commerce leaders. With globalization,
Western companies (such as Amazon) will look to expand their Asian market;
likewise, Asian companies will also look to expand their efforts in the West.
Although Amazon already has an international company (named AmazonGlobal),
there is still market share to be had overseas, especially since the majority of
Alibabas and Rakutens web site traffic is from Asia (86% and 73%, respectively)
(Martin).

By acquiring an Asian retailer leader, Amazon may reduce competition

and increase market share.

Furthermore, Amazon can also look to acquire

successful American marketplace companies, such as eBay, Craigslist, or Etsy.

IV.

Corporate Strategy SWOT

Strengths

Amazon has a multitude of strengths:


-

Amazon is one of the largest online retailers in the world. Because of


Amazons size and relationship with its suppliers, the retailer carries nearly
anything for which shoppers are looking, from electronics, to books, clothes,

or furniture.
Because of their vast product offering, as well as their image and reputation
as a one stop shop, Amazon is a very well-known website and is often the

first one to come to the minds of online shoppers.


The launch of Amazon Web Services in 2006 has allowed the company to
progress quickly in the cloud computing field.

Amazon can now provide

online services or client-side applications to other companies.

This

technological advancement has also enabled Amazon to utilize its own


servers for data storage which saves the company money in reduced cloud
-

expenses.
Amazon is number one in customer service for nine consecutive years due to
their customer relationships management platform. Personalized treatment
and recommendations generated through the CRM platform has increased
brand loyalty and ease of daily operations due to increased efficiencies in

front and back end sales operations.


Amazon is also a cost leader when Amazons suppliers provide goods

through their website, Amazon passes these savings onto the consumer.
Amazon also has had steady, strong revenue growth, as evidenced by their
financials.

(Amazon.Com), (Customers Rank).


Weaknesses
Amazon, however, also has some weaknesses to address:
-

The first weakness of Amazon is their use of free shipping.

While free

shipping offers may attract or retain customers, the company is reducing its
profit potential in an industry that is notorious for having low profit margins to
-

begin with.
Another weakness is product failures.

While there has been success with

some of its key products, such as the Fire Phone, other product launches have
-

wasted capital Amazon could have utilized in other areas.


Lastly, Amazon has faced some negative backlash from bad publicity over
reasons such as public feuds with books publishers to its poor warehouse
conditions.

(Amazon.Com), (DOnfro), (Kelleher).


Opportunities
Amazon does have some opportunities to consider:
-

Implementing an online payment system independent of PayPal that will


allow for greater control over shoppers personal information and reduced risk

of online security breaches.


Creating more Amazon-brand products that could increase profit margins
since they are higher on manufactured goods. If Amazon were to choose to
implement this opportunity, the company would need to increase research
and development expenditures in order to decrease product failures that

have occurred in the past.


Increase brick and mortar locations which could lead to a wider customer
market to those shoppers who prefer to make purchases in person. This will
allow Amazon to increase its customer base, allow more people to take
advantage of Amazons low prices, and increase Amazons understanding of

what people are looking for in the geographic regions surrounding the stores.
Increase shops in the online market place such as acquiring Etsy to take the
place of the Homemade shop to broaden their potential market.

(Amazon.Com)
Threats
-

Amazon faces a threat from hackers breaching their website security, which
is always a possibility considering the advanced knowledge and abilities of
hackers

and

the

valuable

customer

information

stored

in

Amazons

information system.
Losing sales to smaller retailers who specialize in a particular subset of
goods.

(Amazon.Com)

V.

Critical Success Factors


Critical success factors are actions the company must take in order to be

successful in achieving company objectives. A companys critical success factors


are typically based off of the companys mission and/or strategic goals. Amazons
mission is to be Earths most customer-centric company.

Further, Amazon is

guided by four principles: customer obsession rather than competitor focus,

passion for invention, commitment to operational excellence, and long-term


thinking. (Form 10-K)
Customer Obsession
One of Amazons guiding principles is customer obsession which the company
defines as obsessing over its customers in order to provide them with compelling
value by offering customers something they simply could not get any other way.
In order to do this, Amazon focused on improving its website and shopping
experience and enhancing its product offerings, among other actions.

