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Amazon Internal and External Analysis

E - commerce (Đại học Kinh tế Quốc dân)

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Table of Contents
Company Background:....................................................................................................................2
History:.........................................................................................................................................2
Current events:.............................................................................................................................2
Current successes in media:.........................................................................................................2
Current failures in media:............................................................................................................2
Analysis:..........................................................................................................................................2
Core competencies:......................................................................................................................2
Tangible resources:...................................................................................................................2
Intangible resources:.................................................................................................................3
Organizational capabilities:......................................................................................................3
Competitive advantage:................................................................................................................4
Internal:....................................................................................................................................4
External:...................................................................................................................................4
Recommendations:..........................................................................................................................7
Product quality:............................................................................................................................7
Future diversification/ new markets to explore:..........................................................................7
How to resolve weaknesses and threats:......................................................................................7
New product suggestions:............................................................................................................7
Implementations:.............................................................................................................................7
Product quality:............................................................................................................................7
Future diversification/ new markets to explore:..........................................................................7
How to resolve weaknesses and threats:......................................................................................8
New product suggestions:............................................................................................................8
Conclusion:......................................................................................................................................8
Bibliography....................................................................................................................................9

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Company Background
History:
The history of Amazon since its inception is described chronologically as follows; “In 1994, Jeff
Bezos incorporates his company under “Cadabra.com”. In 1995 Amazon.com launches and
officially goes live as an Online Bookstore. In 1997, Amazon announces IPO. In 1998, their
initial international sites were started. In 2000, Toys “R” Us and Amazon.com join alliances. In
2002, Amazon.com reports its first net profit during 4th quarter of 2011. In 2007, Amazon
introduced the first Kindle. While in 2008, Amazon acquires AbeBooks.com”. [ CITATION
Tim14 \l 1033 ] Amazon’s initial business was to sell the books online. Then they diversified into
many products such as electronics, fixtures etc.
Current events:
Amazon is taking care of the community in general by launching specific events such as literary
prize contest for Spanish authors as is stated; “Amazon announced today its Second Annual Indie
Literary Prize Contest for Spanish-language authors”. [ CITATION ama15 \l 1033 ]
Amazon is taking care of its shareholders as well. Amazon is able to increase its sales in the
recent quarter as is stated; Net sales increased 15% to $22.72 billion in the first quarter,
compared with $19.74 billion in first quarter 2014”. [ CITATION Ama \l 1033 ]
Current successes in media:
Amazon’s product Kindle is still very successful. Due to this the company is able to increase its
sales.
Amazon is also taking care of the planet by taking certain initiatives such as “frustration free
packaging”. [ CITATION Ama15 \l 1033 ]
Current failures in media:
The recently launched fire phone by Amazon was a failure as is stated; “Amazon’s Fire phone,
dubbed a “shopping machine,” is a flop. The device, which the company introduced in June, led
to a $170 million write-down last quarter and a lowered sticker price of just 99 cents”.
[ CITATION Gri14 \l 1033 ]. This product was an outcome of company’s constant
experimentation policy. It was very much publicized in the media because after successful
products like Kindle this was a huge failure.

Analysis
Core competencies:
Tangible resources:
Tangible resources of Amazon include its storage houses, distribution centers, its employees and
its offices. But since it is an online business these tangible assets are not of much significance.
These tangible resources do help in functioning but they are not a source of distinctive core
competency for Amazon.

