Assignment: A complete analysis should include a summary of the case, a SWOT analysis, a financial...

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General Management

Assignment: A complete analysis should include a summary of thecase, a SWOT analysis, a financial analysis, identification ofstrategic issues and challenges, and a strategic plan. You mustsupport your case analysis with at least 3 sources in addition tothe textbook.
The case describes the business model of one of the world’slargest e-tailers, Amazon.com, Inc. (Amazon). Amazon had been atthe forefront of innovation, adding and refining technology andchanging the way customers shopped. It had a sustainable andinnovative business model that intensely focused on its long-termgrowth opportunities as opposed to short-term profit margins. Thecase discusses the business model innovation at Amazon and how itevolved from just an online bookstore into one of the largeste-commerce platforms in the world where customers could find anddiscover anything they wanted to buy online in a more convenientway. The case outlines the four pillars of Amazon’s business model— low prices, wide selection, convenience, and customer service.Amazon attracted customers through low prices, prompt delivery, anever-expanding array of services and products, and exemplarycustomer service.In 2015, Seattle-based e-commerce giantAmazon.com, Inc.(Amazon) surprised investors by posting anunanticipated second quarterly profit in a row after strugglingwith profitability the previous year. In the third quarter endedSeptember 30, 2015, Amazon’s revenues increased by 20% to US$23.2billion, while net income was US $79 million, compared with a netloss of US$437 million in the corresponding quarter of the previousyear. The revenue growth was attributed to the company’s rapidlygrowing cloud-computing business, higher sales in North America,and initiatives to attract more customers. On the back of theseunexpected quarterly results, Amazon shares surged, making it themost valuable retailer in the world surpassing Wal-Mart Stores Incas of July 2015. BUILDING AND EVOLVING THE BUSINESS MODEL Over theyears, Amazon had disrupted the online retail industry andtransformed itself from an e-commerce player to a powerful digitalmedia platform focused on growth and innovation. It constantlyreinvented its business model and found new ways to create valuefor its customers. According to analysts, Amazon’s business modelwas innovative because it combined the company’s online retailexpertise with its ability to understand the needs of itscustomers. Amazon moved beyond books to foray into completely newproduct categories such as e-readers and enterprise cloud computingservices. AMAZON’S GROWTH WHEEL In 2001, Bezos and his employeesoutlined a virtuous cycle called the “Amazon Flywheel”, which theybelieved powered their business. Bezos once invited well-knownauthor and business consultant Jim Collins (Collins) to participatein Amazon’s executive retreat in 2001 to discuss the company’sfuture. As part of the discussions, Collins told Bezos and hisexecutives that they had to decide what they were best at. Drawingon Collins’s concept of a flywheel, Bezos and his executives drewtheir own virtuous circle placing customer experience at the coreof Amazon’s flywheel. Internally, it was referred to as Bezos’napkin diagram as he drew it on a napkin... GROWTH NOW, PROFITSLATER Amazon generated revenues by selling millions of products tocustomers through its retail website and by charging third partysellers who sold products on Amazon’s website. It also served as aplatform for independent publishers to publish books on Kindle witha 35% or 70% royalty option. In addition, Amazon generated revenuefrom its cloud business by providing web technology infrastructureto developers and enterprises. It followed a high fixed costs andlow marginal costs business model. According to Eugene Wei, aformer Amazon employee... RESOURCES AND PROCESSES THAT SUPPORT THESTRATEGY Amazon was one of the most innovative companies in the US.From the beginning, it had been at the forefront of innovation,adding and refining technology and changing the way customersshopped. On invention being a second nature at Amazon, Bezossaid... CHALLENGES According to industry observers, Amazon over theyears had disrupted other online retailers and brick-and-mortarstores and leveraged its e-commerce operations to become a retailGoliath. However, some critics felt that Amazon was too ambitiousas it had been growing alarmingly and investing heavily. They feltthat the strategy could backfire and that Amazon needed to beselective about the opportunities it pursued as it could not takecustomers and the competition for granted... THE ROAD AHEAD Goingforward, the company planned to launch new digital products andservice categories, build more fulfillment centers, power AWS, andexpand the Kindle Fire Ecosystem. The company also planned to hire100,000 people in North America for the holiday season.

