industry has grown tremendously for the last last two decades. Growth of internet has provides more and more
opportunities for business to grow and adopt the internet technology with their
Advancement in technology
accelerates lots of business
growth and changes our lifestyle, way of payments and how business owner
interacts with customer or potential customer.
According to a
research conducted by 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
stated that liberalization and the Internet are rapidly changing this domestic orientation and
rendering historical, monopoly-based business
models of many companies. The
dramatic increase in the availability of information and ways to utilize it will both increase the
number and diversity of new
type of businesses.
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).
Service companies that are willing and able
to rethink their business model,
at a minimum taking into account how
information technology alters the
business environment, will get to the future
first. They will be measured by
the amount of new wealth created and how they
use innovation to restructure
Lots of big companies
have set foot in the early stage and use the technology of internet. One of
them is Amazon, a company founded by Jeff Bezos in Seattle 1994. .
diversified its activities in many segment, therefore it has many competitor
from each industry segment. These are the main competitors of amazon in various
business segments according to Investopedia (2018).
Some of the
competitors of Amazon In the media segment are: eBay (EBAY); media game-changer
Netflix (NFLX). Amazon has several competitors in the electronics and general
merchandise segment which includes Best Buy (BBY) Family Dollar, and
Amazon’s main online
competition in the general merchandise segment includes Alibaba Group,
LightInTheBox, and Holding Co.
Amazon is competing in an oligopoly environment, where
there are a number of senior business competitors in that various industry
segments which Amazon is in.
Forces on Amazon
Figure 1: Porter’s
Five Forces Analysis on Amazon; Source: Author’s own Illustration
In this tremendously
growing online marketplace, the global e-commerce battle lines are drawn
between Amazon and its competitors.
Here is how Amazon
deals with these challenges;
Bargaining Power of Supplier, Amazon has big challenge to control its supplier
which is mostly the third party sellers which reside in Amazon website. Their
number is big, and increasing tremendously due to the high transaction traffic
in their website. Amazon is challenged to maintain relationship with them, as there
are more competitors out there who can offer something more to the third party
Bargaining Power of Buyer, Amazon is a customer centric company and it has a
competitive advantage in this point. It offers amazon prime services and other
special offers to hook its customer, giving them added value so they become a
Threat of New Entrants
Threat of Substitute has a great challenge for Amazon. As almost all common
products which are sold by Amazon website are sourced from third party sellers,
the customer can obtain these products almost anywhere, but not Amazon Kindle
or their Amazon Web Service platform.
Rivalry between Competitors, for now Amazon has its own strengths which its
competitors don’t. Amazon has long history and strong background which result
in strong brand power. They have a large trading activity in their website
which attracts more customer and partners as the time goes by. However with
great power comes great responsibility, Amazon need to maintain the quality and
good relationships with them so it can make sure their supply chain is
considered Amazon as the world’s biggest online retailer, with a comprehensive combination
of business activity such as B2C (Business
to customer) direct sales, logistic support distribution, media content
streaming (Amazon Prime Video), Amazon Kindle, cloud computing via Amazon Web
Services (AWS), and Amazon website for third party retailers to sell their
products to buyers via Amazon.
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).
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 to
join Amazon which help to offer more diverse products.
What Amazon’s Strategy Have Achieved:
– Low cost structure. By
focusing their selling activity on the online basis, 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.
– Inviting 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. With advanced supply chain technology and
good collaboration with the third party sellers, Amazon is able to keep the
transporting cost as low as possible. Amazon also get a commission from the third party sellers. These factors lead the company to get more income and expand
its business operations.
– Continuous Diversification of Products.
Lots of third party sellers who are
joining Amazon means that there are more variants of products and services can
be provided by Amazon. 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.
Those are the major advantages which
Amazon has gained, but on the other hand there are also gaps which Amazon need
to fill in which are,
with Amazon’s Strategy
– Challenge with Quality Control
Amazon has lots of third party sellers
in their website it is hard for them to sort or select which of them has high
quality products. It is impossible for them to review their seller’s product
quality by themselves. What Amazon is doing right now is giving the customer
review rights to give the seller reputation and comment according to their
product and service quality.