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Intangible resources:
One of Amazon’s intangible resources is its hard earned reputation and brand image as is stated;
“the intangible resource of reputation has helped internet firms such as Amazon in globalizing”.
[ CITATION Kot01 \l 1033 ] Moreover, it was due to Amazon’s brand image which helped it
sustain its position in the market as is stated; “Even in markets where Amazon.com was facing
impediments restricting the market access, such as China the company managed to obtain an
important market share”. [ CITATION Nic12 \l 1033 ]
Moreover, another intangible resource of Amazon is the extensive amount of customer awareness
it had acquired over the years. It had used the record of customer’s previous purchases to create a
one of its kind user recognition service which suggests to customers the products which suits
their preferences as is stated; “company developed its own state-of-the-art software technology,
its main competitive advantage, which allowed the company to implement an efficient customer
relationship management by tracking customer buying behavior and allowed them to make
recommendations on similar products, which a customer might want to buy through user
recognition. Hence, the user recognition function not only assists customers in their buying
decision, but also increases the occurrence of up- or cross-buying “[ CITATION Nic12 \l 1033 ]
Furthermore, the skill of its workforce could be characterized as an intangible resource of
Amazon.
Organizational capabilities:
The core competency of Amazon is “providing one of the largest selection of items online,
combined with superior IT systems and customer service” [ CITATION Fra13 \l 1033 ] Amazon
is able to do so because of its organizational capabilities which include the following.
Amazon has skilled and professional employees which helps maintain Amazon’s negotiation
power over suppliers as is stated; “because of the highly trained experts in the departments of
development, market research and marketing, Amazon is well informed about the suppliers
market”. [ CITATION Nic12 \l 1033 ] Suppliers are very important in Amazon’s case because it
relies on them for efficient delivery to consumers. Hence, relationship with them should be
managed properly. Amazon’s human resource team is well equipped to do so thus they contribute
to organizational capabilities.
Moreover, Amazon has a cost effective outbound logistics system which form part of its
organizational capabilities. It outsources shipping services to avoid storage costs as is stated; “the
distribution and shipping of the products is done trough external contractors (e.g.: DHL), making
possible that the overhead costs of Amazon.com to be very low, and gives the company an
advantage cost over traditional retailers, Amazon.com being able to sell its products at a lower
and more competitive price”.[ CITATION Nic12 \l 1033 ]
Another organizational capability of Amazon is that everyone in the organization focuses on
satisfying consumer needs. This is why every employee even the head of departments have to
initially interact with consumers on the phone.

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Competitive advantage:
Internal:
Resource based view:
What’s valuable?
Amazon’s mature technology, expert staff, customer awareness and brand image are the things
valuable for Amazon.
What’s rare?
Amazon’s impressive customer relationship management, its well established brand image, its
mature technology, its highly complex yet efficient network of suppliers and distributors and its
variety of products are the things which rare about it as is stated; “huge diversity of products
underlines its advantage over traditional retailers”.[ CITATION Nic12 \l 1033 ]
What’s difficult to imitate?
Amazon’s state of the art software technology is difficult to imitate because it requires funds and
economies of scale. Moreover, imitating the user recognition system is difficult because many
new companies would not be having the record of consumer’s previous purchases.
What’s difficult to substitute?
User recognition service deters consumers to shift to substitutes i.e. new companies. New
companies would not be able to offer this service and hence consumer’s purchase decision would
become difficult if they shifted to these new companies which had no record of their previous
purchases. Furthermore, Amazon offers variety and this deters consumers to shift to other
substitutes which offer only specific products. Moreover, Amazon’s hard earned trustworthiness
deters consumers to shift to other substitutes which are nascent and hence non-trustworthy.
External:
Porter’s five forces analysis:
Threat of new entrants:
New entrants have to invest in research and development to stay in the industry and pose a threat
to Amazon as is stated; “in a fast technologically driven industry, the company with best
technology gets the lion’s share”.[ CITATION Nic12 \l 1033 ] Amazon is constantly able to
invest in research and development to provide online service to its customers in the most
innovative and convenient way possible due to three reasons. Firstly, because it has accumulated
a large amount of funds due to its tremendous profits over the years. Secondly, due to its
extensive operations, the research and development cost per unit is low i.e. it experiences
economies of scale. Thirdly, it has the first mover advantage. New entrants are unlikely to have
these advantages. Hence, threat of new entrants is low.
Bargaining power of buyers:
Amazon has two types of buyers; consumers of Amazon products and retailers who contract with
Amazon for online presence. The bargaining power of Amazon’s first category buyers i.e. end
users of products is low until and unless there is joint buyer collaboration against Amazon as is
stated; “Amazon.com has enough customers around the world, and the lost of one customer does

