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Study performed by Sigma Consultancy Table of Contents Introduction Industry Sector Legal/Political Sector Cultural Sector Physical Resource Sector Economic Sector Technology Sector Human Resources Sector Consumer/Client Sector Conclusions with Discussion Recommendations with Discussion Alternative Courses of Action Introduction to Amazon. com The Internet has changed the way that we perceive business and the way that we as consumers may make our purchases. In fact, the online consumer today knows the convenience of purchasing a book online and having it delivered to their door in a matter of a few days. There is no more need to fight crowds, find a parking spot, and deal with traffic (E-Commerce, 2000).
The high street and mail order systems still have a place in the mix of purchase routes, however it is no longer the only method of making purchases. The Internet revolution has seen a massive increase in the long distance purchases made by consumers, as geographical barriers are no longer as important as they were. The lack of geographical importance has influenced the strategy of Internet companies. One of the first companies that took advantage of this was the online bookshop Amazon. com. Amazon.
com is an organization that offers a broad range of services to consumers and is considered an online leader of pure-plays - pure online merchants. Amazon. com was founded in July of 1995 with a mission to fully utilize the Internet to make book buying fast, easy, and all in all, a very enjoyable experience. They currently have 29 million customers in 160 different countries, making Amazon. com one of the leading online merchants.
It is rated third in business-to-consumer online revenue as of June 20, 2000 (Interactive Week 7, 2000). Amazon. com represents the ideal e-Commerce company. It was one of the first to demonstrate the potential for "virtual" upstarts and turned the market on end - even leading the "bricks and mortar" companies. In the book selling industry, Barnes & Noble has been the market leader with 1011 "bricks and mortar" stores with Borders a close second.
Barnes & Noble has fought back vigorously on its own and Amazon. com's turf, while Borders has taken a go-slow approach. The continued success of Amazon. com can be attributed to its diversity in terms of geography as well as it's diverse selection of merchandise, ranging from media such as books, CD's, and videos to online auctions and house wares. Amazon. com currently operates four international websites in France, Britain, Germany and Japan giving it global Internet exposure.
One of several factors that has proven Amazon. com successful is that it has the first mover advantage (Thompson, 1998. ) Not only was it first in its industry, it has also been successfully marketed. But as with any Internet site, the actual presentation and processing are seen as a result of the underlying technology and the way the company uses it (Sullivan, 1999). Industry Sector Competition today in the online retail business is fierce, and Amazon. com has some of the toughest competition in the World. Among the most prominent competition are Barnes & Noble and Time Warner publishing which although is new to the scene, has an abundance of capital to back its venture into the online retail book business. "Independent bookstores are rapidly disappearing amid the dominance of superstores such as Borders and Barnes & Noble. " (Magazine & Bookseller 56, 2000) As recent as five years ago, there were over 5, 500 independent bookstores in the United States.
Presently, there are only approximately 3, 300 according to a Book Industry Study Group Inc. report. In April of 2001, Amazon. com announced that it would be re-launching Borders. com - the second-largest bookseller in the United States - powered by Amazon. com's e-commerce platform.
The deal will allow Borders to maintain an online presence without having to develop and maintain the eCommerce infrastructure and content itself. ''Amazon. com has worked hard to provide its customers with the best possible shopping experience, and we are incredibly pleased to power and manage the new Borders. com, ''s aid Jeff Bezos, CEO and founder of Amazon. com. ''This alliance allows Borders to offer our customers the convenience of an online shopping option with the added benefits that will emerge through our new association with Amazon.
com, the world's recognized eCommerce leader, ''s aid Borders Group President and CEO Greg Josefowicz. Under the agreement, customers of the co-branded site will provide access to Amazon. com's editorial reviews, personalization features and recommendations, 1 -Click ordering, and other Amazon. com features. The company also reduced staff numbers and consolidated its fulfillment and customer service networks. But even though Amazon.
com has taken these steps to streamline its operations, Steve Riggio of Barnes & Noble. com says that his company is gaining some of Amazon. com's market share. Amazon. com also became embroiled in a legal battle against Wal-Mart who alleged that Amazon. com had stolen many of their trade secrets by hiring away Wal-Mart IT personnel in large numbers.
