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Amazon's LS1 SWC1 and orLer's flve forces analysls

1hls paper wlll dlscuss Lhe onllne books reLaller amazoncom ln four dlfferenL aspecLs lnlLlally we
wlll commenL Lhe mlsslon sLaLemenL and Lhe sLaLed goals followed by an exLended reporL of Lhe
maln exLernal and lnLernal facLors affecLlng Lhe sLraLegy developmenL ln Lhe organlzaLlon aL Lhe
presenL Llme

1hlrdly Lhls documenL wlll commenL on Lhe performance of amazoncom durlng Lhe pasL Lwo years
as well as Lhe maln facLors now affecLlng Lhe success or oLherwlse of amazoncom ln Lhe nexL Lwo
LxLCu1lvL SuMMA8?

Amazoncom ls greaLly concerned wlLh cusLomer deslres LhaL are why one of lLs ob[ecLlves ls Lhe
personallzaLlon of cllenLs' wlshes Lherefore offerlng producLs LhaL may meeL Lhelr llkeness
Amazoncom ls almed Lo provlde Lhe besL buylng experlence on Lhe lnLerneL

Analysls SWC1 whlch sLands for SLrengLhs Weaknesses CpporLunlLles and 1hreaLs ls a way Lo
analyse and evaluaLe Lhe currenL slLuaLlon of amazoncom

LS1 Analysls ls a slmple buL noneLheless lmporLanL and wldelyused Lool LhaL helps you undersLand
Lhe blg plcLure of Lhe pollLlcal economlc socloCulLural and Lechnologlcal focus on ecommerce for

lL ls clear LhaL Lhe performance of amazoncom durlng Lhe pasL Lwo years has been greaLly
successful as we can observe amazoncom belongs Lo Lhe presLlglous lorbes 300"
WhaL ls amazoncom?

!effrey 8ezos sLarLed Amazoncom ln 1994 afLer recognlzlng LhaL lnLerneL usage was growlng aL a
raLe of 2300 percenL a year CperaLlng from a 400square fooL offlce ln SeaLLle !effrey launched
Amazoncom on Lhe lnLerneL ln !uly 1993 Amazoncom vlslon ls Lo use Lhe lnLerneL Lo Lransform
book buylng lnLo Lhe fasLesL easlesL and mosL en[oyable shopplng experlence posslble

8y Lhe end of 1996 hls flrm was one of Lhe mosL successful Web reLallers wlLh revenues reachlng
$136 mllllon AlmosL overnlghL Amazoncom qulckly became Lhe world's largesL ereLall booksLore
ln Lhe world Amazon has conLlnued Lo expand lLs cusLomer base and sales revenues have lncreased
every year 1he flrm's revenues lncreased from $137 mllllon ln 1996 Lo $276 bllllon ln 2000 1oday
Amazoncom ls Lhe place Lo flnd and dlscover anyLhlng you wanL Lo buy onllne Amazon offers Lhe
LarLh's 8lggesL SelecLlon of producLs Lo 29 mllllon people ln more Lhan 160 counLrles across Lhe
world maklng Lhem Lhe leadlng onllne shopplng slLe accessed vla Lhe World Wlde Web (for more
deLalls see appendlx A) (amazoncom)
Mlsslon SLaLemenL and sLaLed goals of amazoncom

Amazoncom does noL appear Lo have a predeLermlned mlsslon sLaLemenL neverLheless Lhe baslc
mlsslon and goals of Lhe Company are evldenL ln Lhe words of Mr 8ezos We have one sLraLegy aL
Amazoncom provlde Lhe cusLomer wlLh Lhe besL shopplng experlence"(LheLlmescom)
addlLlonally our goal ls noLhlng shorL of bulldlng Lhe world's mosL cusLomercenLrlc Company"
LasLly our Company mlsslon ls Lo lnfluence Lechnology and poLenLlal Lo provlde Lhe besL buylng
experlence on Lhe lnLerneL" (LheLlmescom)

