last two decades, the presence
and growth of internet has provide more and more opportunities for business to
It accelerates lots of business growth and change our way of interaction with one another.
According to Huang et
al. (2009), the impact that the Internet and e-commerce have on our
lives will only continue to grow. The e-commerce phenomenon will let enterprises and
organizations with close relations use the Internet as a platform to engage in competition and communication through
virtual alliance, thereby sharing resources and making full use of their
advantages beyond geographical limits. Companies
such as eBay, Amazon, Alibaba Group, JD.com, and Rakuten have emerged as
dominant players in this space and
E-commerce is commonly associated with high levels of
growth and expansion into new markets. Each player within the industry is able
to remain relevant and exploit its competitive advantage. One way to attain this advantage is for
companies to grow as quickly as possible and establish a presence, which leads
to user loyalty (Hunter, 2013).
One of the big
companies which first set foot in the early stage and use the technology of
internet is Amazon, a company founded by Jeff Bezos in Seattle 1994. .
Amazon Strategy in 2007 until 2010
Starting in 2007, Amazon did lots of diversification inside its key
activities and also did merger and acquisition to expand its business portfolio.
Amazon launched Amazon Fresh, a grocery service offering perishable and
nonperishable foods. Amazon also launched Amazon Music, an online music store
and music locker, and in September 2007, Amazon launched kindle, an e-book
reader. As Amazon popularized ebooks over the last
decade, it affects several changes in our reading habits. Over the following years, Amazon has upgraded the kindle with features which are making them more comfortable and easier to read, it’s added a social network; and also a feature which seamlessly turns text into voice (Newton, 2014).
Amazon Kindle has boosted Amazon into new heights within the ecommerce
business. Despite the innovative Kindle receiving the Reader’s Choice award for
the best e-book reader 3 years in a row (Gottesman, 2013). Not only diversifying its products and services, in
2009 Amazon also acquired Zappos, an online shoe and clothing shop based in Las Vegas, Nevada for 850 million dollars (Lacy, 2009).
Amazon Strategic Capability
Strategic capability can is a set of resources, capacities and skills that build a long-term competitive advantage in a company. Strategic
capability of a company can
help the organisation to analyse its current position and what are the suitable next moves they can take. To analyze Amazon’s strategic
capability, one of many suitable ways is doing resource-based
view. It is a model that sees resources as key to superior firm
performance. the resource will enable Amazon to gain and have a sustainable competitive advantage.
Tangible resources in Amazon are; vast amazon
distribution facilities, huge cash flows, technological assets such as Amazon
Intangible Resources in Amazon are such as, skilled
workers, company culture: continuous adaptation towards new technology and
innovation (early adopter), brand reputation, and also partnerships.
Amazon utilizes these capabilities to perform better
and deliver more value to the customer, and all of these lead to sustainable
Amazon Diversification Strategy
Figure 1: Amazon’s Business Model
Evolution; Source : Isckia and Lescop (2009)
expansion and vast diversification moves can be seen clearly at the figure
above which was made by Isckia and Lescop (2009). Amazon was initially a book-selling website and with
the success of it, they extend
their reach into certain new product
now Amazon is selling wide varieties of products such as smartphones, clothing, electric goods, medicines, electronic tools, and many more. It evolves from just a Cyber
book store which sells books online, listing new vast variants of products as a
Cyber marketplace and finally they also reach a new segment, as Application
service provider. Amazon’s
mergers and acquisitions and expanding their portfolio to sell many other
product are proofs of their vital moves in doing big diversification.
Figure 2: Amazon Strategy originally
sourced from originally drawn model by Jeffery Preston Bezos in 2005 and
re-illustrated by author
The figure above, originally created by
Jeff Bezos in 2005 is the blueprint strategy of Amazon. The Amazon team focuses
on enhancing customer experience, by offering lower price and various product
selections. The website is getting more and more popular because more customers
are joining amazon, this high traffic attracts more sellers from third party tp
join amazon which help to offer more diverse products.
Lower cost structure. Amazon
selling activity is mainly online based, Amazon doesn’t need
to spend huge
costs to run physical retail stores. These cost savings result in lower prices
that are passed on to consumers and also amazon can offer free shipping
with guarantee of on time delivery which enhance customer experience.
Selection and Third Party Sellers. Amazon accommodates third party sellers who are able to offer their own merchandise
on Amazon’s sites and whose products therefore broaden Amazon’s product variants. As it is written above, third party sellers are
mainly attracted to join or work with Amazon because of the high
volume of traffic on Amazon websites. According to a letter dedicated to the shareowner
from Bezos (2016), close to 50% of units sold on Amazon are sold by
third-party sellers. Amazon marketplace is great for customers because
it adds unique selection of products. This action benefits the
seller too, there
are over 70,000 entrepreneurs with sales of more than $100,000 a year selling
on Amazon, and they’ve created over 600,000 new jobs.
other hand company can get a commission from the non online retailers. These
factors lead the company to get more income and expand its business operations.
Porter’s Generic Strategy Framework
In this part we are
analyzing Amazon’s strategy using Porter’s generic strategy framework, we can
see that Amazon used to be using narrow or focus differentiation strategy by
only selling books online, compared to its competitor who were doing offline business.
Amazon’s strategy shifted into a hybrid strategy, combination between broad
differentiation and also cost leadership. They did lots of mergers and
acquisition and expand their portfolio to sell many other products, especially
their e-reader gadget, amazon kindle, and at the same time they still maintain
low cost structure by doing focused online selling and sourcing the goods or
products from third party sellers which resulted in lower selling price of
products. As results, Amazon provides an ease of use, convenient services for the customer, where
it leads them to gain even more popularity and possibility to grow.