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not affect the smooth running of the company”.[ CITATION Nic12 \l 1033 ] But the retailers
could switch to other websites such as Google easily. Thus, bargaining power of Amazon’s
second category buyers is high. Overall, there is moderate bargaining power of buyers.
Bargaining power of suppliers:
Amazon has more suppliers to choose from because of its access to suppliers all over the globe.
Furthermore, Amazon is a major client for most of its suppliers. Hence, these suppliers are highly
dependent on Amazon for a major proportion of their revenue. Moreover, Amazon has trained
expert staff which constantly informs it about the supplier market as is stated; “because of the
highly trained experts in the departments of development, market research and marketing,
Amazon is well informed about the suppliers market”.[ CITATION Nic12 \l 1033 ]
The threat of substitutes:
Substitutes to online shopping in general could be physical stores offering catalogues at homes
so that customers could choose from the catalogue and order on the phone. But a limited number
of customers are likely to shift to them. Moreover, substitutes to Amazon in particular could be
other online stores. But these would not be able to offer a variety of products matching that of
Amazon. But they are most likely to operate in a niche market. Thus, threat of substitutes is low.
Intensity of rivalry among competitors:
Direct competition is from other online giants like eBay which offer very similar products to
Amazon as is stated; “eBay has become the most important competitor of Amazon.com”.
[ CITATION Nic12 \l 1033 ] Indirect competition is from Google etc. The intensity of rivalry is
high in this case as well. Moreover, brick and mortar retailers contribute to intensify the rivalry
in the industry.
SWOT analysis:
Strengths:
Amazon was well established during the internet boom as is stated; “During the dot-com-bubble
1995 - 2000, Amazon.com was one of the well known brands”. [ CITATION Nic12 \l 1033 ]
Due to this Amazon is constantly generating huge profits and investing them in research and
development. The consequent expansion of the business has allowed Amazon to experience
economies of scale.
Furthermore, Amazon’s extensive user recognition service helps consumers in making the
purchase decision. This service is strength for Amazon because it deters consumers from shifting
to other substitutes i.e. nascent companies which do not have previous record of consumer’s
purchases. It is also a core competency which is difficult to imitate.
Moreover, Amazon’s system is easy to use and consumer-friendly in comparison to other
competitors.
Weaknesses:
Amazon has outsourced the distribution and shipping of many products. Thus, it is dependent on
these third parties for efficient delivery of products to its customers as is stated; there also exist
weaknesses, e.g.: the dependence on external contractors and on-time delivery”. [ CITATION
Nic12 \l 1033 ]

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Moreover, having no previous experience of economic shocks is also a weakness,

Opportunities:
Amazon has many opportunities such as expanding business in emerging markets such as China
and India where spending potential is increasing. Increasing internet speed around the globe
would encourage online shopping. Hence, regional expansion is an opportunity.
Furthermore, Amazon has an opportunity of “developing and selling its own products”.
[ CITATION Has14 \l 1033 ]
Threats:
Currently, the bargaining power of buyers and suppliers is low. But there is a threat that they
might form a joint alliance against Amazon.
Moreover, “local shops might charge low prices than Amazon and legislators might impose a tax
on online business which is currently not there”. [ CITATION Has14 \l 1033 ]
Diversification:
Amazon has both related diversification and unrelated diversification. Related diversification is
when a firm acquires another firm with similar product ranges. While unrelated diversification is
when a firm acquires another firm with product range different from that of its own products.
Amazon initially sold only books. But afterwards it diversified into a wide range of product
types.
Amazon pursued unrelated diversification at the following events. Firstly, when it diversified
into DVD and videos as is stated; “ in 1998, Amazon opens DVD/video store”.[ CITATION
Tim14 \l 1033 ] Secondly, when it acquired a toolbar company as is stated; “in 1999 Amazon
acquires Alexa Internet for US$250 million in Amazon stock”. [ CITATION Tim14 \l 1033 ].
Thirdly, when Amazon formed alliance with a toy company as is stated; “in 2000, Toys “R” Us
and Amazon.com join alliances”. [ CITATION Tim14 \l 1033 ] Fourthly, when it formed alliance
with an online firm offering a varied range of products as is stated; “in 2001, Amazon announces
Target Stores Alliance”. [ CITATION Tim14 \l 1033 ] Fifthly, when it expanded into selling
online another different type of product which were clothes and garments as is stated; “ in 2002,
Amazon opens apparel & accessories Store”. [ CITATION Tim14 \l 1033 ]
Amazon pursued related diversification at the following events. Firstly, when it formed an
alliance with a chain of book stores as is stated; “in 2001 Amazon announces Borders Group
Alliance” [ CITATION Tim14 \l 1033 ]

Recommendations
Product quality:
The quality of Amazon’s products could be improved by improving the payment system. This
would help in improving the trustworthiness of the consumers in the brand.