Cn Lhe one hand requesLlng Lhls lnqulry dlrecLly Lo Amazoncom 8eese kolsky from Amazoncom
replled wlLh Lhe followlng message (see appendlx 8)

1hank you for wrlLlng Lo us 1he followlng can be found aL Lhe end
of all our press releases as well as on our lnvesLor 8elaLlons web
slLe aL hLLp//wwwamazoncom/lr alLhough lL ls noL speclflcally
deflned as our mlsslon sLaLemenL

Amazoncom cusLomer servlces"

Cn Lhe oLher hand Lhese quoLes from Mr 8ezos could be comblned Lo creaLe an effecLlve mlsslon
sLaLemenL as follows 1he mlsslon of Amazoncom ls Lo lnfluence Lechnology and Lhe knowledge of
our lnvaluable employees Lo provlde Lhe besL buylng experlence on Lhe lnLerneL Cur goal ls noLhlng
shorL of bulldlng Lhe world's mosL cusLomercenLrlc Company capable of provldlng our cusLomers
wlLh Lhe besL shopplng experlence onllne Loday and lnLo Lhe fuLure" (abouLcom)

ln addlLlon amazoncom ls greaLly concerned wlLh cusLomer deslres and one of sLaLed ob[ecLlve of
amazoncom ls Lhe personallzaLlon of cllenLs' wlshes ln order Lo offer producLs LhaL may meeL Lhelr
llkeness Amazoncom ls almed Lo provlde Lhe besL buylng experlence on Lhe lnLerneL (for more
deLalls see appendlx C) Moreover !eff 8ezos has sLaLed as maln goal Lo make amazoncom Lhe besL
onllne sLore (noL Lhe number one Lhe besL) Amazoncom belleves LhaL Lhe fuLure of ecommerce ls
ln Lhe personallzaLlon of producLs as well as Lhe dlverslflcaLlon ln Lhelr producL ln llne Lo become Lhe
cenLrlc and easlesL soluLlon from any deslre or requesL of any lndlvldual

SWC1 whlch sLands for SLrengLhs Weaknesses CpporLunlLles and 1hreaLs ls a way Lo analyze and
evaluaLe Lhe currenL slLuaLlon 1he prlnclpal reason of Lhls analysls ls Lo help ldenLlfylng Lhe mosL
beneflclal LargeLs and sLraLegles Lo pursue rlghL now based on Lhe currenL slLuaLlon as well as
ldenLlfylng sLraLegles LhaL wlll help preparlng Lhe fuLure Cver Lhe nexL secLlon Lhls paper wlll
conslder Lhe maln polnLs ln Lhls case for amazoncom

8rand recognlLlon amazoncom ls synonym of sales onllne and Lhelr servlces are focused on
cusLomers' saLlsfacLlon for example one can observe Lhls parLlcular sLrengLh ln Lhe mosL recenL
release of amazoncom Lhe klndle" dlglLal book reader where one can sLore up Lo 200 books ln lLs
Lwo flrsL days Lhe klndle has ran ouL of sLock desplLe Lhe facL LhaL lL ls noL Lhe flrsL dlglLal book
reader lnLo Lhe markeL

1he buslness model Lhe model has Lhe advanLage of lncreaslng revenues wlLhouL lncurrlng hlghly
dlrecL cosLs

ulverslflcaLlon Lhe varleLy of producLs LhaL amazoncom offers ln dlfferenL geographlcal markeLs
suggesLs a large sLablllLy lnLo Lhe ecommerce fleld

8uslness evoluLlon durlng Lhe pasL year's amazoncom has conLlnually relnvenLed Lhelr servlces
lncreaslng Lhelr value

