IntroductionFor thelast two decades, the presenceand growth of internet has provide more and more opportunities for business togrow.It accelerates lots of business growth and change our way of interaction with one another.
According to Huang etal. (2009), the impact that the Internet and e-commerce have on ourlives will only continue to grow. The e-commerce phenomenon will let enterprises andorganizations with close relations use the Internet as a platform to engage in competition and communication throughvirtual alliance, thereby sharing resources and making full use of theiradvantages beyond geographical limits. Companiessuch as eBay, Amazon, Alibaba Group, JD.
com, and Rakuten have emerged asdominant players in this space andgrow tremendously.E-commerce is commonly associated with high levels ofgrowth and expansion into new markets. Each player within the industry is ableto remain relevant and exploit its competitive advantage. One way to attain this advantage is forcompanies to grow as quickly as possible and establish a presence, which leadsto user loyalty (Hunter, 2013). One of the bigcompanies which first set foot in the early stage and use the technology ofinternet is Amazon, a company founded by Jeff Bezos in Seattle 1994. .Amazon Strategy in 2007 until 2010Starting in 2007, Amazon did lots of diversification inside its keyactivities and also did merger and acquisition to expand its business portfolio.
Amazon launched Amazon Fresh, a grocery service offering perishable andnonperishable foods. Amazon also launched Amazon Music, an online music storeand music locker, and in September 2007, Amazon launched kindle, an e-bookreader. As Amazon popularized ebooks over the lastdecade, 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 ecommercebusiness. Despite the innovative Kindle receiving the Reader’s Choice award forthe best e-book reader 3 years in a row (Gottesman, 2013).
Not only diversifying its products and services, in2009 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. Strategiccapability of a company canhelp the organisation to analyse its current position and what are the suitable next moves they can take.
To analyze Amazon’s strategiccapability, one of many suitable ways is doing resource-basedview. It is a model that sees resources as key to superior firmperformance. the resource will enable Amazon to gain and have a sustainable competitive advantage.Tangible resources in Amazon are; vast amazondistribution facilities, huge cash flows, technological assets such as Amazonweb service Intangible Resources in Amazon are such as, skilledworkers, company culture: continuous adaptation towards new technology andinnovation (early adopter), brand reputation, and also partnerships.Amazon utilizes these capabilities to perform betterand deliver more value to the customer, and all of these lead to sustainablecompetitive advantages. Amazon Diversification Strategy Figure 1: Amazon’s Business ModelEvolution; Source : Isckia and Lescop (2009)Theirexpansion and vast diversification moves can be seen clearly at the figureabove which was made by Isckia and Lescop (2009).
Amazon was initially a book-selling website and withthe success of it, they extendtheir reach into certain new productareas. Rightnow Amazon is selling wide varieties of products such as smartphones, clothing, electric goods, medicines, electronic tools, and many more. It evolves from just a Cyberbook store which sells books online, listing new vast variants of products as aCyber marketplace and finally they also reach a new segment, as Applicationservice provider. Amazon’smergers and acquisitions and expanding their portfolio to sell many otherproduct are proofs of their vital moves in doing big diversification. Figure 2: Amazon Strategy originallysourced from originally drawn model by Jeffery Preston Bezos in 2005 andre-illustrated by author The figure above, originally created byJeff Bezos in 2005 is the blueprint strategy of Amazon. The Amazon team focuseson enhancing customer experience, by offering lower price and various productselections.
The website is getting more and more popular because more customersare joining amazon, this high traffic attracts more sellers from third party tpjoin amazon which help to offer more diverse products.Lower cost structure. Amazonselling activity is mainly online based, Amazon doesn’t needto spend hugecosts to run physical retail stores. These cost savings result in lower pricesthat are passed on to consumers and also amazon can offer free shippingwith 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 merchandiseon Amazon’s sites and whose products therefore broaden Amazon’s product variants. As it is written above, third party sellers aremainly attracted to join or work with Amazon because of the highvolume of traffic on Amazon websites.
According to a letter dedicated to the shareownerfrom Bezos (2016), close to 50% of units sold on Amazon are sold bythird-party sellers. Amazon marketplace is great for customers becauseit adds unique selection of products. This action benefits theseller too, thereare over 70,000 entrepreneurs with sales of more than $100,000 a year sellingon Amazon, and they’ve created over 600,000 new jobs.On theother hand company can get a commission from the non online retailers. Thesefactors lead the company to get more income and expand its business operations. Porter’s Generic Strategy Framework In this part we areanalyzing Amazon’s strategy using Porter’s generic strategy framework, we cansee that Amazon used to be using narrow or focus differentiation strategy byonly selling books online, compared to its competitor who were doing offline business.Amazon’s strategy shifted into a hybrid strategy, combination between broaddifferentiation and also cost leadership.