Amazon

measures its customer obsession through year-to-year sales growth, cumulative


customer accounts, the percentage of orders from repeat customers, and audience
reach. (Bezos)
Passion for Invention
Another one of Amazons guiding principle is its passion for invention which is
evident by its product and service offerings, such as Amazon Fire, Kindle, or Amazon
Prime.

Similar to its customer obsession principle, Amazon is interested in

improving or providing new products and services to its customers to which they
may not have access otherwise. In order to fulfill this guiding principle, Amazon
must research consumer demands and its customers preferences, which it can do
through its website analytics. Although Amazon does not provide what it uses to
measure its passion for invention, its research and development expenditures could
be one way to track it.
Commitment to Operational Excellence
Amazons third guiding principle is its commitment to operational excellence
which is easily observed by its acquisitions over the years, such as that of Kiva
Systems, which is now known Amazon Robotics.

Amazons commitment to

operational excellence can be defined as its constant desire to improve operational


efficiency. For example, Amazon improved its efficiency in its fulfillment centers by
using robotics to assist fulfillment workers by bringing the required products to
Amazons employees to verify, pack, and send out for shipment.

Again, while

Amazon does not provide what it uses to measure its commitment to operational
excellence, it can be tracked by order fulfillment time, number of days to get an
order to the customer, or certain costs such as those related to overhead.
Long-term Thinking
Amazons principle of long-term thinking is measured by the value the
company creates for its shareholders over the long term.

According to the

companys 1997 Letter to Shareholders, which CEO Jeff Bezos attaches to the most

current Letter to Shareholders every year, Amazons long-term thinking is a direct


result of our ability to extend and solidify our current market leadership position.
Amazons market leadership position, and therefore long-term thinking, can be
measured through customer and revenue growth, the degree to which our
customers continue to purchase from us on a repeat basis, and the strength of our
brand. (Bezos)
Critical Success Factors Necessary to Fulfill Amazons Mission and Guiding
Principles
After identifying and defining Amazons guiding principles, its critical success
factors become evident: to improve its website and shopping experience, to
enhance its existing product offerings, to improve or provide new products and
services not otherwise available to the market, to improve operational efficiency,
and to grow its market leadership position, as illustrated in the figure below.

Amazons Options for Furthering Its Mission and Guiding Principles


Amazon can continue to improve on its critical success factors by
implementing two integration strategies into its operations: horizontal and vertical
integration.

Horizontal integration occurs when a company, such as Amazon,

acquires competitors within its industry, whereas vertical integration requires the
company to buy either its suppliers (also known as backward integration) or its
distributors (as known as forward integration).
As noted above, Amazon has already begun vertical integration when it
purchased Kiva Systems.

Instead of purchasing robotics from or agreeing to

develop a robotics line for Amazons needs with Kiva Systems, Amazon decided to

purchase the robotics supplier.

Doing so has allowed Amazon to improve its

services and to improve its operational efficiency because Amazon was able to
obtain all of Kiva Systems core competencies during the acquisition that would
have taken Amazon years to develop as it tried to design and build a robotics
system to improve its operations in Amazon warehouses. Going forward, Amazon
could consider a forward integration strategy whereby the company acquires one of
its distributors.

While Amazon has attempted this with its use of drones, the

company could consider purchasing a more traditional distributor such as DHL.


Amazon could also engage in horizontal integration in order to fulfill its
objectives of growing its market share and enhancing its product offerings. Amazon
could consider buying some of its competition, like Craigslist or eBay, or a similar
company with a slightly different market and operating strategy such as Etsy. Etsy
is another online marketplace where sellers list their items in their respective shops,
however, unlike Amazon, Etsys shops typically consist of handmade goods, such as
jewelry, posters, art, etc.

Acquiring Etsy or a company of like would certainly

enhance Amazons product selection by offering a boutique shopping experience


online instead of just searching for a particular item, like a textbook. Additionally,
investing in a company like Etsy would also increase its market share by acquiring
all of Etsys existing customers.