This has relevance since Amazon. com must expand into other product lines in order to maintain the growth called for by its very high valuation. One example of this expansion is in pharmaceuticals, and Amazon. com had managed to hire two key Wal-Mart Executives from this area. (Information Week, February 22, 1999) On October 25, 1999 Fortune did an in-depth review of Amazon. com that took a look at their global strategy. The article starts with: "Forget Amazon vs.
Barnes & Noble, Amazon vs. eBay, even Amazon vs. Wal-Mart. This company has bigger plans. But when will it make money?" and ends by concluding that "Right now, there seem to be two possible conclusions to the Amazon story. Ending No. 1 goes like this: In ten years Amazon becomes so huge, so omnipresent, that it will be hard to imagine that it started out as a tiny bookseller way back in 1995.
Ending No. 2, equally believable: Amazon is undone by its own ambitions and winds up as a footnote in the history of business. " In the meantime, Amazon watchers await the next big move. On January 28, 2000, Amazon. com shocked the business community by announcing cuts of 150 employees amounting to approximately 2 % of its workforce. When Amazon. com released its 4 th quarter 1999 results, there was an abundance of positive responses complemented by a deluge of skepticism. The upside: 17 million customers, $ 1. 6 billion in annual sales, 99 % on time holiday delivery rate, several profitable new lines of business, and so on.
On the down side they took a $ 39 million write-off in inventory and had a $ 184. 9 million loss in the fourth quarter, the largest ever. (Business Week: February 21, 2000) The strategy that is followed by Amazon. com is complex. The traditional idea that "there is no new idea in business or strategy, only the redevelopment of older ideas" can be seen as interestingly faulty in terms of e-commerce. If we look to find a pattern in the way that the entire sector can be described then we need to look towards the more progressive and modern examples such as the use of emergent strategy as described by Michael Porter (Thompson, 1998). These fit into a pattern in which a deliberate, prior conceived strategy may not exist and then these patterns may develop intention. We can also apply the theories of value chains where the non-productive aspects of the chain can be cut down to a minimum by the facilitation offered by e-commerce (Mintzberg et al, 1998).
When we consider the strategy for Amazon. com, we can firstly see how they have used the value chain, cutting out the unproductive sections and concentrating on the valuable parts of the chain. However, there needs to be a competitive advantage in order to compete - this needs to be either by way of price advantage or by differentiation. In terms of price advantage, Amazon. com has not yet started to make a profit, however differentiation is another story. Michael Porter, a respected business guru, tells us that for a business to thrive and succeed the business must develop a competitive advantage.
Without this, a business can be seen as no different from other businesses in the same sector (Thompson, 1998). Amazon. com has looked towards strategy and its technology to provide it with a competitive advantage, and this technology, comprised of both software and hardware, has enabled it to create this advantage. It is the use of technology that has enabled Amazon. com to be as successful as any store whose shop front is on the street. The influence of the Internet and its' importance is summed up by Jeff Bezos - Chief Executive; " Amazon.
com can be as successful as any brick-and-mortar store. It's clearly a changed world. " (McCausland, 1999; 36). It is the application of the way technology is used as well as the underlying hardware and software that can make or break an organization. The Amazon program I-Click is a patented technology and the competitors system, although not the same, was considered an infringement of the patent (News Bytes, 2000). Amazon. com is also under attack for the way it has patented business models, such as single click purchasing, that some think should not be proprietary to Amazon.
com. The complaints of the other companies have led the Patent Office to review its practices and a writ was granted against Barnes & Noble (News Bytes, 2000). The system is a real time payment system with which customers can pay immediately by credit card, which speeds up delivery, reduces administration and increases the efficiency of the site (News Bytes, 2000). This shows that Amazon.
com tackles the competition head on, however this still does not give us an indication of the future performance of the company. But the way in which it protects its existing technological advantages so competitively is an aggressive tactic that may be attractive to an investor since it protects fiercely the technology that it uses. One competitive advantage is the way the website works. The role of the site has become more than just selling; it has also become an informative medium where there are editorial reviews as well as customer reviews of the material. The customer can see this as an information forum as well as a shop front. The use of the site as a reference guide and not just one where a book can be purchased gives it a competitive advantage.