SLraLegles based on low prlces Lhe besL aLLracLlon of amazoncom ls low prlces and alLhough lL has
worked cusLomers could be aLLracLed by oLhers sLores LhaL could provlde beLLer deals

ulsLrlbuLlon lncrease Lhe varleLy of producLs and geographlcal poslLlon may presenL numerous
dlfflculLles ln Lhe dlsLrlbuLlon

CrowLh Lhe growlng of amazoncom ls noL Lhe besL excepL by exLraordlnary evenLs such as Parry
oLLer releases or Lhe mosL recenL audlo book reader

uellverlng all along amazoncom has offered free dellverlng ln order Lo galn cusLomers noneLheless
Lhls sLraLegy ls expenslve and noL necessary sLable Amazoncom makes people walL days Lo recelve
books LhaL Lhey can obLaln lnsLanLly from Lhelr nelghbourhood booksLores

reorderlng lncreaslng preorderlng of producLs (cusLomer pay before Lhe lLem ls avallable and
amazoncom pay Lhe suppller [usL afLer Lhey release Lhe producL) ls a greaL buslness lurLhermore
amazoncom recelve Lhe money ln advance as well as charglng prlces LhaL Lend Lo be hlgher ln
earllesL days

varlous provlders lnclude oLher sLores such as 1oy 8 us ClrculL ClLy Cfflce uepoL WPSmlLh and so
forLh lL may allow amazoncom Lo lnclude new producLs ln llne Lo lmprove servlces and Lhe lmage of
Lhe brand (amazoncom)

Web servlces Lechnlques of companles such as Llnux or lacebookcom where Lhlrd parLles can
access Lo Lechnlcal conLenLs ln order Lo lmprove and develop Lhelr appllcaLlons could allow
amazoncom Lo lnnovaLe Lhe plaLform wlLhouL lncurrlng masslve lnvesLmenLs

lnLernaLlonal markeLs Lhe rapldly growLh of use of lnLerneL and broadband LhroughouL counLrles
(lncludlng counLrles wlLh real presence) would allow amazoncom Lo expand Lhe brand Lo
lnLernaLlonal markeLs

CompeLence Lhe ecommerce fleld has evolved rapldly and lL ls hlghly compeLlLlve companles such
as L8ay WalMarL and Coogle (see appendlx u) are a consLanL danger Lo Lhe company

lnvenLory ln order Lo meeL dellverlng Llmes amazoncom has Lo malnLaln an lmporLanL lnvenLory
Lhls could be rlsky due Lo Lhe facL LhaL demand of producLs ls consLanLly changlng

erformance Lhe company has Lo demonsLraLe and [usLlfy Lhe hlgh value LhaL oLhers have glven Lo
lnLo Lhe flnanclal markeL

Lack of confldence from lndlvlduals Lo buy onllne counLrles where use of lnLerneL ls noL as common
as ln developed counLrles consumers may presenL a lack of confldence Lo process Lhelr bank deLalls
onllne for example ln mosL of SouLh Amerlcan counLrles L8ay (named Mercadollbrecom for SouLh
Amerlca and Spaln) presenL serlous problems wlLh cusLomer paymenLs due Lo Lhe facL LhaL ln varlous
counLrles Lhere ls no regulaLlon for onllne paymenLs (lndlvlduals do noL LrusL sells onllne)

LS1 Analysls ls a slmple buL lmporLanL and wldelyused Lool LhaL helps you undersLand Lhe blg
plcLure of Lhe pollLlcal economlcal socloCulLural and Lechnologlcal lssues LhaL we are operaLlng ln
LS1 ls used by buslness leaders worldwlde Lo bulld Lhelr vlslon of Lhe fuLure

lnLernaLlonal pollcles lnLernaLlonal pollcles ln parLlcular counLrles may lnLerfere wlLh Lhe expecLed
growLh of Lhe company for example googlecom has been banned ln Chlna for governmenLal
declslon argulng LhaL Coogle LhreaLens Lhe communlLy and naLlonal markeL wlLh lnapproprlaLe
conLenLs ln hls daLa bases ln addlLlon Coogle has losL poLenLlal markeL as Chlna could be due Lo
pollLlcal declslons

