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A study on Amazon Analysis- most valuable company followed by Google and expanded its business operation in other areas

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Amazon Analysis

Summary of the case

Amazon Company has become the second most valuable company followed by Google. The company started by Jeff Bezos gained remarkable success after its entry into the book business. The company went public in 1997 and expanded its business operation in other areas such as toys and electronics, video games, home improvement, and tools, etc. the company during early days invested heavily in that warehouse and distribution infrastructure and tied this infrastructure with a digital infrastructure linking operation in all over the world. The company faced downside during Dot.com bust but soon gained prominence. Restructuring of the company assisted it to focus on profitable business segments. The company is continued to expand its categories of business segments. Amazon entered into apparel market, grocery business, jewelry business, etc. that reveals the diversified business base of the company. The company also introduced digital content by providing online service to allow users to read the book before its publication. One milestone is the introduction of Kindle in 2007 that allowed users to read and download newspapers, books, and magazines. In 2011, the company introduced the kindle fire to compete with the iPad of Apple Company. The product Kindle has a good market share in the world accounting 15.6 percent of tablet sales globally. The company also introduced fire TV that did better in the market. Along with these products, the company launched Amazon Dash and Amazon Echo that reveals its technological competency.  

One key feature of Amazon Company is the introduction of Amazon prime that has become a huge success for the company. It attracted millions of people to join Prime that increased sales and profitability of the company. By the end of 2017, prime membership reached 100 million worldwide that revealed a grand success of Prime membership program. Third party sales were also higher than the own sales of Amazon company. Amazon web services did well that achieved 17.5 billion revenues in 2017. Logistics system of the company is also strong as, by early 2018, 265 fulfillment centers located in 17 countries are operated by the company. There are 471 other facilities, including 73 sorting centers a, 42 fulfillment centers and 150 delivery stations. Physical stores numbers are also enhanced for Amazon company. The company has a larger base of employees including 566,000 full time as well as part-time employees. The company also provides paid tuition for employees for their skills development. The company also adopted policy pay to quit for dissatisfied employees. The company provides virtual contact center for employees to provide work from home opportunity. But the case also reveals that a higher percentage of employees are disgruntled due to high pressure by Amazon to achieve challenging targets. In terms of financial position, the company recently has achieved higher profitability and its shares reached a record level. Therefore, the company becomes the most valuable company in the world after Apple and Bezos became the richest person in the world. The future of the Amazon reflects a bright prospect but the company is alleged that it did not sufficient taxes and driven out retailers out of business. Another allegation against the company is paying low U.S. postal service. In spite of these allegations, the company Amazon future looks bright and prosperous. 

Analysis components

History 

The case revealed that Amazon has introduced an associate program in 1995 that has become a grand success for the company. This is corroborated by the findings of Krishnamurthy, (2006) that reveals associate program success. Another milestone achieved by the Amazon is going public in 1997 that enhanced the stock price of the company (“Amazon.com files for IPO, valuing the firm at $300 million,”1997).

The company another milestone is introducing Amazon marketplace. Four segments were focused by the company to strengthen its business operation such as international segment, service segment, U.S. electronics tools and kitchen, and U.S. books, music, and DVD/Video. All these segments achieved good sales for the company. The company expanded its business categories such as it opened a grocery store in 2006 and in the next year it opened Amazon fresh. Medhora and Dastin, (2016) illustrate that Amazon plans to open 2000 grocery stores and moves to the brick and mortar format to strengthen its presence. In June 2017, the company acquired the whole foods market (Nadar, 2018) that reduced Kroger and Wal-Mart stock prices. 

The company achieved a milestone in selling digital content as the company had 83 percent of share in the e-book market of U.S in 2017 (Shatzkin, 2018). Kindle Fire is introduced by the company in 2011 and this product has become popular amongst the users. Another product Fire TV also does well in the market. One of the greatest strength of the company is Amazon Prime that assisted well to the growth of the company. Prime members numbers increased considerably after the launch of this program and this is a remarkable milestone achieved by the company. It assures a loyal customers base for the company. The company has created a golden handcuff strategy with this program to enhance the purchasing from the customers. Kenton, (2018) compares golden handcuff with a high salary and a stock option for employees in spite of employees face overwork. Apart from this strategy, prime membership provides other benefits to the customers along with free delivery of products such as free video streaming. The customers can borrow books and magazines and receive information about lightning deals (“About Amazon Prime,” 2019). 

Another milestone is Amazon web services that provide customers an opportunity to avoid upfront cost as the companies can use the servers and computing space of Amazon on the basis of pay as you go. The growth of Amazon web services is good that reached $17.5 billion in 2017.  The company has considerably strengthened its logistics system. The company included aircraft for better logistics in 2017 and used a drone delivery system for better functioning of the logistics department. 

The company finds that its employees are very important for success and therefore, it provides various benefits to them. The financial condition of the company is also strengthened very well in recent years that make Jeff the richest person in the world (Cameron, Kiersz, & Sharma, 2018).

Environmental analysis

The political environment for the Amazon Company in the U.S during the tenure of Trump is not found favorable as the company faces various challenges. The president Trump alleges that the Amazon Company did not pay required postal service rates and the shipping cost of Amazon therefore, is low that is an undue advantage gained by it (Stracqualursi, 2018). The political stability of different countries provides Amazon company opportunities to expand its business in these countries but certain issues on the political landscape may cause issues. Unionizing efforts against the Amazon Company due to widespread abuse of workers is taking place (Sainato, 2018). Another significant challenge is not meeting the local needs effectively that is evident in China where the company closes its business operation (Das Gupta, 2019). The governments of different countries are enhancing support for e-commerce through internet service proliferation. This assists the company to tap the new markets. There are increased demands from the governments to enhance Cybersecurity. 

