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Case Study

Amazon.com’s Business
Model and Its Evolution
Table Content

1 Amazon
Case Analysis
Background
3 4
Recommendation

2 Issue
Identification
Amazon Background
• America multinational technology company, found in June 1994
by Bezos. l
• The largest e-commerce maretplace in the world.
• Constantly innovated its business model from consumer
electronics to cloud computing service and finally into technology
business.
• Starting from selling books online, later diversified to sell wider
selections of products- 20 product categories
• Owned Kindle e-book reader, Fire Tv, Fire Phone, ect.
• In 2015, Amazon’s market value of $262.7 billion.
Issue
Identification
Issue Identification

1. How to keep pursuing long-term


investment for greater returns in the
future but still sustain profitability

Company Strategy :
Long term investment > Short Profit

constantly plowed cash back into the


business & built new businesses

Damage the profitability


Investor’s patience would finally run out
and they demand profits
Issue Identification

2. Howto effectively compete,


outperform and differentiate from
numerous rivals
Issue Identification

3. Howto keep price low to sustain the


reputation as a low cost leader
Issue Identification

4. Should Amazon put heavy investment


on logistics and fulfillment
Issue Identification

5.How to effectively
execute across so many
different types of business
Case
Annalysis
Amazon’s competive strategy

Elements:
Low prices
Wide selection
 Convenience
 Customer service
 Innovative technology.
How elements fit together?
For the low prices:
Amazon did not have to maintain physical store
and have sale tax advantage because of operating in
virtual world => deliver low price products to
customers.
Allowed sellers directly sell their products on the
websites => its cost advantage over traditional stores.
 By purchasing a large volume of product directly
from manufacturers = > receive discount from them.
Consistently offering low price => built a positive
perception of best price provider in customers’ mind
How elements fit together?

◉In term of wide selections: selling products online and directly


offering products from even small businesses on website,
expanded the widest selections of product -20 product
categories
How elements fit together?

Convenience:
◉ Wide selections
◉ Order products cheaply and reliably with a click of a button
◉Website: browser friendly with easy-to-use functionally,
◉ Had minimum download time
◉Assisted customers to find products and well-informed about
products.
◉Automated order management systems which closely link to its
suppliers and payment network => get the products within 24h
How elements fit together

Customers service
◉Wide selections of products,
convenience of shipping and buying, best
prices => added value to customers.
◉provided customer reviewing and rating
systems,built customer loyalty program
and personal bond with customers.
Strategy evolves overtime

◉The strategy was evolving.


◉ It constantly reinvested its business model and found
opportunities to serve new customers and existing customers
in new ways.
◉Starting from an online book store, Amazon later created a
innovative product which is Kindle reader. After that, it
continued with mobile phone and video & games industry
streaming market by releasing Fire Phone and Fire TV.
Amazon’s strategy in E-commerce, Cloud
computing service, Personal Media Player
oOverall strategy : reinvesting free cash flow into business and creating
more value for its customer aimed at growing Amazon’s selection and
customer base.
oE-commerce:
◉Amazon sells products with the best prices to their customers.
◉It offers wide selections of product-20 product categories
◉Amazon brings convenience to customers with fast shipping service,
simple ordering process, different modes of payment.
◉Customer service of Amazon is excellent with loyalty program,
personalized-touch service.
Amazon’s strategy
Cloud computing and web service:
◉Amazon web service (AWS) provided
marketing and promotional service to
third party retailers and web service for
developers. ( Zshop) (more value to
customer)
◉It provided developers access to
Amazon’s technology infrastructure that
they could use to run virtually any type of
business
◉ AWS had grown into one of the largest
computing service platforms in the world.
Amazon’s strategy

Personal Media players: make it priority to


expand and upgrade its Kindle Fire
Ecosystem: Kindle e-book, technological
devices: Fire TV, Fire phone, video streaming
box.
◉Kindle e-book: Amazon became an original
equipment manufacturer and partner with
independent publishers to generate content
for the Kindle
◉Technological devices:
Fire TV: company enter into highly
competitive video and games streaming
market.
Fire Smartphone: debut in the crowded
smartphone market
Success of Amazon’s strategy
Amazon’s strategy was successful:
E-commerce: Amazon became leader in e-
commerce, the largest online retailer in the world,
Cloud computing and web service: the move was
largely successful as within 5 years of its launch,
AWS had grown into one of the largest computing
services platform in the world.
◉Personal Media Players wasn’t successful.
Fire TV and Fire Smart Phone couldn’t compete
with big competitors like Iphone, Ipad, Apple TV,
Roku,..
Although Personal Media Players was an attractive
field, not all investing could be successful.
=> Amazon needed to be carefully selective about
where it invested in order to turn profitable.
Competitive Strength
Assessment
My competitive strength assessment

Key success Importance/ Amazon Walmart Alibaba


factor/Strength Weight
measures Rating Weighted Rating Weighted Rating Weighted
scores scores scores
Low prices 0.25 9 2.25 7 1.75 7 1.75
Wide selection 0.20 9 1.8 8 1.6 9 1.8
Convenience 0.20 8 1.6 8 1.6 8 1.6
Customer service 0.20 9 1.8 7 1.4 7 1.4
Distribution 0.10 9 0.9 7 0.7 7 0.7
Market position 0.05 9 0.45 7 0.35 7 0.35
Total 1.00 51 8.8 46 7.4 46 7.6

 Amazon is the strongest player in retail industry.