8egulaLlons safeLy above ecommerce ls noL consldered as an lmporLanL lssue ln varlous counLrles
for example 76 of lnLerneL users ln eru do noL LrusL lnLerneL web pages and never have
experlenced a purchase onllne a survey conceded by LL 1lLMC" (naLlonal newspaper ln eru)
conclude LhaL lnLerneL users do noL belleve onllne conLenLs and ln some cases such as lnLerneL
crlme one can noL aLLend Lo legal auLhorlLles lnLo Lhe fleld because Lhose do noL exlsL

Currency flucLuaLlons ln varlous counLrles where currencles are hlghly devaluaLed ln comparlson
wlLh Lhe dollar lL may brlng addlLlonal cosLs Lo Lhe company lurLhermore some producLs' prlces
may be lncrease affecLlng Lhe maln aLLracLlon of Lhe company (lowesL prlces)

Lconomlcal Lendencles ln mosL cases lndlvlduals raLher buy ln Lhelr nelghbourhood sLores Lhan
golng onllne CusLomers prefer dolng Lhe regular commerclal process of golng Lo Lhe sLore paylng
Lhe producL and geLLlng lL lnsLanLly Lhan golng onllne processlng Lhelr bank deLalls and walLlng for
several days Lo obLaln Lhe lLem

LLhlcal and rellglous facLors ln some culLures lnLerneL use ls noL allowed due Lo Lhe facL LhaL aL
some polnL conLenLs may damage Lhelr culLural eLhlcal and soclal belleves

Amazoncom ls a company hlghly lnvolved lnLo Lhe Lechnologlcally fleld and lLs success has been
well achleved over Lhe pasL slx years alLhough many challenges face Amazon ln Lhe fasL paced
envlronmenL of Lhe lnLerneL hence amazoncom has Lo face Lhls challenge flndlng lnnovaLlve ways
Lo sLay ahead of Lhelr compeLlLors

1he orLer's flve forces Lool ls a slmple buL powerful Lool for undersLandlng where power lles ln a
buslness slLuaLlon 1hls ls useful because lL helps undersLandlng boLh Lhe sLrengLh of Lhe currenL
compeLlLlve poslLlon and facLors affecLlng Lhe sLraLegy developmenL SubsequenLly amazoncom wlll
be analyzed under Lhls model
Suppller ower

Cn Lhe one hand amazoncom has marked advanLages wlLh mosL of Lhelr provlders (books audlo
Lechnology) for Lhe reason LhaL Lhese companles do noL charge Lhelr producLs unLll Lhe momenL LhaL
amazoncom sell Lhem (frequenL sLraLegy from blg companles) Cn Lop of LhaL amazoncom pays
suppllers for Lhose producLs only 33 days afLer LhaL Lhe lLem has been sold neverLheless companles
are prepared and ready Lo provlde servlces and producLs Lo amazoncom Cn Lhe oLher hand
amazoncom has swlLched lLs prlmary operaLlonal sysLem (Wlndows x) Lo Llnux (for more deLalls
see appendlx L) Lhls movemenL ls esLlmaLed Lo save more Lhan 13 mllllons of dollars Lo Lhe

lor small companles and publlshers amazoncom keeps a maxlmum of flve lLems ln Lhelr sLock ln
order Lo reduce cosLs

Suppllers conslder amazoncom as an lmporLanL and presLlglous company hence Lhelr commlLmenL
wlLh amazoncom ls clearly noLlceable and essenLlal
8uyer ower