Hopefully, a potential customer may think of Amazon. com as the first place to look for a specific type of book or a place to browse when they are unsure of what books to buy. Amazon. com has also gained the status of attaining the first mover advantage; the question is can this be enhanced by a change of strategy. The first mover advantage is in place, and the differences are seen in the way the site is presented and informs, therefore more strategic marketing may enhance the strategy. There are already projections that forecast profits in the next two years, but there is also concern in some quarters regarding cash flow in the short term.
This strategy has allowed Amazon. com to compete not only against other Internet stores, but also against the major high street retailers of books and other goods, which they have now expanded into (Mann, 1997). There are still many households that do not have access to the Internet and to keep inline with the current strategy, it will be necessary to possibly other avenues of revenue. This would fit most nicely with the current plans and infrastructure, appealing to a wider audience, not requiring a major shift in policy, and fitting in with the wide range of categories of goods sold.
Since the cash flow can be read as being secure enough to see the company into profit, then the current strategy is already strong. It's possible that this additional strategy would incur greater expenses prior to a profit being shown and therefore, may not be desirable. Therefore, a change in strategy rather than increasing selling prices may reduce profits further by lessening confidence in the current strategy. Legal & Political Sector There is a set of profound issues already on the agenda today: competition policy, taxation, intellectual property rights, and privacy.
But the most basic issues are about information - who owns it and what to do with it. At a minimum, these are questions about intellectual property and privacy. Amazon. com takes the protection of its intellectual property very seriously. Trademarks, copyrights, proprietary technology and patents need to be protected in order to afford a company an advantage in a very competitive market. Amazon.
com has or has applied for protection of these intellectual properties in the U. S. as well as foreign governments. Privacy may yet be the largest issue to face eBusiness. The commotion over DoubleClick's effort to match cookie information with named profiles has led to calls for renewed attention to privacy rules. (Business Week, March 20, 2000) Recently, Amazon. com has come under fire for "engaging in deceptive privacy practices. " (Information Week, 2001) These practices included the passing of consumer information from Alexa, an Amazon.
com subsidiary, to Amazon. com. "Section 5 of the FTC Act prohibits unfair or deceptive acts or practices in or affecting commerce. " (web) Even though Alexa passed this information, the Federal Trade Commission dropped the case when Alexa modified its privacy statement to include wording such as "does not intentionally disclose personally identifying information... even to Amazon. com. " (Information Week, 2001) Amazon. com has quite a comprehensive Policy Notice. Amazon.
com collects a fair amount of information about the consumer, but only information that the consumer enters on the website or supplies to Amazon. com by other means. In no way, shape, or form, does Amazon. com violate a consumer's computer and retrieve information that may be contained on the system. They may receive information from shippers or other sources, but this is only information to update things such as delivery and address information. Amazon.
com also places cookies on your system to enhance the whole shopping experience. These are enabled to offer such things as 1 -Click purchasing as well as to store items in your shopping cart between visits. The privacy statement explicitly states that Amazon. com does not share any information it receives from its customers. The only businesses they share this information with are their own subsidiaries. Amazon.
com also makes it clear that it does not market to minors. In their privacy statement, they state that they do not sell products for purchase by children, but sell products for children intended to be purchased by adults. You are allowed to use Amazon. com's website for purchases if you are under the age of 18, but you must do so in the presence of a parent or guardian.
Amazon. com uses SSL, or Secure Socket Layer software, to encrypt any information that is transmitted between the user and the server. Since 1994, there has been quite a bit of publicity about credit card fraud on the Internet. (Internet Scam Busters, 1998) But it is widely known that it is actually safer to give your credit card number over the computer than it is to someone in the stor...
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