Competitive Analysis of Amazon.com
David Tinker, CFRE
Muskingum University, INFR514
Professor Reichard
July 25, 2009
Amazon.com is a dynamic company. Founder Jeff Bezos created the company at the dawn of ecommerce and has led the company to $19 billion in annual sales at the end of FY 2008 (Datamonitor, Amazon.com p3). The company accounts for 5.5% of all internet retail sales in the world last year (Datamonitor, Global Internet and Catalog Retail p3). Amazon.com is a formidable competitor to Yahoo! because of Amazon.com’s expansion into similar delivery lines such as internet search with A9, technology development and simple storage solutions for developers with Amazon Web Services and information technology infrastructure during the past five years.
In a competitive analysis one studies what drives the competitor such as future goals and assumptions, and what can the competitor do such as capabilities, current strategy, and constraints. When combined the end result is a competitive response profile. This paper will identify all of these culminating is a competitive analysis profile of Amazon.com.
What DrivesAmazon.com
Future Goals
Amazon’s future goalsinclude dramatic increased growth in media sales, including books, magazines, etc., electronics and “other services”. Other services include web-based technology services such as cloud computing, search, and ecommerce platforms for other companies. Datamonitor’s Amazon.com (2009) revenue analysis indicates that Amazon.com’s media sales increased 19.9% to $11,084 million in the past year. Their electronics sales increased 44.7% to $7,540 million in the same period. Their “other” category, which includes their technology related services, increased 41.5% to $542 million or nearly 3% of their overall revenue.
Additionally, Datamonitor (2009) found that this growth was both in US sales and international sales, $10,228 million with a 26.35% increase and $8,938 million with a 46.60% increase last year, respectively. Their diversity in sales revenues of products and service offerings both locally and internationally is a corporate strength. Even in the poor economy, an 11% growth is expected in ecommerce in the next year (Datamonitor Amazon.com, p20). Therefore, they expect to see continued, if only limited growth, during the economic recession that we are currently in.
Amazon.com’s founder and CEO, Bezos, sees the economic slowdown as an opportunity for continued growth and continued innovation which will reduce overall costs by increasing efficiencies (Burrows, 1st ques.). He sees the company as being customer-needs focused and not skills-focused. Amazon.com purchases other companies for their skills sets, such as Zappos.com, which was purchased just this past week. Zappos.com is well known for its leading customer service and for their innovative uses of social media technology in addition to leading their niche ecommerce category. By acquiring Zappos.com, Amazon.com will have an increased presence, not just in footwear sales, but in its knowledgebase and innovative uses of technology.
Assumptions
One assumption offered by Jeff Bezos is that companies will continue to look to outsource their server needs to reduce resources necessary on-site (Machan. 5th ques.). Remote server services, such as cloud computing allows for the vendor, in this case Amazon.com, to worry about server performance and maintenance while the customer can put more manpower and financial resources into other on-site issues and needs. With Amazon.com’s technology size and infrastructure they can offer these services more cheaply than their customers through economies of scale.
Additionally, there is the assumption that demand for this need in cloud computing, including the popular software as a service and platform as a service categories of cloud computing will continue in the long term.
What Can Competitor Do?
Amazon.com’s multi-faceted current strategyincludes investing in their technology services. This includes their web services and technology-based products thatthey created and are selling, i.e. the Kindle.
Capabilities
In 2000 Amazon.com first started building ecommerce platforms for other large retailers. They built the ecommerce sites for Borders.com, ToysRUs.com, BabiesRUs.com, Virgin Megastores, Bobmay.com, NBA.com and WNBA.com.
In 2005 Amazon’s A9.com search engine started out as a competitor for the major search engines such as Google, Yahoo, and what is now Bing.com. While it didn’t become a major player in the main search engine field, it has become a part of the key services that Amazon.com offers to ecommerce platform customers. Now large companies such as Target, Marks & Spencers and Endless use the A9 platform for their web site searches so customers can find what they seek. (Wikipedia A9). Additionally, it is the main search functionality for all Amazon.com websites. Amazon.com’s Alexa Web Information Service makes all of Alexa’s detailed web traffic and structure information for the developer.
Amazon.com’s Web Services allow customers web technology, infrastructure needed for web-based applications and computing in the cloud. Building on the information technology infrastructure already in place, Amazon.com has positioned itself as a well-known provider of cloud computing space for developers. This includes Amazon.com’s Cloud Front is a self service pay as you go web service for content developers. It integrates with other Amazon Web Services to give developers and businesses an easy way to distribute content to end users.