Cnce 8lll CaLes (MlcrosofL's owner) sald l buy my books ln amazoncom because l do noL have
Llme Lo go Lo Lhe book sLore" (LheLlmescom) lnlLlally consumers LhaL buy goods ln amazoncom
Lend Lo become regular cllenLs due Lo Lhe low prlces LhaL amazoncom can offer ln addlLlon Lhese
prlces can be hard Lo reach by Lhe compeLence
Low prlces ls Lhe prlnclpal aLLracLlon LhaL amazoncom offers Lo each lndlvldual buyer Moreover Lhe
low average of cllenLs swlLchlng from amazoncom producLs and servlces Lo Lhose of Lhe
compeLence ls saLlsfacLory
CompeLlLlve 8lvalry

Amazoncom ls one of Lhe flrsL companles lnLo Lhe ecommerce fleld 1hls glves Lo amazoncom a
cerLaln level of LranqullllLy lnLo Lhe markeL neverLheless amazoncom has lnnovaLed along Lhe years
reachlng hlghesL levels of cusLomer's saLlsfacLlon whlch can assure Lhelr poslLlon lnLo Lhe markeL for
fuLure years
1hreaL of SubsLlLuLlon

As Lhls paper menLloned before amazoncom has lnnovaLed Lhelr servlces and producLs along Lhe
years and Lhe name of amazoncom ls well recognlzed and LrusLed lnLo Lhe fleld hence amazoncom
does noL presenL LhreaLs of subsLlLuLlon aL leasL ln Lhe shorL Llme
1hreaL of new LnLry

lnLerneL has shown Lo us LhaL a slmple ldea well developed can offer exLraordlnary resulLs examples
such as lacebookcom lenLyofflshcom ?ouLubecom and so forLh Lhese companles have
developed Lhelr web slLes ln a shorL perlod of Llme wlLh lncredlble flnal resulLs 1hls can be Lhe proof
LhaL a LhreaL of new enLrles lnLo Lhe markeL ls posslble

lL ls clear LhaL Lhe performance of amazoncom durlng Lhe pasL Lwo years has been greaLly
successful As we can observe amazoncom ls parL of Lhe presLlglous lorbes 300" (wealLhlesL
companles around Lhe world) Cn Lop of LhaL Lhe brand ls well recognlzed and ls synonym of
cusLomer saLlsfacLlon lnLo Lhe fleld ln addlLlon Lhls paper wlll remark Lhe maln polnLs of Lhls success
durlng Lhe pasL Lwo years

ln amazoncom Lhey have clearly undersLood Lhe concepL of elecLronlc commerce focuslng on
cusLomer deslres and saLlsfacLlons (for more deLalls see appendlx l) Cver and above LhaL !eff 8ezos
knows how Lo form ouLsLandlng Leams lnLo hls company wlLh hls Lheory of Leams of one plzza
(Leams LhaL can be feed wlLh one plzza are more effecLlve Lhan oLhers where more Lhan one plzza ls

lrom Lhe momenL LhaL 8ezos chose Lhe name amazoncom unLll hls new lnvesLmenLs and alllances
!eff 8ezos has leaded Lhe company of belng an onllne booksLore Lo be an almosL everyLhlng onllne
sLore lor example ln Lhe lasL lnLervlew made Lo Maryam MohlL (Amazoncom's v of SlLe
uevelopmenL) he commenLed Lhe followlng experlence

l remember ln my flrsL week aL amazoncom l sald Lo !eff lL ls Lerrlble someone else owns Lhe
bookscom u8L Are noL you bummed?" Pe sald no l do noL wanL LhaL 1haL ls a small and narrow
u8L 1here ls a reason l named lL amazoncom""
(LheLlmescom 2000)
As Lhls paper menLloned before amazoncom cusLomers LhaL buy goods aL amazoncom Lend Lo
become regular cusLomers lL ls clear LhaL Lhls ls one of Lhe maln facLors of success
Alllances and new acqulslLlons have secured amazoncom an lmperaLlve poslLlon lnLo Lhe fleld wlLh
more Lhan 60000 llnks beLween web pages lncludlng successful web slLes such as Coogle ?ahoo
ACL AlLavlsLa and so forLh

