Amazon Case Study
Amazon.com’s Business Model and its Evolution
In 2015, Seattle-based e-commerce giant Amazon.com, Inc.(Amazon) surprised investors by posting an unanticipated second quarterly profit in a row after struggling with profitability the previous year. In the third quarter ended September 30, 2015, Amazon’s revenues increased by 20% to US$23.2 billion, while net income was the US $79 million, compared with a net loss of US$437 million in the corresponding quarter of the previous year. The revenue growth was attributed to the company’s rapidly growing cloud-computing business, higher sales in North America, and initiatives to attract more customers.
On the back of these unexpected quarterly results, Amazon shares surged, making it the most valuable retailer in the world surpassing Wal-Mart Stores Inc I as of July 2015′ (See Exhibit I and II). “They are showing investors that if they want to deliver profits, they can. Amazon is a dominant online retailer, well on its way to becoming one of the world’s largest retailers,’” said Michael Pachter, an analyst at Wedbush Securities Inc.
Launched as an online bookstore in 1995, Amazon quickly expanded beyond books to include all types of consumer goods. The company constantly innovated with its business model and moved from consumer electronics to cloud computing services and later into the technology business. Amazon’s business model was built around low prices, a vast selection, fast and reliable delivery, and convenient online customer experience. Besides offering customers a vast selection of products at low prices, Amazon also provided marketing and promotional services for third-party retailers and web services for developers. It was Amazon’s relentless focus on value and selection along with innovations around shipping and handling cost reductions that had made it a leader in e-commerce, opined analysts.
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BACKGROUND NOTE
Amazon was founded in June 1994 by Bezos. At that time, the internet was gaining popularity and was being considered as a potential business medium. To cash in on this trend, Bezos came up with the idea of selling books to a mass audience through the internet. In June 1995, Bezos launched his online bookstore, Amazon.com, named after the river Amazon. Amazon officially opened for business on July 6, 1995.
In the beginning, Amazon’s business model was based on the “sell all, carry a few” strategy wherein Amazon offered more than a million books online, though it actually stocked only about 2000. The remaining titles were sourced predominantly through drop-shipping wherein Amazon forwarded customer orders to book publishers, who then shipped the products directly to the consumers. By the end of 1996, Amazon was offering about 2.5 million book titles. In 1996, the company’s net sales were about US$ 15.7 million and it reported a net loss of US$ 5.7 million.
Question One
Why is it important for organizations to study and understand the external environment? Drawing on your knowledge of Porter’s Forces Model, critically evaluate the usefulness of this model. Provide appropriate examples in your answer.
Question Two
Critically discuss the following sentence. The two corporate-level strategies of related diversification and unrelated diversification can be distinguished by how they attempt to realize the five profit-enhancing benefits of diversification.
Question Three
Critically evaluate the ways in which organizations can increase their profitability and profit growth through global expansion. Provide appropriate examples in your answer.
Question Four
Critically discuss the benefits of the single-industry corporate-level strategy of horizontal integration. In your discussion, consider the ethical implications of this strategy. Draw on the class discussion of ‘corporate consolidation’ in your answer.
Question Five
Critically discuss the concept of value innovation in business-level strategy. Provide appropriate examples in your answer.
Question Six
Rare, valuable, and inimitable resources are likely to lead to a competitive advantage. Critically discuss how resources can create value for a firm and how this can lead to a sustained competitive advantage.