Amazon.com’s Elastic Computing Cloud (Amazon EC2) with runs Microsoft Windows serves and Microsoft SQL servers offers a greater flexibility for deploying software solutions in the Amazon Web Services and cloud programs for companies both here and in Europe. Their ElasticMap enables businesses to process vast amounts of data in a quick period of time, such as financial anaylsis and scientific data simulation. The Amazon SimpleDB, provides core database functions of data indexing and querying. Amazon Simple Queue Service (Amazon SQS) stores messages that travel between computers.Amazon SQS makes it easy to build an automated workflow, working in close conjunction with the Amazon Elastic Compute Cloud (Amazon EC2) and the other AWS infrastructure web services.
Another arena Amazon.com has started to enter is mobile computing. Through a partnership with Google, Amazon.com provides the MP3 store for T-Mobile users using the Google G1 cell phones. This is just a start for what could be a large market internationally as more people use their cell phones for more functions and applications.
Constraints
A constraint is the week financial ratings that Amazon.com gets from Wall Street raters. This limits their ability to borrow funds for investments and purchases at better rates. A second constraint is the current technology Amazon.com relies on that enables the Kindle to work, ie e-Ink. e-Ink and its technology is not owned by Amazon.com so Amazon.com can’t readily control it. It can only work in black and white. It is not capable of offering color images commercially through its technology. Until they increase this capability, the e-Ink technology will hinder the growth of the Kindle product. Amazon.com has put quite a bit of their eggs in the Kindle basket hoping that it will become a billion dollar product changing the way people do something familiar, in this case reading print media. This is a similar model to what Apple did with the iPod and the way people listen to music.
Additionally, in technology, there are other threats that act as constraints. This includes other companies that provide infrastructure, web-based storage and other information storage capabilities and computing services can be a constraint as companies are sometimes reluctant to introduce too many technological advances at the same time to mitigate the risks associated with new products and services. With Amazon.com promoting the Kindle, this could leave their other technology services vulnerable in the near future.
Another constrain are shipping costs. Amazon.com has a customer level, Amazon Prime, that offers free shipping on all orders. However, with increased delivery costs for gas and delivery manpower, it could continue to hurt the company’s bottom line. That is a reason why they created a product such as the Kindle – a media delivery device that doesn’t rely on transportation, storage or manpower issues. It is a substitute for those expenses.
Amazon.com’s fixed costs are another constraint. Rising costs for information technology infrastructure and constant building and maintenance of its website bring down its revenue margins. Additionally, foreign exchange fluctuation hurts its international sales and services as the US dollar has lost value in the past year. Since more than 40% of sales are international, this could be huge.
Additional constraints on a smaller scale include the fact that Amazon.com must advertise on its competitor sites. For instance it was one of the top ten advertisement buyers for Yahoo! in April 2009 (adquants). They are also constrained by their partners’ limitations, such as HP and Oracle, which provides their server hardware and software. They are at the mercy of these companies that supply them with their goods.
Conclusion
As indicated in this competitor response profile, Amazon.com’s drive for success as seen in their future goals and assumptions, and what they are able to do such as current strategy and capabilities, are key reasons why the company has been and will continue to be successful.
Amazon.com competes with Yahoo!’s search, infrastructure and cloud computing. Amazon.com has $542 million in annual revenue in this category and a 41%+ annual growth rate, both of which should be taken into serious consideration. Their innovation and brand enhancement through products such as Kindle, and entrance into mobile technology should also be noticed. They are a strong company willing to take risks and purchase competitors to build their customer based and knowledge base. Amazon.com increasingly is becoming a bigger competitor to Yahoo!’s services.
Resources
Advertising Volume for Yahoo's Top 100 Advertisers in March 2009. Retrieved July 12,
2009 from adquants:
Amazon.com SEC Form 10K – December 31, 2008.
Amazon.com Inc. (AMZN) Summary. Retrieved July 10, 2009 from Yahoo! Finance:
Amazon Web Services Retrieved July 23, 2009.
Burrows, P. Bezos on Innovation,Business Week, April 17, 2008.
Datamonitor, Amazon.com, Inc. Company Profile, May 11, 2009.
Datamonitor, Global Internet & Catalog Retail, March 2009.
Machan, D. Jeff Bezos on the Future of Amazon.com, November 28, 2009,
SmartMoney.
Wikipedia, A9, Retrieved July 24, 2009,