2 Porter Generic Strategy; Source: Author’s own Illustration (using Porter’s
Generic Strategy Canvas created in 1985).
Amazon develops new products to serve existing markets, and also developing new products to serve new markets which Amazon has
built their network into. So they
are using combined broad differentiation strategy to their industry with low cost leadership. Amazon penetrated into market areas that are completely new and
with which the business shares no similarities.
Amazon’s focus on innovative technology and do lots of differentiation with its
products. Although Amazon is
not the cost leadership type, Amazon is doing a great decision by not producing
the goods by themselves and acting as the reseller from various smaller shops
they are able to keep the cost as low as possible. This move plays
a vital role in keeping itself a step ahead of its competitors.
The combination of minimizing the cost and doing continuous innovation
has increased the efficiency throughout its supply chain. Amazon is able to achieve competitive
advantage through this strategy which is able to flourish in current business environment where customers are always
looking for the most affordable price in which
Amazon is able to fulfill. One other example when Amazon
is also able to offer differentiation through innovative product while minimizing the
cost down is Kindle
which has helped Amazon to stem its authority among its competitors even
further. Other than providing low costs, and selling innovative products and services,
Amazon has also
been able to understand
its customers demand well
through the customer review system In their website. The reputation
system is related to each
product and seller, which the customer can give reputation and review after
each purchase is completed. Amazon web is not just a website, they integrate
the technology from their Amazon Web Service (AWS) to give the best experience
to the user.
Amazon Web Services
AWS or Amazon
Web Services is Amazon.com
subsidiary of which is
providing cloud computing platforms to every individual,
companiy and also the government, it has a free trial option
available for the first 12 months.
According to a letter dedicated to
the shareowner from Bezos (2016),
Just over 10 years ago, Amazon Web Services started in the U.S. with its first major
service, a simple storage server service. But right now, Amazon Web Service offers more than 70 services for computer, storage, databases, analytics, mobile,
Internet of Things (IOT),
and enterprise applications. AWS also offer 33 Availability Zones across 12 geographic regions
another five regions and
11 Availability Zones in Canada, China, India, the U.S., and the U.K. to be
available in the coming year. AWS started with developers and startups, and now
is used by more than a million customers from organizations of every size
across nearly every industry – companies like Pinterest, Airbnb, GE, Enel,
Capital One, Intuit, Johnson & Johnson, Philips, Hess, Adobe, McDonald’s,
and Time Inc.
Alibaba, One of Amazon’s Big Competitors
Amazon’s one of many
big competitors is Alibaba, a giant multinational e-commerce, retail, Internet, AI and technology fom China. In the past years they have been doing
competition and coopetition, for example on March 5, 2015, Amazon made
a decision to cooperate with Alibaba. It launched a store on Alibaba’s Tmall platform selling
premium imported products from the United States. This is the most recent
strategic move by Amazon aimed at entering to the Chinese market. Amazon has made
several other attempts at cracking the difficult Chinese market segment that
have for the most part failed. Chang
and Allen (2017) states that this recognition of Alibaba as
potentially the only means to gain access to Chinese customers is an honest
recognition of its grand influence in China, it also solidifies Alibaba’s monopolistic
stranglehold on the Chinese market. In making this decision to join Tmall,
Amazon must adhere to all the fee and profit-sharing structures associated with
being a Tmall merchant. That is to say, no matter how well Amazon does on
Tmall, a portion of all that profit will go to Alibaba. Therefore, Alibaba is
now in an even greater position of power.
With its competitor
ready to take its place at any time, Amazon should continue to be innovative
and be an early adopter in with the new technology such as the blockchain. The
fast growing blockchain technology is still underestimated by lots of people,
however it has such a huge potential in the future.
Alibaba for example,
as one of Amazon’s biggest competitors has invested heavily
into the blockchain. It is also jumped to healthcare
service provider, introducing new healthcare technologies in China. Alibaba will make
sure the system is able to provide doctors with patient medical records and create
a more efficient healthcare procurement process with fast growing
blockchain technology (Webb, 2017).
In order to continue
to grow significantly, Amazon should work on adopting new technology, more
doing partnership, merger and acquisition with large retail stores in all
around the globe to integrate Amazon’s software for their websites.
Amazon needs to
continue to improve its Kindle as it is still the leading e-reader out there in
The technological revolution has spurred new kinds
of industries that use the Internet and various connected platforms to create
value and wealth in places that would otherwise have been unrealized. Amazon is the first mover in the e commerce industry.
They started with a small begining from selling books and today they are the strong player in online shopping industry. The company had diversified into many areas, doing mergers and acquisition with other good
company which potentially enhance their business performance, amazon
facilitates the third party sellers so they will happily join amazon and help
amazon sell more variant of products, they also give commission to Amazon which
increase Amazon’s income.
Right now, lots of companies are entering to the same
industry and there are new
emerging technology such as the blockchain. Therefore Amazon could possible adopt its platform and become an early
adopter just like before like what it did with internet.
Overall, we all believe that Amazon is doing a great job at utilizing
their core competencies with their strategies. With the corporate culture which
invented by Jeff Bezos and other talented workers, if they continue to do the
broad diversification strategy while keeping the cost low, it will create a big
challenge to its competitor. By doing all of these, Amazon will surely have a
sustainable competitive advantage and continue to success.