A Comprehensive Analysis Of Amazon’s Business Model: Issues, Strategy And Financial Stability

History of Amazon and its Business Model Evolution

The business conduction of the organizations of current generation are getting complex with each passing day. The increment in the complexity is generated due to the immense market competition that is available in the modern business market. The organizations are significantly trying each and every measure to cope up with the market competition and in order to do the modern day organizations are observed to conduct various experimental restructuring in their business conduction. The main motive behind this restructuring is to gain a breathing space in the intensely competitive market. But with the implementation of these experimental measures, the organizations are also subjected to significant vulnerability as the experiments may not result in the desired fashion at times. The paper is focused in one such case where it will analyse the business model of Amazon. The paper will analyse the current situation of the organization, will state strategy of the concerned organization along with the identification of the major issues in the organization. The paper will also analyse the financial stability of the organization along with the marketing and managerial competencies that the concerned organization had inherited till date.

Amazon Inc. is a global market leader in the E-commerce online shopping industry. The organization was established in the year 1994 by Jeff Bezos. Washington, US is the current headquarter of the organization. The organization serves the customers across the globe with the various products like Amazon Video, Amazon Appstore, Amazon Kindle, Comixology, Amazon Prime along with Amazon Echo. The organization is experiencing the excellence of their Chairman, President and CEO, Jeff Bezos and the CTO of the organization Werner Vogel and that was visible with the generation of 117.86 billion US dollar as revenue in the financial year 2017. Apart from that the generation of 4.106 billion US dollar as the operating income and the generation of 3.033 billion US dollar as the net income were significant in expressing the capability and skills of their 566000 number of employees.

Jeff Bezos was capable of catching the trend with the introduction of the online bookstore in the form Amazon.com in the year 1995 as Bezos was able to understand that the introduction of the internet was gaining significant market limelight. The market for such business operation started to increase and the organization started to take register the orders for book publishers. In the year 1996, the sales of Amazon dropped significantly and it suffered a net loss of 15.7 million US dollar. With this sudden setback the organization introduced Amazon Associates program where they allowed the small websites to sell books through a link to Amazon along with the introduction of the compensation policy. This was a significantly profitable strategy from the part of the organization as it resulted in sales of 147.8 million US dollar in the year 1997 with the construction of the own warehouse’s of the organization. The strategy was so successful at that time that it resulted in an increment of 838 percent from the previous years.

Amazon’s Success Factors

Bezos was able to understand that his desired growth rate will not achieved by the kind of business model, the organization was having at that time. Hence Bezos introduced diversification into the business where he concentrated on each and every consumer products that could be shipped. This observed a change in the proposed business model from “sell all, carry few” to “sell all, carry more” in the year 1998. In the following year Bezos introduced a new strategy which was “Zshops”. The retailers and the third party sellers had the chance to sell their products on the Amazon’s sites with a mere registration against a fees of 10 US dollar and transaction cost of 1 to 5 percent of the value of the total sales. This registered a sales record of a value that is more than 1.6 billion US dollars. In the year 2000, the organization faced a significant drop in their stock prices. Earlier that year the organization decided to offer technology services through the E-commerce platform in the name of Amazon Enterprise Solutions and they even entered into partnerships with the companies like the Target Corporation and Border Inc. The sudden dip in the stock prices was criticised heavily and many of the business analysts clarified that the organization’s participation in various product categories is the main reason behind such a disaster which resulted in a net loss of 1.4 billion US dollar and forced the organization towards the verge of bankruptcy Bezos took some necessary cost cutting steps closure of two warehouses, shutting down of the customer care service at Seattle along with job cuts of 1300 number of workers. Bezos knew that this was not enough, hence the organization tried selling products through other companies’ warehouses. The company stopped selling non-profitable products and the above mentioned strategy was profitable for the organization as it resulted in a generation of net profit of 5.1 million US dollar in the fourth quarter of the financial year 2002.

In the year 2014, the organization observed a rise in their net sales which increased 20 percent and was 88.99 billion US dollar compared to its 74.45 billion US dollar recorded in the financial year 2013.   

The organization was significantly successful as the main aim of it was to align their business model with the demands of the customers. Jeff Bezos and company never let go a single opportunity to restructure their business model in order to serve new customers or in order to serve the old customers following a new and effective way. Several Business market analysts claimed that Amazon’s business model was unique and innovative as it was able to align the online retail expertise with the capability of understanding the customer’s requirements. Jeff Bezos was significantly concentrating on evaluations and experiments with the business model of Amazon through the development in the E-commerce innovation. Along with this the organization was successful as it was able to achieve the desired growth in the new markets. The organization’s business model was dependent on four pillars low prices, wide selection, convenience and customer service. Along with these, the organization was observed to conduct fast and reliable delivery of the products which was significant for the organization in achieving preferences of the customers.

Amazon’s Business Model Pillars

Amazon’s business model was significantly focused in offering products against considerably low prices. The organization has the objective to produce the opportunity to the customers so that they be able to get the best deals. The organization was observed to sell goods at least 13 percent lesser than the prices of other stores and the organization was able to do so with the improvement in the operating efficiencies of the organization, reduction in the fixed costs and by providing the chance to the third party sellers to sell their products thorough the Amazon website. As the organization was significantly focused in reducing the overhead cost of maintaining the physical stores, the organization was able to derive a notable advantage in the form of the sales tax.  However, the tag of the organization as a low price store was considerably questioned by the market analysts as it was visible from the strategy of the organization that the company labelled very low prices to the products which are best-selling and it was labelling significantly higher rates from the other organizations for the products which were less popular in terms of consumption.