ln Lhls parL we wlll conslder Lhe maln facLors affecLlng Lhe success of amazoncom ln Lhe nexL Lwo
years lnlLlally amazoncom has poslLloned hls brand wlLh brlghL recognlLlon and slgnlflcanL flgures
neverLheless Lhe expecLed growLh may be compromlse due Lo dlverse culLural and local lssues for
example amazoncom uses local mall servlces Lo dellver Lhelr producLs AlLhough Lhls servlce ls
efflclenL and usually saLlsfles cusLomers lL can be deflclenL ln oLher counLrles where amazoncom
may be aLLracLed Lo Lrade uslng lL 1hls lssue may lmpede Lhe expecLed growLh of Lhe company

AL Lhe momenL Coogle has 62 of Lhe markeL share and wlLh hls new release Coogle checkouL"
and several rumours (Lechnewscom) saylng LhaL Coogle ls plannlng Lo release an onllne sLore lL can
become a real LhreaL for amazoncom SubsequenLly Lhe fuLure performance may be dramaLlcally
compromlse aL Lhe same Llme wlLh Lhe new obsesslon of Mr 8ezos 8lue Crlgln" (Aerospace
Company focused on sub orblLal spacefllghLs) amazoncom may be drlven on Lhe wrong paLhway

l Lruly belleve LhaL amazoncom has Lhe sLablllLy experlence and poslLlon Lo remaln successful lnLo
Lhe fleld ln Lhe nexL Lwo years however Lhe presence of new LhreaLs have Lo be conLrasLed wlLh
dlverslflcaLlon and sLandardlzaLlon of servlce (amazoncom has been focused on Lhls sub[ecL) as well
as deLalled and premedlLaLed measures of lnLernaLlonal growlng

1he success of amazoncom ls noL based on a slmple ldea of an onllne sLore lLs success comes from
Lhe undersLandlng of Lhe elecLronlc commerce !eff 8ezos flrsL researched Lhe markeL before Lo
know how Lo locaLe lL buL Lhe mosL lmporLanL ls LhaL Mr 8ezos undersLood Lhe lnLerneL lL ls clear
LhaL Lhls knewhow was Lhe maln advanLage of amazoncom ln comparlson wlLh Lhe compeLence
Amazoncom also knows how Lo conserve cusLomers offerlng lmporLance and value Lo Lhelr
servlces Lhls does noL mean dlscounLs Lhls ls relaLed wlLh personallzaLlon of accounLs emalls
dlscounLs safeLy ln paymenLs and veloclLy ln dellverles neverLheless amazoncom musL be aware
of poLenLlal LhreaLs such as Coogle and lLs flrsL sLeps lnLo Lhe fleld

AlLhough Amazoncom has experlenced Lremendous growLh and lncreased ln revenues over Lhe pasL
slx years many challenges face Amazon ln Lhe fasL paced envlronmenL of Lhe lnLerneL Amazon faces
Lhe challenge of provldlng excellenL cusLomer servlce whlle Lrylng Lo grow and expand Lhelr
buslness Amazon also faces Lhe challenge of flndlng lnnovaLlve ways Lo sLay ahead of Lhelr

ln addlLlon and as l have menLloned before one real lssue for Lhls company ls Lhe acLual obsesslon
of Mr 8ezos wlLh hls new pro[ecL 8lue Crlgln" (Aerospace company focused on sub orblLal
spacefllghLs) where vasL amounLs of money need Lo be lnvesLed ln order Lo achleve resulLs LhaL
could be amblguous and unsecured l conslder Lhls an lnLeresLlng pro[ecL LhaL could be successful
and proflLable Powever afLer slx years of researches and lnvesLlgaLlons Lhe resulLs are noL
saLlsfacLory ln conLrasL Lo Lhe lnvesLmenL moreover Lhose acLlons are clearly reflecLed lnLo Lhe
flnances of amazoncom