 The competitive strength of Amazon is primarily a function of superior
low prices, wide selection of products, convenient ordering system and
excellent customer service.
Competitive positions in personal media players and digital streaming
VS.
in e-commerce and cloud-based computing services

◉ 1977: Apple was firstly ◉1995: Amazon started its


incorporated business as an online
◉ 2005: Youtube was bookstore
firstly launched ◉2010: Moved to cloud-
◉ 2014: Amazon released based computing services
Fire TV and debuted in
smartphone market
 Amazon was the late  This image is positioned
entrant more strongly in
customer’s mind.
How to ensure digitally streamed media become the major
contributor in overall performance?

◉Be the first party releasing media contents via Fire TV

◉Create own media contents

◉Charge fee from advertisers on Fire TV


5. Is Amazon a competitor in the e-commerce, cloud-
based computing services, and personal media device
industries? What is most important and what should
be discontinued?
E-commerce
E-commerce
Could-based coputing service (AMS)

2018 AMS U.S retail sales


Net sales $11.54 bil $62.89 bil
Operating income $3.04 bil $2.98 bil
Sales growth 49% 44%

Total Revenue of Amazon in 2016


Source: Annual
AnnualReport 2016
revenue of AMS from 2013 to 2018
Personal media players

Late entrance
=> Hard to get market share
and position in the customer
mind + High cost for
investment
6. Assessment of Amazon’s financial performance in
the past three years
Assesstment of Amazon’s financial
statement
Assesstment of Amazon’s financial statement

2014 2013 2012 Note


Net product sales growth 15.07% 17.73% 23.17%
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑦𝑒𝑎𝑟 −𝑝𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑦𝑒𝑎𝑟
𝑝𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑦𝑒𝑎𝑟
x100

Net service sales growth 39.6% 44.8% 54.02%


𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑦𝑒𝑎𝑟 −𝑝𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑦𝑒𝑎𝑟
𝑝𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑦𝑒𝑎𝑟
x100

Net sales growth 19.52% 21.9% 27.07%


𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑦𝑒𝑎𝑟 −𝑝𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑦𝑒𝑎𝑟
𝑝𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑦𝑒𝑎𝑟
x100

Gross margin 27.15% 24.75% 22.44% Shows the percentage of


𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 revenues available to
𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠 cover operating expenses
and yield a profit. Higher
is better and the trend
should be upward.
Assesstment of Amazon’s financial statement

2012 2013 2014 Note


Operating profit margin 0.2% 1% 1.1% Shows the profitability
𝐼𝑛𝑐𝑜𝑚𝑒 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠x100 of current operations
𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠 without regard to
interest charges and
income taxes. Higher is
better and the trend
should be upward.
Return on sales -0.27% 0.37% -0.06% Measurement of the
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 (𝑙𝑜𝑠𝑠) profit percentage
x100
𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠 against the revenue a
business generates.
Assesstment of Amazon’s financial statement

- 2012: $775 mil for robots making items around


warehouses
- 2013: “Weblabs” with 1,976 labs all over the world
- 2014: + $1.3 bil on online streaming service
+ $8.72 bil on research and development
+ $6.6 bil on delivery
 Net loss of $437 mil => Patience of shareholders

 “ Long-term investment > Short- term profit” strategy


Recommendation
Recommendation
You can also split your content

1. direct investment aligned


Stick with the stable with these business
growth business: e-
commerce & AWS
platforms and pursue
opportunities presented pursuing small business
by these business customers for AWS by
offering these customers
high value-added service:
display their products,
services, promotion
campaign in outstanding
places
Recommendation
You can also split your content

2.
Retrench to a narrower scope of
diversification by divesting or
being more selective with its
capital allocation into poorly
performing businesses: digital
media
Recommendation
You can also split your content

3.
Should invest in fulfillment
and logistic: building
fulfillment centers,
warehouse in foreign
countries that they want to
enter

=> facilitate the shipping


process, reduce the
shipping cost to company
in global market
Recommendation
You can also split your content

5.
Follow strategic alliance or
acquisition

promote advertising,
approach to more
customer and achieve
economies of scope…
Thanks!

ANY QUESTIONS?