They did lots of mergers andacquisition and expand their portfolio to sell many other products, especiallytheir e-reader gadget, amazon kindle, and at the same time they still maintainlow cost structure by doing focused online selling and sourcing the goods orproducts from third party sellers which resulted in lower selling price ofproducts. As results, Amazon provides an ease of use, convenient services for the customer, whereit leads them to gain even more popularity and possibility to grow.Figure.
2 Porter Generic Strategy; Source: Author’s own Illustration (using Porter’sGeneric Strategy Canvas created in 1985).Amazon develops new products to serve existing markets, and also developing new products to serve new markets which Amazon hasbuilt their network into. So theyare using combined broad differentiation strategy to their industry with low cost leadership. Amazon penetrated into market areas that are completely new andwith which the business shares no similarities. Amazon’s focus on innovative technology and do lots of differentiation with itsproducts. Although Amazon isnot the cost leadership type, Amazon is doing a great decision by not producingthe goods by themselves and acting as the reseller from various smaller shopsthey are able to keep the cost as low as possible. This move playsa vital role in keeping itself a step ahead of its competitors.
The combination of minimizing the cost and doing continuous innovationhas increased the efficiency throughout its supply chain. Amazon is able to achieve competitiveadvantage through this strategy which is able to flourish in current business environment where customers are alwayslooking for the most affordable price in whichAmazon is able to fulfill. One other example when Amazonis also able to offer differentiation through innovative product while minimizing thecost down is Kindlewhich has helped Amazon to stem its authority among its competitors evenfurther. Other than providing low costs, and selling innovative products and services,Amazon has alsobeen able to understandits customers demand wellthrough the customer review system In their website. The reputationsystem is related to eachproduct and seller, which the customer can give reputation and review aftereach purchase is completed. Amazon web is not just a website, they integratethe technology from their Amazon Web Service (AWS) to give the best experienceto the user.Amazon Web ServicesAWS or AmazonWeb Services is Amazon.
comsubsidiary of which isproviding cloud computing platforms to every individual,companiy and also the government, it has a free trial optionavailable for the first 12 months.According to a letter dedicated tothe shareowner from Bezos (2016),Just over 10 years ago, Amazon Web Services started in the U.S. with its first majorservice, 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 regionsworldwide, withanother five regions and11 Availability Zones in Canada, China, India, the U.S.
, and the U.K. to beavailable in the coming year. AWS started with developers and startups, and nowis used by more than a million customers from organizations of every sizeacross 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 CompetitorsAmazon’s one of manybig competitors is Alibaba, a giant multinational e-commerce, retail, Internet, AI and technology fom China.
In the past years they have been doingcompetition and coopetition, for example on March 5, 2015, Amazon madea decision to cooperate with Alibaba. It launched a store on Alibaba’s Tmall platform sellingpremium imported products from the United States. This is the most recentstrategic move by Amazon aimed at entering to the Chinese market. Amazon has madeseveral other attempts at cracking the difficult Chinese market segment thathave for the most part failed. Changand Allen (2017) states that this recognition of Alibaba aspotentially the only means to gain access to Chinese customers is an honestrecognition of its grand influence in China, it also solidifies Alibaba’s monopolisticstranglehold on the Chinese market. In making this decision to join Tmall,Amazon must adhere to all the fee and profit-sharing structures associated withbeing a Tmall merchant. That is to say, no matter how well Amazon does onTmall, a portion of all that profit will go to Alibaba.
Therefore, Alibaba isnow in an even greater position of power. Future StrategyWith its competitorready to take its place at any time, Amazon should continue to be innovativeand be an early adopter in with the new technology such as the blockchain. Thefast 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 heavilyinto the blockchain. It is also jumped to healthcareservice provider, introducing new healthcare technologies in China. Alibaba will makesure the system is able to provide doctors with patient medical records and createa more efficient healthcare procurement process with fast growingblockchain technology (Webb, 2017). In order to continueto grow significantly, Amazon should work on adopting new technology, moredoing partnership, merger and acquisition with large retail stores in allaround the globe to integrate Amazon’s software for their websites. Amazon needs tocontinue to improve its Kindle as it is still the leading e-reader out there inthe market.
ConclusionThe technological revolution has spurred new kindsof industries that use the Internet and various connected platforms to createvalue 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 goodcompany which potentially enhance their business performance, amazonfacilitates the third party sellers so they will happily join amazon and helpamazon sell more variant of products, they also give commission to Amazon whichincrease Amazon’s income. Right now, lots of companies are entering to the sameindustry and there are newemerging technology such as the blockchain. Therefore Amazon could possible adopt its platform and become an earlyadopter just like before like what it did with internet.
Overall, we all believe that Amazon is doing a great job at utilizingtheir core competencies with their strategies. With the corporate culture whichinvented by Jeff Bezos and other talented workers, if they continue to do thebroad diversification strategy while keeping the cost low, it will create a bigchallenge to its competitor. By doing all of these, Amazon will surely have asustainable competitive advantage and continue to success.