These strategies will help Amazon continue to

achieve factors that are critical to their overall success.

VI.

IS/IT Assessment
The Information Systems and Information Technology Assessment will look at

the following areas: infrastructure, network capacity, legacy systems, architectural


innovation, green computing, and caution infrastructure costs.

Infrastructure
Amazon Web Services, also known as AWS, is a subsidiary of Amazon.com
that provides cloud services.

For many companies that utilize AWS, their

infrastructure is in the cloud; however, for Amazon, their infrastructure is AWS,


which means that they are responsible for the physical plant, server hardware and
software, maintenance, and personnel.

To deliver this infrastructure to other

companies and themselves, they have built eleven world-wide regions, each with

multiple data centers. This not only provides services to where they are needed
geographically, but also serves as a redundancy in case there is a system failure or
overload (Figure 1).

Figure 1: AWS Worldwide Network Backbone

Network Capacity
Amazons network capacity continues to grow at an exponential rate.
According to James Hamilton, Vice President and Distinguished Engineer of Amazon
Web Services: Every day, AWS adds enough new server capacity to support all of
Amazons global infrastructure when it was a $7B annual revenue enterprise
(Hamilton).

To support all of this growth, Amazon has acquired additional data

center sites around the world, including Ireland, Virginia, and Oregon (Miller). With
over one million active AWS customers, Amazon has five times the cloud capacity in
use than fourteen of the other top providers combined (Hamilton).

Legacy Systems
With their legacy Oracle databases, Amazon struggled with maintaining
reliable backups as the quantity and sizes of the databases continued to grow. With
their legacy tape backup system, managing tape hardware, data center space, and
licensing fees for the tape software represented significant capital expenditures.
Operating expenses were also significant, with resources assigned to managing

tape infrastructure instead of other higher value projects.

With these business

challenges, Amazon replaced their legacy backup system in favor of their cloud
storage solution, Amazon Simple Storage Service (also known as Amazon S3). With
Amazon S3, they reduced complexity and capital expenditures, improved backup
and restore performance, eliminated the need for purchase and storage of backup
tapes, and freed up valuable human resources (Amazon.com).
Architectural Innovation
With architectural innovation, companies reconfigure their systems for their
specific needs. To support their data centers, Amazon customized their own servers
and software to accommodate their unique needs related to their expanding growth
and global environment. This rapid pace of innovation continues to expand, with
over 400 new services or features introduced in 2014 (Hamilton). The innovations
developed over the years include: modular infrastructure, AWS custom servers and
storage, and Amazon Databases.
Modular Infrastructure
Modular infrastructure provides an effective way to scale and deploy servers
on a massive scale.

To power their cloud computing platform, Amazon uses

modular data center design, named a Perdix container (Miller). Similar in size to a
shipping container, each one houses servers, power distribution, and HVAC (Figure
2).

Figure 2: Amazon's Perdix Container

AWS Custom Servers and Storage


Instead of using commercially available servers and storage, Amazon has
designed their own to fit their specialized needs. Using custom Intel processors that
have a faster clock speed than what is commercially available, they are able to
create servers optimized for a specific task or workload. Networking and storage

are also customized for their world-wide data centers to meet their strict
performance and failover needs.
Amazon Databases
Relational databases, such as Oracle, SQL Server, and DB2 are expensive and
difficult to administer.

For their cloud environment, Amazon created their own

databases, DynamoDB and Aurora, to address the cost, administration, and scaling
issues. With their numerous data centers, the databases are replicated, providing
near instant fail-over if needed.
Green Computing
Green computing is the environmentally responsible and eco-friendly use of
computers and their resources (Techopedia). One measure of green computing is
Power Usage Effectiveness, also known as PUE, which is a ratio of the total data
center facility energy to the IT equipment energy (the green grid).