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Moreover, old and regular customers should get discounts. This would reduce the number of
customers shifting to other products.
Future diversification/ new markets to explore:
Amazon could pursue regional diversification as follows. It could expand into emerging markets
such as China and India. This is because spending potential and internet awareness in such
countries is rising. If Amazon expanded its operations into these countries then it would have the
first mover advantage because no other firm has yet expanded in these countries. First mover
advantage would imply that Amazon would be supplying the whole market due to negligible
competition. Due to such extensive operations it could experience economies of scale.
How to resolve weaknesses and threats:
Amazon could do the following to overcome its weaknesses. It could start producing its own
products and hence reduce dependence on third party suppliers. Moreover, it should develop
contingency plans to neutralize any unforeseen losses such as that experienced with the launch of
Amazon’s fire phone.
New product suggestions:
There is a large proportion of population which does not know how to use the internet. Ordering
centers should be made in each locality with trained staff. These trained Amazon staff would
operate the Amazon website for these computer illiterate people for free. Computer illiterate
people could come there and Amazon staff would ask them about the products they want.
Amazon staff would show them the different products and their pictures online. Then these
consumers may choose and order. This would increase the customer base.
Moreover, Amazon should start producing and selling its own products.

Implementations
Product quality:
The customers should be reassured that there online transactions are safe. Amazon should
contract with insurance companies to effectively insure the customers against any loss. This is
how the recommendation of making the payment system safer would be implemented.
Future diversification/ new markets to explore:
Regional diversification in India and China could be effectively pursued and implemented by
acting on the following steps.
Amazon web pages in India and China could be translated into local languages. Chinese are very
sensitive about their national spirit in general and about chinese language in particular. That is,
they prefer chinese instead of English. Thus, Amazon should operate in Chinese language in
China. While India has many ethnic groups like gujratis, marathis, Sikhs etc. Amazon could start
their web page in each of the local Indian language. This would make each of the ethnic group
form a sense of belonging with Amazon.

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How to resolve weaknesses and threats:

Amazon should start producing its own products by opening manufacturing plants in developing
countries where labor costs are low. Then, Amazon should market them online across the globe
to increase its sales.
New product suggestions:
The ordering centers should be opened in each locality. The ordering centers should have several
customer service employees each with a laptop and internet access. It should be advertised in the
local newspaper so that everyone could know about it. The service should be offered for free to
encourage participation. Consumers who are computer illiterate would come. The customer
service employees would ask them about the nature of products they want. Then staff would
provide the service.

Conclusion
Amazon is able to succeed due to its intangible resources, organizational capabilities, core
competencies and strengths. Tangible resources do not play a role because it is an online
business. Amazon’s intangible resources include its hard earned reputation and inventory of
customer awareness. Its organizational capabilities include skilled and professional employees
and efficient outbound logistics system. Its most important core competencies which are difficult
to imitate are the user recognition service and variety of products offered. User recognition
service is difficult for new companies to imitate because they do not have record of consumer’s
previous purchases. While it also acts as a deterrent for consumers in shifting to new companies
because their purchase decision would become difficult if they shift to these new companies
which do not have a record of their previous purchases. Its strengths include its financial ability
to constantly invest in research and development and its consumer friendly operating system. It
had certain weaknesses such as dependence on suppliers and certain threats such as imposition of
tax and local shops offering low prices. But Amazon could deal with them by acting on the
implementing the following recommendations. Firstly, it should start producing its own products
by opening plants in developing countries where wages are low. This would reduce supplier
dependence. Secondly, it should expand into markets such as China and India where spending
potential and internet literacy is rising. Thirdly, it should open ordering centers for computer
illiterate people.

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