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Strengths1 Low cost structure the largest merchandise selectionand a huge number of third party sellersAmazon is the largest online retailer in the world In 2017 thecompany earned US140235 billion purely from online sales morethan any other retailer in the world1 In 2015 we predicted thatAmazon would become the 2nd largest retailer as measured byrevenue in the world behind WalMart by 2018 and the Amazonsextraordinary growth has allowed the company to achieve thismilestoneFigure 1 Amazon growth rate compared to ecommerce sales growthin USSource Amazon financial reports1 and Digital Commerce3602Note that Amazon has grown much faster than the entire USecommerce market meaning that the company has actually increasedits market share by taking it from competitorsWhat is the key to such success According to Jeff Bezos thefounder and CEO of Amazoncom the companys success lies in itslowcost structure and wide variety of merchandiseFigure 2 Jeff Bezos napkin sketch outlining AmazonsstrategySource Seeking Alpha3A lowcost structure leads to lower prices which combined witha huge range of products results in a better customer experienceSatisfied customers invariably return to the Amazon websitescreating evergrowing traffic which subsequently attracts 3rdparty sellers to Amazons marketplace All of these factors lead tofaster business growth for AmazonAmazon follows a cost leadership strategy but so do many otheronline and offline retailers Why then does Amazon outperformthemLow cost structure By mainly selling onlineAmazon doesnt incur huge costs related to running physical retailoutlets Online marketplaces also potentially allow for sellingmore units without any increase in marginal costs Amazonconstantly invests in both additional fulfillment centers and toexisting centers to enable a reduction in order fulfillment timesand shipping costs These time and cost savings result in lowerprices that are passed on to consumersSelection According to ScrapeHero4 Amazonsells around 5623 million of various products in its AmazoncomMarketplace In comparison Walmart offers only 38 million SKUs5in its online shop or just 7 of the number of products thatAmazon offers This vast difference in range is the reason whyonline customers are more likely to visit Amazoncom rather thanWalmarts eshopThird party sellers Amazons business modelincludes accommodating third party sellers who are able to offertheir own merchandise on Amazons sites and whose productstherefore compete against Amazons Third party sellers are mainlyattracted to because of the high volume of traffic on Amazon sitesThey often offer products that are not available through Amazonsretail division In 2016 no data for 2017 Fulfillment by AmazonFBA service shipped over 2 billion thirdparty sellersitems6This number does not included the items shipped bythirdparty sellers themselves eBay is the only other onlinecompany that has as many third party sellers as AmazonLow prices a huge product range and the vast number of thirdparty sellers are all key factors in improving the Amazon customerexperience and in driving more traffic to their sites Fewcompanies can compete with Amazon in any of these areasWeaknesses1 Very low margins on retail businessIn 2017 Amazon earned US177866 billion in total revenuesRetail sales both in online and physical stores were US114152billion or 642 of the total revenue The rest of the revenueincluded revenue from the thirdparty seller services subscriptionservices AWS and other revenueFigure 3 Amazon revenue breakdown by productSource Amazon financial statements1Despite being the major source of the companys income theretail business has notoriously generated mostly losses over thecompanys entire existence Since the companys first sales in1995 the company has not generated any profit until 200324Sincethen Amazon only sometimes earned profits on its billions worthretail business In 2017 the company has lost the money on itsretail business again The company reported the sales of US106110billion and the operating income profit of US2837 billion in itsNorth America segment and the sales of US54297 billion and theoperating income loss of US3062 billion in international marketsThese revenues do not include AWS business income but include therevenue from the services which often are much more profitablethan the retail business This means that Amazon See Answer

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