1) Amazon’sstrategy is based on cost leadership and differentiation. Cost leadership is avery important part of Amazon’s strategy. The company targets becomingcustomer-centric and offering its customers the products which they want, alsothese products should have a wide range as well. In addition to that thecompany continuously invests in technology, which helps to improve efficiency,lower the operating costs and enables to continue offering low prices tocustomers.
Amazon also points out differentiation. It provides a large varietyof products from its selection of retail products to Amazon Software, Kindleand Cloud services. It provides a wide variety of services to different typesof consumers. There are 3 of them: 1) Consumer customers (through its websiteAmazon offers a wide range of products, low prices to the customers); 2) Sellercustomers (seller who either sell their products via Amazon website, eitherthey sell via their own website and use Amazon delivery services); 3) Developercustomers (customers that use Amazon Web Services, which give these peopleaccess to Amazon IT infrastructure and enable them to create any type ofbusiness they like). Amazon provides low prices and wide selection of products,which then forms the resources for innovation.
In addition the company tries tounderstand its customers better offering feedback forms and also collectingdata about customers’ preferences among the products. The expansion process,such as launching Kindle or Amazon Web Services and other digital contentplatforms, is very difficult for the competitors (like eBay) to follow up. Inorder to make all the deliveries on time, Amazon opened fulfilment centers indifferent places of North America (Arizona, Delaware and etc.), Europe(Glenrothes, Hesse and etc.) and Asia (Chiba, Guangzhou and etc.). Tosummarise, cost leadership strategy enables amazon to gain competitiveadvantage along with the gaining more market share. However, large investmentin R can also cause some risks.
2) Strategic capabilities have a significant impact on anorganisation’s long-term survival or competitive advantages in the market(Johnson et al., 2014). Strategic capabilities can becomposed of resources (what the company has) and competences (what the companydoes). Resources are divided into 2 groups: tangible and intangible.
Tangibleresources for Amazon are: IT infrastructures, customer databases, warehousesand management team. Amazon has warehouses around the US and Europe withseveral warehouses in Asia. IT infrastructure is also a big resource of Amazon,since it is the not only the resource, but also the the source of Amazonrevenue.
The last but not least are customer databases and management team.These two resources are also important for Amazon, as for a customer-centredcompany customers are the main resource and source to make profit andmanagement team in this occasion must perform at its best in order to servethis customers in the best way. Intangible part of resources consists ofAmazon’s financial instruments, such as profitCompetencies are the skills and abilities which help theresources to be deployed and used effectively. This can be seen throughorganisation’s activities and processes. Amazon, as a powerful brand, gets itscore competency through brand and also through providing services to customersand building relationships with the retailers and suppliers. In addition,”Amazon also built relationships with Simon&Schuster Inc.
, and Christian Publishers,making even more titles available and further ‘fuelling’ interest in thisrevolutionary product.”(Case study, p.577). This part is very difficult for thecompetitors to imitate. Although the whole design of Amazon (website, logo) canbe imitated, the innovation part of the issue is close to be untouchable due tohigh investment in this part of business.
Another reason why Amazon is farahead is its diversification, which sometimes is far away from the corebusiness, which are books for Amazon.Finally, when it comes to employment, Amazon uses astrategic approach- headquarters are located in Seattle, where lots of ITtalent is situated and also helped Amazon in strengthening the management teamin the very beginning. A good example can also be hiring Richard Dalzzelt,former Wal-Mart Vice President, in order to get more knowledge in”merchandising, supply chain, commercial decision support and data miningsystems” (Case study, p. 576) 3) Amazon is considered as a much diversified company where sometimesit is much unrelated to the core business, which for Amazon are books. It canalso be mentioned that diversification is a part of Amazon’s growth strategy.The first move towards the diversification was made, when Amazon launched thefirst version of Amazon Kindle in the last quarter of 2007 followed by thesecond version in 2009. The market of electronic books is very close toAmazon’s core business. Only after that the company launched AWS, which allowsIT vendors and small companies use their services in cloud computing.
This wasthe first move towards unrelated businesses done by Amazon. Later on Amazon launched its Motorcycle Store”as a single shopping destination for motorcycle and parts, accessories andprotective gear” (Case Study, p. 579). From 2007 till 2009 making acquisitionsand forming alliances was a mail sources of diversification and expansion forAmazon, for example company acquired Fabric.com, Reflexive Entertainment andAbeBooks.
Such strategy enables Amazon not only to grow, but also to enlargetheir customer base and also enter the new market. However, the maindisadvantage is that acquisition requires large investments and enlarges therisks, if, for instance, this acquisition is unsuccessful. 4) Amazon still remains a “customer centred” company and, in myopinion, Jeff Bezos does not have to change anything in this point. NowadaysAmazon is targeting digitalisation and invests more and more in this field, forexample the launch of Amazon Go, Alexa and the Prime feature itself.
In thesecircumstances, we can clearly see that Amazon targets not only digitalisationand innovation, but the company also turns to, so to say, connectedtechnologies-connected cars and connected houses. In this case Alexa is a verygood example how Amazon adapts this product to a market: Alexa is beinginstalled into Ford cars and also it helps people to control their smarthouses, which are getting more popular. The process of innovation won’t stop atAmazon, as well as adapting new technologies to their customers.
