Four Models of Innovation
Amazon is one of the largest e-commerce companies which is changing the shopping landscape across the globe with its consistent innovation and practices. Amazon was founded in the year 1994 by one of the greatest visionary of all times Jeff Bezos, Jeff realized lacunae in the ways people shop online and decided to bridge the gap by introducing innovation in its business process (Mitchell & Coles, 2003). The company which was initially started as an online book store gradually started selling consumer durables, electronics, lifestyle products, DVD, home furnishing and what not, it was just a matter of time that Amazon was selling from anything to everything. Amazon presently employees over .3 million people and earned a revenue of 136 Billion in the year 2016. Amazon is one of the few companies which focus all its policies around the customer; most definitely it keeps consumer’s interest over anything. Amazon focuses on enriching the experience of its customers by delivering them amazing quality products on time. The company partners with few, but reliable vendors to strengthen its supply chain. Recently as a part of innovation Amazon has tested its drone services to expedite the delivery process and came up with one of its kind retail out which has no check in and check-out counters. It can be said with utmost certainty that Amazon takes innovation a notch higher than any of the players in the e-commerce industry (Amit & Zott, 2012)
The purpose of the assignment here is to understand the business model of innovation for Amazon and how can it be further improvised and used for the benefit of the consumers. It is important to understand how Amazon brings innovation in its business processes and manages the same, a holistic picture of the business model innovation will help to understand the rationale and thinking behind Amazon’s consistent innovation process. It will be interesting to study what are some of the key innovations the company have introduced in the past and what it holds for the future.
Business model innovation is the development of new and unique concept which supports an organization’s financial viability, encompassing the mission and the processes which will bring the unique concept to fruition (Utterback, 1994). The main objective of business model innovation is to find new sources of revenue by improving the value of the products and how the products are delivered to the customers. Business model innovation is a powerful concept which companies have started implementing in their business cycles, they are smart enough to understand that the market gets saturated after a certain point of time, thus Innovation is the only thing which can sustain their business momentum (Baumol, 2002). For the purpose of the study, four models of innovation will be studied to have a better understating of the models:
Innovation in Amazon’s Business Model
Technology and market are the most critical element of innovation model, hence the models will be analysed after dividing them into the dimension of technology and market.
This is one of the most common forms of innovation where the businesses utilizes the existing technology in the existing market but delivers increased value to the customers in terms of product features, design, product modification, improved services and so on. Incremental innovation does not mean some drastic change, even a small change can be considered as incremental innovation as long as it is delivering more value to the customers (Burgelman, Christensen & Wheelwright, 2004)
Amazon has been practicing incremental innovation from quite some time now, certain example include adding the review and comment section for the sellers, addition of shopping by category for easy user surfing on its application, big bold tiles for new products(Kim & Min, 2015)
It can be said that Amazon has been leveraging incremental innovation to enhance the customer experience.
As the name suggest, this type of innovation disrupts the entire existing market ecosystem and bring a wave of change. Disruptive innovation is when a new technology is applied in an existing market to deliver value for the customers. The new technology is expensive and therefore it does not receives a wider acceptability in the start, but later when people start getting used to the benefits of this type of technology, all the business try to copy it and use for their advantage. Disruptive innovation is not necessarily achieved by the first movers, but it is achieved by those businesses which are consistent with their innovation. For example iPhone disrupted the entire mobile phone market by introducing the touch technology, which made the button phones simply redundant in the ecosystem (Conway & Stewart, 2009)
An example of disruptive innovation for Amazon can be its testing of Drones to deliver products to the consumer. The technology has never been used for this purpose, it was used only for surveillance, videography, security, but never for product delivery. Amazon will create a disruption if everything goes well with the drone technology as it will reduce the cost of logistics for the company (Snihur, 2018)
This type of innovation is when a company applies all the learning’s, skills and knowledge it gained out of its existing technology and wishes to replicate the same model to different markets. This Innovation has low risk involved with it primarily because the technology is already tried and tested and hence the company is in a better position to tackle the challenges posed by the technology. Although companies have to tweak the technology to better suit the need of the market (Dodgson, Salter & Gann, 2008)
Key Innovations in Amazon’s Business Model
Amazon has been using architectural innovation in a couple of ways, for example, Amazon prime model was hugely successful in the US and other market, when company moved to India, after few years it started using the Prime model in India as well, which was an overnight success(DaSilva & Trkman, 2014)
Some experts say that radical innovation is the kind of revolution which gives rise to a completely new industry, catering to the same industry and bring a revolution in the market ecosystem. Radical innovation is an elementary innovation which helps in creation of new verticals of business (Dodgson & Rothwell, 2005)
One innovation which comes close to radical innovation for Amazon is its first retail store, which the company opened recently in the US. The store is extremely high tech and the first store in the world to offer no check in and check out process. If the store runs successfully for few years, there are no doubts that it will set new standards for retail stores around the world (Sorescu, 2017)
There are many more innovation models based on dimensions other than technology, but in case of Amazon disruption, radical and innovation model suits the best(Trott, 2011)
In the past 50 years, the average business model lifespan has fallen from about 15 years to less than 5 years. Business model innovation is thus no longer a way to gain a competitive edge, but most certainly it is a necessary thing to do in a fast evolving business environment. Some of the significant innovations of Amazon are:
E-bay was the first e-commerce company, which allowed users to list their products on E-bay website and interested users can bid for the product and buy them. Amazon identified lacunae in the present business model and came up with a radical business model of its own. It started operating on a marketplace model, where it had no inventory, but was just a platform connecting buyers with sellers. Hundreds of players across the globe got inspired by Amazon’s business model and started their own ventures, example being Flipkart, Snapdeal, Urban clap and many more (Dobni, Klassen & Nelson, 2015)
Amazon realized that people have to wait for 2-4 days, and in some cases as long as 7 days for their ordered products to reach them. The company wanted to do something in order to reduce the waiting time and pull the customers out of their misery. The company achieved a breakthrough when it broke the drone technology to deliver products to its customers in less than 60 minutes. This was by all means a brilliant idea which in future would change the shape of logistic industry (Dolata, 2017)
Conclusion
Amazon which was started as an e book store, at present is the largest e-commerce company in the world. The company always knew that it had to innovate itself and get into business which would generate economies of scale for it. The company forayed into music business and launched Amazon MP3, it also entered into developing original video streaming content for its online audience, came up with fulfilment centres, started created consumer electronics products for the consumers. All these diversification points to one fact, Amazon aspires to stay ahead of the curve at all times (Lee & Schimidt, 2017)
Amazon web services was created out of its own e-commerce infrastructure needs and presently the business has grown to the extent that it is generating a revenue of over $ 13 billion for the company, which is even more than that of Netflix and Airbnb. At the same time AWS is supporting Amazon’s consumer electronic product Alexa and Kindle and improving lives of people. Amazon web services is a good example of need based innovation. The company needed web services to support its cloud based need, and instead of relying on the services of Google and Microsoft, it came up with its own web services (Newcombe, 2014)
Amazon prime which was launched with a prospect of offering speedy delivery to its esteemed customers has earmarked another level of success for the company. Amazon launched the service in the US market at a price of $999/Year, and was hugely successful. People quickly signed up and became prime members because Amazon was offering bundled services with prime membership. Certain features like, one year free Prime video account, exclusive deals for prime members, free shipping, guaranteed delivery in 1-2 days were some of the high points of Prime membership. In one of the recent reports by Amazon it was found that it’s the prime members which drive maximum sales for Amazon. Hence it is clear that Amazon tweaked its business model according to the preference of its customers and gave them what they really wanted, quick deliveries and free shipping.
A lot of people have asked Jeff Bezos in the past whether he would be opening up a retail store, to which his answer every time was a firm no, but he also said that if Amazon is able to figure out some radical differentiation than the existing retail model, they can open up a retail store. This made Amazon came up with the concept of Amazon go-store, where any person can enter the store, pick up whatever they like and without waiting in the line they can check out of the store. All the items the consumers pick magically gets added into the digital cart of Amazon and consumers then pay via net.
Jeff Bezos (Founder and CEO) at a very early stage realized that in order to be at the pinnacle of the e-commerce, it has to innovate and give to people something they always envision. Jeff had a vision for Amazon, being a customer-centric firm, hence all its innovation was built around a simple reasoning “how to make the lives of customer simpler and improve their shopping experience”. The aim was clear to all the employees working at Amazon and everyone walked along the vision of Amazon. Thus, a clear vision and goal setting by Amazon was the prime reason behind its innovation. As the competition grew back in 2000s, Amazon was still sure that if they are consistent with its philosophy of being customer centric, no competitor could take the market share captured by Amazon. Hence, it can be said easily that increase of the online audience, changing taste and preferences, market dynamics and need to have a customer focussed strategy led to all the innovation at Amazon.
Although Amazon has been doing exceptionally well with its business model of innovation, there are quite a few areas for improvement in the innovation process at Amazon:
Big data analytics is the key thing which every online player utilizes to gain a significant leverage over its competitors by better understanding their competitors. However, the true potential of data has not been utilized until now. Amazon has a good possibility to use this data to conduct a sentimental behaviour analysis of its customers and push the products which they subconsciously desire. This will definitely be a breakthrough by Amazon, reading the subconscious mind of consumer by step by step analysis of their online behaviour will change the ecosystem of e-commerce.
Alibaba is one of the strongest competitions to the leader position of Amazon, and this is especially because of its dominance in the Chinese market. Alibaba charges sellers a commission ranging from 4-6%, on the other hand Amazon charges somewhere around 12-20% of goods sold on its website. It is advised that Amazon should utilize its machine learning algorithm to place Google ad on its website, which would help Amazon in earning additional revenue, and it can thus reduce the commission it charges on the goods and sell cheaper than Alibaba, hence foraying into the Chinese market. This innovation will help in strengthening the market dominance of Amazon and to utilize its machine learning algorithm.
It has been often seen from past business case studies that companies which get into diversification in business have better chances of building a sustainable business model in comparison to the ones which do not. Amazon is already shipping its goods in more than 180 countries and has a strong base in 12 countries. In order to further strengthen its grip in the market the company should focus on doing further innovation in technology, which will help its other businesses, like Prime, Go & Web services to grow further.
Conclusion
Amazon is sitting at the zenith of innovation since the inception of the company. Amazon has been able to use both incremental and radical innovation to the fullest of their capabilities and able to extract economies of scale from the innovation. Some great innovation from Amazon like; Amazon Go store, Drones for delivery, Amazon Echo and Firefly have the potential to change the landscape of how e-commerce services are rendered presently. Jeff Bezos has a very clear goal for the company; he wants all the efforts to be pushed into the direction of vision, which is fuelled by the desire of making the lives of customers easy. Consistency in innovation has been one of the pivotal factor behind such huge success of Amazon, and the company pledges to follow the same path of innovation to ensure the momentum and sustainability in the business.
References
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