– The War Within
Amazon marketplace which is filled with
third party sellers has its own warzone. Sellers are competing with each other,
sometimes in a bad way. For example, Seller A pretends to be a buyer in Seller
B’s shop, then after purchasing the product Seller A will give bad reputation
to Seller B in order to destroy their reputation. Up until now, many online
marketplaces are having this problem, including Amazon. Dirty competition can’t
be observed and justified easily by Amazon team member, or at least it will
take a long time to process.
– Too Diversified, Lack of Focus
Many experts have argued that Amazon is
too diversified, so the customers that Amazon is most likely “a jack of all
trades” company. It seems that Amazon is lacking focus strategy. This can be seen
with Amazon Destination failure where Amazon used to try entering travel
industry and tried to make a platform but in the end Amazon shut it down
is launching full retail stores
For the past few
years Amazon has invested a lot in developing Amazon bookstores, pop up store
and also Amazon Go.
Amazon Pop Up Store
Amazon is expanding its presence in the real-world retail market.by opening new pop-up stores in shopping malls in
United States. Amazon Pop Up Store is different from the bookstore that Amazon opened in Seattle, this new pop up stores by Amazon are primarily created to sell the company’s hardware devices,
particularly its Amazon Echo home speakers.
stores, which are lead by Amazon’s head of devices and services,
reflect the company’s growing drive to reach consumers directly through a
variety of creative ways including thisretail storefronts, home
delivery, and innovative devices (Kim,
According to Amazon website (2018), each amazon pop up store is assisted
by Amazon consultants who are able to help the customers find the right devices
and introduces them to
Alexa, and learn more about Amazon devices and services such as Amazon
Prime, Kindle Unlimited, Audible, Amazon Prime Video, and more.
The pop up stores are typically 300- to 500-square-foot
locations in the middle of shopping malls, carry an assortment of Amazon
hardware including the Amazon Kindle ebook
Fire TV, and the Echo speakers as well as accessories and its main big purpose is to drive more
traffic to Amazon’s online store.
According to Amazon website (2018), Amazon Go is a new physical retail store
which is still in development stage by Amazon, it is not yet open to public as
this paper is written in the early 2018. Amazon Go is a physical retail store
which is upgraded with high technology so no checkout required for the customer and they don’t need to wait in line. To experience the new shopping
experience offered by Amazon Go,
customer simply need to use the Amazon Go apps which is installed inside their
smartphone to enter the store and take the products they want.
The size of Amazon Go retail store is
square meters of space. It is conveniently compact so busy customers can
get in and out easily (Amazon website, 2018). The Amazon Go retail store offers ready-to-eat meal, local kitchens and bakeries. Their selection of grocery products ranges from staples like bread and milk to
artisan cheeses and locally made chocolates.
Amazon’s Intention of Launching Full Retail Stores
Amazon is launching not only a full
retail store, they are launching a high tech retail store which
can be a groundbreaker in the e-commerce and also retail industry. When Amazon
is launching physical stores it doesn’t mean they will split their focus into
two world of business which composed of their e-commerce and the physical
The strategy that Amazon is pursuing is to promote their e-commerce
business in a greater way. Like it is described above, the main reason in
opening the amazon pop up store is to promote the amazon gadgets and amazon
platform in the virtual world. This can be seen as Amazon deployed their head of
devices and services department to lead
the physical retail store business. This is again a head start by Amazon, as we
know that most conventional retail stores opened a store and deployed a regular
sales division which doesn’t really understand how the product works and how to
deal with it if something goes wrong.
Porter’s Five Forces Analysis of the business. It is recommended that the Amazon must address the strong force of competitive
rivalry by emphasizing competitive advantage and strengths of the e-commerce
continue expanding and enhance its
brand image, which is among the strongest in the industry.Amazon. can take
care of the external factors such
as the bargaining power of buyers by focusing on service quality and satisfying their demand.
These recommendations aim at increasing Amazon’s
competitiveness and potential for long-term success in the online retail industry