This willdefinitely lead to a more deep competition with Apple and Google, which areconsidered to be two technological giants. In these circumstances Amazon willface the dilemma: 1) invest more in order to compete more comfortably, or 2) continueinvesting on the same level and do not get into the competition. To my mind,investing more and start deeper competition with Google and Apple is areasonable strategy for Amazon in the nearest future. Investing in a lot ofstartups (what Amazon is doing nowadays as well) will benefit in the future andalso today, because in this situation the competitors won’t be able to get oneparticular technology easier.In addition, it is becoming more and more important to be adiversified company-companies, after the success in their core businesses tryto expand and compete in the other markets, for example Google entered themarket with its One Touch Plus smartphone; Apple is thinking about car industryand also has an example of entering the mobile market with iPhone. Since Amazonhas good technological base and has experience in producing electronicproducts, such as Kindle, the company has good chances to also enter the marketof mobile phone and start competing with Apple on their territory. Besides the investingstrategy I think Amazon should continue investing more in promotion, as thecompany does right now-the overall advertising and marketing costs areincreasing from year to year. And in the case of Amazon entering the newmarkets, such as mobile market (which I have already mentioned above), themarketing strategy Amazon uses in other fields of business alongside with theexperience can be very beneficial to them.
All in all, in the future I see Amazon as one of the mostpowerful, technological and diversified companies alongside with othergiants-Google, Apple, Microsoft. The strategy of Amazon should still be basedon high investments in new startups and marketing, in order to enlarge thecustomer base and adopt new technologies for the startups. The second point isbased on the diversity of the company-Amazon should diversify more, enter themarkets, where other technological giants prevail-electronic market.
I thinkthat Amazon has already enough experience and technology to produce somethingreally unique and which will be loved by their enormous customer base. International Business GameFirst of all, I would like to begin with the definition of abusiness model where network effects can be used. Such business model is calleda platform.
A platform is a business model which enable the exchange of valuebetween the consumers and producers. Platforms are also considered to be atwo-sided networks, where both parties have cost and revenue or value side.There are different types of platform, which are used nowadays:1) Services Marketplace (booking.com); 2) Social Networking platforms (Facebook, Twitter); 3) Content platforms (YouTube, Twitch, Twitter, iTunes); 4) Product marketplace (eBay, Amazon)-type of a platformwhere customers and producers of goods meet;5) Payment Platform (PayPal, WebMoney) – platforms wherethe transactions are performed online;6) Development platforms (Android, Windows, Linux)-platformswhich are dedicated to developers and users;Platforms are very different from the other type of businessmodels, as they enable large number of producers to make and exchange valuewith the same large amount of consumers. For example, Apple, as a softwarecompany, makes one value (MacOS, for instance) and then sells this value tomany consumers, whereas Amazon has created a technical infrastructure, whereunlimited number of producers and consumers create and exchange value.
Network effects are the ways in which consumers of a platforminfluence the value of a platform itself, so to say the more people are therein a platform-the more valuable it is. There are three types of NetworkEffects:1) Direct Effects-are the effects where the value of aplatform or any service increases as the number of consumers increases. Forexample, telephone-it becomes more valuable and useful as more people use itand on the other hand, the more people use phones, the more useful it is tohave a phone yourself in order to contact people with phones. 2) Indirect Effects-are the effects where the value iscreated in exchange between two or more groups of users. In other words, thiseffect describes the relationship between customers and producers/developerswho use a given platform together.
The increase of consumers in a platformmakes a platform more valuable for producers, which leads to an increase ofhigh quality producers. This generates even more value for customers, which hasthe influence and frequency on the platform’s usage. For example, there manydevelopers who produce good apps for Apple iOS. Since these apps are good morepeople will be using this platform and buy new iPhones. Since the number ofiPhone users increase, the number of developer grow as well, as more peoplelearn how to develop an app for iPhone due to the increase of the market. Suchinterdependent circle is called “positive feedback loop” which is considered tobe the main source of success for platforms. However, as thenetwork/platform expands it is common that the average quality starts to drop,so it becomes very important for a platform to maintain high quality. Forexample, social networking platforms, such as Facebook and Twitter, ban anddelete spam accounts, they also ask their users to verify themselves.
Thisenables these networks to grow further.It is often better to understand the global consumer network as acollection of small local networks that operate independently from each other.In Facebook and Snapchat, for instance, people have contacts in their smallpeer groups.
Even though they are a part of a whole consumer base of these twosocial network, they are more directly impacted by their involvement in theirsmall peer groups. Such local network effect is a very powerful force inkeeping user engagement, as it put an emphasis on each user’s individuality.As for Amazon, the network effects play a big role in theirsuccess. To start with, Amazon is considered to be a two-sided productmarketplace, where consumers and producers create and exchange value. Thecompany sits between end consumers and producers or merchants. The company’svalue-add in this situation is more or less keeping order-all pages look thesame. Amazon keeps merchants on a short lease and requires them to operate instrict metrics.
Amazon plays a crucial role in this market, which is why it isvery difficult to enter this market. In traditional retail business it is verydifficult to adopt direct network effects as they are very limited. Amazon wasable to adopt ratings and reviews in a digestible format-products with lowratings(less than 3-4 stars) are not presented for a long time, the productsthat can attract consumers have at least 40 reviews. Such ratings and reviewsalong with tracking people led to predictive analysis.
This has changed a lotin direct effects world, as they have nowadays more broad presence alongsidewith indirect effects.