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2.0.

Analysis of The Internal Environment

2.1. Analysis of Amazon Strengths

The first strength that Amazon possessed is in terms of its first mover advantage. Amazon was founded
by Jeff Bezos in 1994 at the back of his house garage. As reported by Business Insider (2010), starting
from 1997 until 2010, many economists have speculated that those periods are the starting and the burst
point of the dot-com bubble which is the economic bubble that marks the start of internet usage and
adaptation by businesses and consumers. As the Amazon was founded in 1994, it literally even
established prior to this trend and ride on the train of the opportunity back then.

In terms of Amazon product and service offering, despite all the risks and costs that were being
presented and encountered by them, Amazon then eventually enjoy the benefits of being a pioneer and
as the market responds well to this initial move and starting to become a monopoly on its own industry.
In late 1990s Bezos took an initiative to add five more new warehouses and fulfilment centre which
costs him $300 million at that time. This additional warehouses was even purchased before it was
needed as simply a preventive act to the potential rivals risen and making sure the to meet the demand
that was growing at that time and offer them the best prices and most convenient delivery (Quittner,
2008). By doing so, Bezos may achieve benefits of hitting two birds with one stone; defending itself
and limiting the gap for late movers and at the same time secure the market share in the industry as
shown in Figure 2.1, Amazon growth rate, shown in the blue line is even in a higher position compared
to the red line which represents the U.S. e-commerce growth rate.

Figure 2.1. Amazon Growth Rate Compared to U.S. E-commerce Growth Rate Within a Decade
In relating to the first mover advantage, there is another benefit that the pioneer can enjoy which is the
establishing a strong reputation and branding. Another possibility resulted from a satisfactory product
and service offering is in terms of the reputation. It is a fact that Amazon is now the market leader in
the e-commerce industry in U.S. and because they are the pioneer in this industry, it gave them the
chance to build the trust in the consumer and eventually build their reputation. As being reported in
Marketline (2016) business report, by utilising the reputation that they had built previously, they can
extend their product offerings within the core competitive advantage. For instance, Amazon previously
is only an online book commerce, but with its reputation, it then started to expand their business
including selling other product varieties such as jewelleries, household products, electronics etc. With
reputation, the company also possesses a strong branding within the customer base to act as a bind to
the company and limits the late mover to snatch the customers away from the pioneer as well.

Amazon also possesses the strength of having a cost leadership in the industry which they obtain
through entering into various strategic alliances with other companies. Based on Amazon report by
Bhasin (2017), by having alliances, they may build a stronger value chain for instance with the logistics
company who will deliver the required products from the supplier to the final customers. Since the one
who delivers the product is the third-party alliance which is the logistic company, it will then help the
company in terms of inventory cost minimisation to the lowest level as possible. And entering alliances
with the supplier, with its big size of the company orders, Amazon then naturally achieve economies of
scale which reduce their cost even more. Hence, the alliance will benefit Amazon in minimising cost,
become the cost leader and provide a competitive price or maintain normal price to achieve higher
profitability.

Another strength that Amazon owned is the differentiation strategy. The differentiation based on
Thompson (2016), can be categories into various types including tangible and intangible features that
differentiate the offerings. Amazons tangible differentiation can be described into the variety of the
product offered and in terms of the intangible differentiation, it will then shape into another strength of
Amazon which is service offered differentiation leads to customer satisfaction. By utilizing the advance
information technology that able to recognise the user and record the customer behaviour, Amazon able
to create an easy-to-use website which is user friendly and based on the data collected from the customer
behaviour, they then also help in assisting customer decision making process in terms of personalised
offer and recommendation of related items. With a good customer relationship management combined
with the value priced product offerings, it will then lead to a better customer satisfaction as the target
market is the value conscious buyer (Donici et al., 2012).
2.2. Analysis of Amazon Weakness

The first weakness that Amazon has is the problem of shrinking margin. As previously discussed, as
one of its strength, Amazon able to enter into various strategic alliances with the third party and lead to
cost leadership. But this strategy also posed as double edged sword as well. The problem arises when
Amazon eventually promised free delivery services. Indeed, this promise poses as an attractive offer
for the customer but if the customer does not pay for the cost, as the delivery is done by the alliance
third party, they should not be the one to borne the cost as well. Hence, Amazon is the one who will
bear the cost which accumulate into quite a huge amount that will influence the profitability of the
company as well.

Another apparent weakness that Amazon is facing right now is the product flops. Amazon has the brand
and reputation in which the high management wishes to fully utilize. But in recent years, as part of their
diversification strategy, Amazon has been spreading itself too thin in meaning that they start to lose
focus of their own core competitive asset (which is retailing books online) and venturing into new focus
area. Based on Borison (2015) in The Street compilation of Amazon biggest failures, most of it are due
to wrong decision in the product extension. The recent mistake is in July 2014, when Amazon decided
to release Fire Phone, its first smarphone but failed terribly in competing with iPhone and Androids.
Eventually Amazon took off this product from its line by September 2014 with a loss of $170 million.

Today Amazon also fight in many cases in courts regarding the infringement. For instance, in March
2015, Zitovault complained against Amazon and Amazon Web Service (AWS) for patent infringement
in the US Court alleging that the web service system that they use is an infringement of the other
company patents. Later in November 2015, the company also faced with another case filed by Eolas
Technologies against the Amazons use of interactive features infringe US Patented items by other
companies (Marketline, 2016). Patent infringement cases filed against Amazon is increasing which will
affect the companys brand image and harm its brand equity in the future.

As an electronic commerce company, which mainly dealt the businesses via online, technology
breakdown can pose as serious cases which will create bad customer experience and decrease
customers overall satisfaction. In 2016 alone, Amazon has faced with twenty-two times of web server
(AWS) outage which affected the companys cloud system. The outage disrupted AWS users from the
suppliers site, and the end customers cannot access the website and progress to the payment. Such
outstages of vital activity in the system lead to loss of confidence in the company among the enterprise
and customers (Donici, Maha, Ignat, & Maha, 2012).
Reference

Figure 2.1.: Jurevisius, O. (2017, April 13). Amazon SWOT Analysis 2017. Retrieved from
https://www.strategicmanagementinsight.com/swot-analyses/amazon-swot-analysis.html.

Bhasin, H. (2017, April 17). SWOT Analysis of Amazon. Retrieved from


http://www.marketing91.com/swot-analysis-of-amazon/.

Borison, R. (2015, November 13). Ten of Amazons Biggest Failures. Retrieved from
https://www.thestreet.com/story/13364106/1/here-are-10-of-amazon-s-biggest-failures.html.

Business Insider. (2010, December 15). Heres Why The Dot Com Bubble Began and Why It Popped.
Retrieved from http://www.businessinsider.com/heres-why-the-dot-com-bubble-began-and-
why-it-popped-2010-12?IR=T&r=US&IR=T.

Donici, A. N., Maha, A., Ignat, I., & Maha, L.-G. (2012). E-Commerce across United States of
America: Amazon.com. Economy Transdisciplinarity Cognition, 15(1), 252258.

Marketline. (2016). Company Profile Amazon.com, Inc. Marketline Digital Media Business. p. 4-7.

Thompson, A. A., Peteraf, M.A., Gamble, J.E., and Strickland, Dr.A.,J. (2016). Crafting &
Executing Strategy: The Quest for Competitive Advantage Concepts and Cases (20E). NY:
McGraw-Hill Education.