Economic environment analysis

The case reveals that the Amazon Company has gained a phenomenal growth and it is due to the economic stability of markets where it operates. Developed markets such as markets of the U.S. and Europe offer economic stability. Another crucial factor for the growth of the company is increasing the disposable income of the people of developing countries. Economic analysis also reveals that recession in China causes the Amazon Company to suffer from financial loss and this is a threat to the company business. The net sales through from the international business are good 30.52 percent for the company. Changes in the exchange rate also impact the business and result in operating loss for the company in the international business segment (Dudovskiy, 2018). The company is worried regarding the cost of labor as it is operating with thin profits that can be jeopardized if the cost of labor increases. 

Social environment analysis

The social environment reveals that people now prefer to use new technologies and new services and information and this is evident in the developing countries. Gender equality is stressed by the people and therefore, household chores are considered a waste of time as people prefer to spend leisure time. Therefore, Amazon that provides an online platform to the customers addresses their needs. Amazon also provides low-cost products to the customers and this creates a positive image in the minds of the customers to purchase from the company. Certainly preferences towards e-commerce by the customers are evident with the rise of Amazon (CORABOEUF, 2018). 

Technological analysis

Digital devices trends are evident by the use of Kindle, music and video streaming and therefore, technology plays a crucial role in the success of Amazon Company. The customer now prefers to live in smart homes and this is evident by the introduction of Amazon Echo (Mintel, 2018). 

Legal environment

The legal environment for the Amazon Company is challenging. Donald Trump proposal of levying an internet tax is certainly showing legal repercussions for the Amazon Company if such a proposal becomes a law. Along with this, data privacy law is also a challenge as Newcomb, (2018) identified that California enacted the strongest data privacy law. The company Amazon also needs to tell the customers the use of their data. The companies now are required to secure the data of customers. These legalizations create further challenges for the Amazon Company. Another challenge is general data protection regulation introduced in Europe that requires those customers’ confidential details such as names, bank details, and email addresses must be protected (Selbst, & Powles, 2017). 

Environmental factors analysis

The company needs to raise interest in the environmental programs and promote sustainability in business because the customers are now vigilant to environmental concerns and governments also seek that the business entities should play their corporate social responsibility. 

Five forces analysis of Amazon

The five forces analysis reveals that competitive rivalry is intense in the market. This is evident by the presence of Wal-Mart, and other companies. The bargaining power of the buyer is also a strong force that determines the products and services of the Amazon Company. The reasons for strong bargaining power for customers are low switching cost, substitute availability and access to high-quality information. The bargaining power of suppliers is identified as moderate.  The reasons are a small population of suppliers, forward integration and moderate size of the suppers. The threat of substitute product is high for the Amazon and the reasons are the availability of substitutes, low switching costs and low cost of substitutes (Greenpan, 2019). But the threat of new entrants in the market place is weak due to high economies of scale enjoyed by Amazon and high brand development cost.

Competitors’ analysis

The analysis of competition reveals high competition for Amazon Company. the is due to several weaknesses in the business model of Amazon such as imitable business model, losing margins, flop products such as Fire Phone, and limited brick and mortar presence against Wal-Mart company. These reasons allow competitors to increase their market share. But Amazon Company is dealing with the competition effectively because it has a strong brand name, a cost leadership, customer-oriented approach, and innovation factor. These strengths of the company make it competent to ward off the threats of competitors effectively. Its main competitors are Wal-Mart, CVS Health Corp, Kroger, and e-bay, Express Scripts Holding Co, Apple, and Samsung Corp in portable players in the United States. 

Internal company analysis

The value chain of the company reveals a strong performance to satisfy the customers' needs. The company offers prime membership with free delivery that is efficiently implemented and its value proposition that is based on selling better and selling more (“Amazon Value Proposition, 2019) reveals its approach. A better customer relationship is established with speedy grievances settlement (Smith, 2017). The revenue streams for the company are diversified as it earns through selling products online, healthcare industry, music industry, real estate, earning by the app, etc. (Bisnow, 2017). 

Financial analysis

The analysis of company reveals robust performance to achieve great revenues. This is evident in the sales increase in 2017 and 2018. North America sales increased by 33 percent in this period. International sales increased by 23 percent in 2017 and 2018. AWS sales increased by 47 percent in 2018 (Amazon, com, INC. 2019). 

SWOT and recommendations

The strengths of the company are low-cost structure, cost leadership strategy, a wide selection of products, synergies between prime, marketplace, and AWS, ability to differentiate and innovate, customer orientation, strong brand name, large presence of third-party sellers, large numbers of acquisitions, highest revenue and strong distribution and logistics system. But the weaknesses are imitable business model, low margins or losing margins, product failures, tax avoidance controversy, limited presence in brick and mortar. The opportunities for the company are expanding physical store presence, improving technological measures, more acquisitions, backward integration, etc. the threats for the company are increasing cybercrimes and government regulations, as well as imitation and intense competition. 

The recommendations after the analysis are proposed. The company needs to consolidate dominance in the market and must deal with the global controversies to improve its brand image (Business strategy Hub, 2019). It must devise ways to address counterfeit products and should enhance the Cybersecurity and protect the information of customers. The Company should also increase its entry in the developing countries. Along with these recommendations, for diversified presence, it should open more physical stores outside the U.S. 

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