Using this

measurement, Amazon appears to embrace this social responsibility, claiming their


infrastructure power usage effectiveness (PUE) is around 1.2, which is lower than
the industry standard average of 1.7 (Barr). However, there are other methods of
measuring green computing; in addition to measuring how efficient a data center is,
companies may also measure how clean their source of power is, too. In their
2015 company scorecard (Figure 3), the environmental agency Greenpeace rated
Amazon a clean energy index of 23% and an energy transparency rating of F
(Greenpeace). Amazon remains on Greenpeaces blacklist, with a poor clean energy
index and a perceived lack of transparency regarding their energy footprint (BBC).
Green computing is becoming more and more important to the socially responsible
investor, and this bad publicity can be of concern to Amazon.

Figure 3: Greenpeace 2015 Company Scorecard

Caution Infrastructure Costs


As noted earlier, other companies move their network infrastructure to the
cloud to reduce capital expenditures and physical plant.

For Amazon, however,

another companys cloud is their physical infrastructure, and they need to


continually fund and maintain these systems.

According to Forbes, there is a

concern with the substantial depreciation expense of $3.3 billion; although


depreciation is a non-cash expense, it does represent a cost of doing business.
Furthermore, purchases of property and equipment totaled $3.4 billion in 2013.

These costs contribute to Amazons substantial debt, and are of potential concern
for investors (Trainer).

VII. IS Function
Amazons information systems have been created to withstand a daily influx
of data whether it is about products, purchases, or customer information. At the
heart of the company, Amazons information systems collect customer information
such as purchases, birthdays, and anniversaries, which help Amazon create
relationships with its customers. For instance, when data is collected on customer
purchases, Amazon can cater its product offering to its buyers and even suggest
purchase recommendations to shoppers.

This, in turn, helps to boost customer

retention rates. The companys reliance on its customer relationship management


is an integral part of its information systems and enables Amazon to outshine its
competitors in customer service.

VIII. IS Vision
Amazons vision statement is we seek to be Earths most customer-centric
company for four primary customer sets:

consumers, sellers, enterprises, and

content creators (Amazon.com). Their technology vision is key for delivering value
to their customers. Here are some examples of how Amazon is forward thinking in
their vision: drone delivery, Amazon store, and Internet of things.
Drone Delivery
Although it seemed to start out as a public relations gimmick, delivering
packages via drones is still part of their vision (Figure 4).

Having received

permission from the Federal Aviation Administration (FAA) for experimental test
flights, Amazon is thinking above and beyond traditional delivery. Named Amazon
Prime Air, their recent patent application describes an option called bring it to me,
where a package would be delivered to the customer based upon the GPS location
of their mobile device within thirty minutes. Keep in mind that the location of the
customer can change over the course of the delivery, and can be on land or on sea
(Marsh). Truly thinking out of the box on delivery options, this is an example of
radical technology innovation.

Figure 4: Amazon drone

Amazon Store
Although there have been false reports over the years of Amazon stores
opening up (the most recent one in Manhattan), they have finally opened an actual
physical store on the campus of Purdue University in West Lafayette, Indiana
(Smith).

Primarily a pickup and drop-off location, students can place orders via

Amazon Student, and receive their orders within one day. Similarly, Amazon has
also opened its first physical book store, named Amazon Books. Located in Seattle,
the store will highlight books based on customer ratings and popularity.
Furthermore, customers will be able to test drive technology products, including the
Kindle, Echo, Fire TV, and Fire Tablet (Alba). Although the stores appear to follow in
the footsteps of Apple and Barnes and Noble, they may indeed result in future
growth of their customer base, attracting customers who prefer shopping in brick
and mortar stores instead of via the internet.
Internet of Things
In this era of the internet of things, more and more devices become
network-connected every day. Amazons vision is aligned with this, and is evident in
their products (Higginbotham): dash buttons, Amazon Echo, and Home Services.
Dash Buttons
Amazons Dash Buttons provide an easy way for customers to order specific
products via an internet-connected button (Figure 5).