The organization had the ability to offer the biggest selection of the products to its customers. In the year 2015, the organization was able to offer 20 different product categories which included Computers, music, video games, electronic items, tools, toys for the kids and baby section, grocery, health and beauty products, jewellery, clothes, shoes, automotive and industrial equipment along with sports products. The organization purchased these products in huge quantity directly from the manufacturers, distributors and the publishers and this was significant for the organization in getting those products in a significantly less price.

Jeff Bezos was extremely efficient in implementing a three-fold strategy for the increment of the product chain. The organization was able to introduce a team for each category dedicated for the increment of the product chain and they will be liable to monitor the purchases, vendor management and the customer preferences. In cases of the seller businesses with the involvement of the third party, the organization introduced the concept of category managers.

One of the major part of the Amazon’s strategy was the flexibility that the organization offers to its customers. The process of ordering in the business operation of the mentioned organization is significantly hassle-free and as the organization uses the presence of the technology in the form of the website, they offer significantly less amount of difficulty to their customers in placing the orders. The website enables the customers to view different products of a particular category with different sizes and properties and the website is significantly user friendly in order to receive considerable number of orders for the products. The website has a major role in providing a tool to the customers for the searching purpose of the books, videos, music or the other products. The operation of the searching tool was significantly based on the typed keywords of the customers.

The organization implemented a work culture that was significantly targeting the tree major aspects like the customer service, loyalty and the customer retention. The organization was significantly able to offer the customers with a better functionality, fast and dependable fulfilment and customer service. The organization believed that the formation of the customer loyalty will enable them to experience repetitive purchases from the customers and along with that the organization significantly felt the need to engage their customers with the organization. The organization’s customer review mechanisms was significantly helpful for the organization in creating a special bond with the customers as the mechanism is able to engage the customers in making the decision through their recommendations regarding the product and its development.

The organization’s financial statistics show that the organization is able to increase the net product sales which increased to 70080 million US dollar in the calendar year 2014 from 60903 million US dollar of 2013. Along with the net product sales, the net service sales was observed to increase as well as the organization was able to achieve 18908 million US dollar compared to 2013’s 13549 million US dollar. Similarly the net sales of the organization also increased as the organization was able to record 88988 million US dollar compared to 2013’s 74452 million US dollar. The organization was able to achieve an increment in the gross profit as well as it recorded 26236 million US dollar from 2013’s 20271 million US dollar. However the organization observed a sudden dip in the income from operations which recorded 178 million US dollar compared to 2013’s 745 million US dollar. Along with this the organization experienced a significant loss in the calendar year 2014 of 241 million US dollar in spite of a net income of 274 million US dollar in the previous year. Though the organization had a reasonably strong financial base but yet the organization was feeling the need of eliminating the existing challenges in order to strengthen their financial structure.

The organization faced the loss majorly due to the business challenges coming from the market competitors of that industry. The organization was facing significant issue in maintaining the low price promise as that was harming the organization’s financial stability and along with that the competitors like Wal-Mart, Google Shopping or Alibaba.com was pricing their products in almost similar rates compared to Amazon. Along with this the competitor organizations was providing free shipping and instant pickups whereas the financial condition of Amazon forced them to increase the subscription rate of Amazon Prime by 20 US dollar in the year 2014. This happened because of the increment in the shipping rates of the Amazon Shipping carriers like the US Postal Service or FedEx. Along with these reasons, the Bipartisan Fairness Act by the US senate in the year 2015 blocked the scope of avoiding the tax in the states where the organization did not have any physical presence like warehouse. Apart from these, the organization was suffering from lack of investment in the fulfilment centres and was not able to update the products like Kindle Fire Tablet. In addition to this, the acquisitions like Kiva or Twitch was not financially suitable for the organization at that time.

The recommendations for the organization will be to search for innovative ideas and experimentation in order to increase the number of products in the digital and service categories. Apart from that, the organization must implement the plan of constructing more fulfilment centres, power AWS along with expansion of the Kindle Fire Ecosystem. The organization is advised to invest more on the research and development of the products as it has created a name for itself already. The increment in the product chain with the new products generated according to the customer preferences or trends will be significantly suitable for the organization to get rid of the situation. Having said that, it needs to be decided by the organization whether increasing the product chain will be good or the organization wants to keep a single product as their main focus. Along with this, the organization needs to make sure that the acquisitions or the takeovers that it conducts must be financially viable for them and they need to make sure that it aligns perfectly with the logistics and supply chain of the mentioned organization. The hybrid cloud management model will be something that the organization needs to consider with strong emphasis.

amazon.in (2018). Online Shopping site in India: Shop Online for Mobiles, Books, Watches, Shoes and More – Amazon.in. (2018). Retrieved from https://www.amazon.in/

sec.gov (2018). AMZN-2013.12.31-10K. (2018). Retrieved from https://www.sec.gov/Archives/edgar/data/1018724/000101872414000006/amzn-20131231x10k.htm

sec.gov (2018). AMZN-2014.12.31-10K. (2018). Retrieved from https://www.sec.gov/Archives/edgar/data/1018724/000101872415000006/amzn-20141231x10k.htm

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