Currently, this Wi-Fi-based

button can be configured to order one of 17 brands, including Bounty, Tide, Gillette,
Cottonelle, and Glad. They are also working with companies to build re-ordering
buttons into their hardware, such as Brother (for ink and toner), Brita (for water
filters), and Whirlpool (for laundry supplies).

Figure 5: Amazon Dash Button

Amazon Echo
The Echo is Amazons answer to Apples Siri virtual assistant, but for the
home.

Using voice commands, it can provide information, play music, read the

news, check sports scores and weather, and turn off the lights. This product will
continue to evolve as more connected devices are available for the home.

Figure 6: Amazon Echo

Home Services
In another example of how Amazon is trying to become more vertically
integrated, they have introduced Home Services, which provides professional
installation for devices and other handyman services. Currently only available in
select geographical areas, it is part of Amazons vision for complete customer care,

and is an example of their increasingly expanding vertical and horizontal


integration.

IX.

Risk Analysis
Amazons success is highly reliant on its information technology and

related systems.

Because of this fact, Amazon is exposed to additional

risks less tech-savvy companies may not face, including the effects of: system
interruption and lack of redundancy, data loss or other security breaches, and
suboptimal fulfillment and data center operations (Form 10-K).
System Interruption and Lack of Redundancy
Even though Amazon has great information systems, there is an inherent risk
that the websites and/or related services will experience delays or interruptions that
could slow or halt Amazons operations which will prevent the company from
efficiently fulfilling orders or providing services to others, consequently resulting in
lost sales and attractiveness/reputation of the brand (Form 10-K). This risk can be
minimized, however, as long as Amazon continues to add software and hardware,
effectively [upgrades its] systems and network infrastructure and other measures
to improve efficiency within its systems (Form 10-K).
Data Loss or Other Security Breaches
Because Amazons services are web-based and the fact that [it] processes,
stores, and transmits large amounts of data such as personal data for CRM
purposes, there is a possibility of data loss or other breaches, such as a hacking
attempt, that could expose Amazon to substantial losses due to lost revenues or
litigation, among others (Form 10-K). Amazon minimizes its exposure to this risk,
however, by using additional third party technology and systems for a variety of
reasons, includingencryption and authenticationcontent delivery[and] back
office support, and other functions (Form 10-K). Amazon further minimizes this
risk through the development of systems and processes that are designed to
protect customer information and prevent data loss and other security breaches
(Form 10-K).
Suboptimal Fulfillment and Data Center Operations
Lastly, as Amazons customer base grows, the company will continue to add
fulfillment, warehouse, and data center capability or add new businesses with
different requirements which will cause its fulfillment and data center networks

[to] become increasingly complex and operating them becomes more challenging
(Form 10-K). If Amazon is unable to add and handle these system changes, the
company may be unable to adequately staff [its] fulfillment and customer service
centers or operate at optimal levels (Form 10-K). However, with proper planning
and use of research and development expenditures to create complex, yet
manageable systems will help Amazon to minimize this risk (Form 10-K).

X.

Porters Five Forces

Competitive Rivalry - High


The first of Porters Five Forces is competitive rivalry. Competitive rivalry is
typically high in an industry where there are low switching costs incurred by the
consumer. As discussed earlier, Amazon has quite a few competitors equal in size
some who offer only a portion of the services Amazon offers and others who have a
very similar structure and product offering as Amazon. These competitors include
Netflix, Walmart, and eBay, as well as others like Alibaba and Etsy.

Competitive

rivalry for Amazon is high because of the number of competitors it has and the low
switching costs incurred by users, as well as a high potential growth rate for
competitors and medium to high costs to exit the industry.
Power of Suppliers - Low
The bargaining power of suppliers is likely to be high when there are few
suppliers of a particular good or service or when the switching costs for the
company, in this case Amazon, are high, among other reasons.

The power of

Amazons suppliers is quite low since Amazon relies upon a vast pool of suppliers for
its goods.

Because most of the goods sold through Amazon can be obtained

through multiple sources, Amazon can discontinue contracts or partnerships with


suppliers when their terms become unreasonable or the quality of the goods
diminish. Additionally, the costs of switching or modifying contractual agreements
with suppliers are relatively low due to the size of Amazon and its relationship to its
suppliers.
Power of Buyers Moderately High
The bargaining power of buyers is similar to that of suppliers, but instead is
its inverse and deals with the pressure buyers can inflict on the seller. Buyer power
is typically high if the consumer tends to make large purchases and few other
buyers exist or if the buyer can switch providers at relatively low costs.

The

bargaining power of buyers is moderately high for Amazon for a few reasons: (1) low
switching costs for consumers, (2) little to no differentiation of products sold
through Amazon (such as a textbook), and (3) the availability of the same or similar
service (like Netflix or eBay).
Threat of Substitutes Moderately High
The threat of substitutes exists if competitors within the industry sell similar
goods that achieve the same intended goal of the existing good or service.
Whether or not the threat of substitutes is high for Amazon depends on factors such
as switching costs, price of substitutes, and brand loyalty, etc.

The threat of

substitutes for Amazon is moderately high. This force leans toward high since the
goods sold through the marketplace lack differentiation and can be purchased
elsewhere, as discussed directly above. However, the threat of substitutes is only
moderately high because there are few other companies who offer all of the same
services in one place as Amazon. For example, while eBay offers a marketplace to
connect buyers and sellers, it does not offer the same selection as Amazon, nor
does its offer music and movie streaming, textbook rentals, etc.
Threat of New Entrants - Low
The fifth force of Porters Five Forces is the threat of new entrants. The threat
of new entrants is typically high when competitors can easily enter into the firms
market.

In order to for the threat of new entrants to be low, there have to be

significant barriers to market entry. As we have learned, a barrier to entry is an


obstacle that new market entrants must overcome in order to compete within a
particular market, such as high start-up costs or government regulations.

The

threat of new entrants into Amazons industry is low since there are high barriers to
entry, including start-up costs and government regulations, and a very low
possibility that new entrants would be able to achieve the same economies of scale
rapidly enough to compete with Amazon.
IT Competitive Advantage
As we have discovered from our analysis of Amazons structure, its strengths,
weaknesses, opportunities, and threats, as well as Porters Five Forces, Amazons
competitive advantage relies on its technology.

As we have learned in class, a

competitive advantage is something that, in this case, Amazon does better than any
of its industry competitors. Technology is Amazons competitive advantage since its
systems coordinate its everyday operations, such as processing order requests to

optimizing shipping to tracking customer data for its customer relationship


management, and can be sold to other users, as is evident by Amazons use of its
own cloud computing system and its ability to sell its self-developed cloud storage
capacities to others as a service.

The efficiencies obtained from all of the

technological support of Amazons information systems and related technology are


the reasons Amazon has been able to keep its costs low, learn its consumers
preferences, and expand its operations from books to a one stop shop for
everyones needs.

XI.

Conclusion
Amazon is an incredibly innovative, large, and powerful company in an

industry slighted for high growth in the future with little reliance on or influence
from its suppliers and a low threat of new entrants. After identifying some of its
strengths, weaknesses, opportunities, and threats, as well as some risks and the
factors critical to its success, Amazon will be able to surpass industry growth rates if
it takes advantage of the its incredible IS and IT structures and the opportunities
and potential alternatives to it, such as expanding its Marketplace shop offerings or
partaking in mergers and/or acquisitions to enable the company to integrate its
operations, whether vertically, horizontally, or both. Amazon is able to effectively
have its hands in everything by providing a variety of goods and services, ranging
from its cloud technologies to tangible products, like books to movie streaming, and
will continue to grow as it maintains and develops more of its technological core
competencies.

Works Cited
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Figure Appendix
Figure
Figure
Figure
Figure
Figure
Figure

1:
2:
3:
4:
5:
6:

AWS Worldwide Network Backbone.............................................................9


Amazon's Perdix Container........................................................................10
Greenpeace 2015 Company Scorecard.....................................................12
Amazon drone............................................................................................ 13
Amazon Dash Button................................................................................14
Amazon Echo............................................................................................ 15