Analysis of the Internal and External Environments of Amazon

Introduction

In the recent past, there have been various business model innovations that have focused on new services and hardware like e-readers, kindle, smartphones, grocery delivery, Television, Fashion, and even expansion to Amazon Web Services, which is business-oriented.

Back in 2008, during the company's SEC filing, the company described its vision as focusing relentlessly on the experiences of customers by offering them convenience, prices that are lower, and a selection of merchandise that is wide enough (Singh, 2018).

The tremendous growth and expansion of Amazon could partly be attributed to its leadership and employees' continuous efforts. Dedication to customer service, coupled with constant innovation, is what makes up the groundwork for the company whose future looks very bright (Chaffey, 2018). The focus of this paper is on select Amazon products, which include Amazon Prime, Amazon Retail Goods, Amazon Fresh, Amazon Studios, and Amazon Kindle. For students exploring business dissertation help, analysing Amazon's strategies and market positioning can provide the best insights into successful business models and growth strategies.

BCG Matrix

This is a planning tool that makes use of graphical illustrations of the different products offered by a company together with its services for purposes of helping the companies in the making of decisions on what to keep, increase investment in or sell all together. The tool plots the offering of a company in a four-square matrix. In the matrix, the x-axis is representative of the market share, while the y-axis is representative of market growth (Whitehead, 2015). Products are placed in appropriate boxes based on one`s assessment of where they rank in terms of growth and market share. How a company compares to its competitors plays a considerable role in determining where the dividing line between the quadrants is set.

Cash Cows

Each company has that set of product categories that generate enough revenues for it to facilitate the regulation of operations of the different business units under it. Such products are referred to as cash cows, and company managers are tasked with leveraging such products and further utilizing their high market share to gain even more revenues. These are the marketplace leaders, and they also generate more cash than they even consume. The sale of e-books, prime subscriptions, and retail goods makes a lot of money for Amazon, which qualifies these to be referred to as cash cows. Mohajan (2017) considers cash cows as having the ability to provide the cash required for conversion of question marks into market leaders, funding development, and research, paying shareholders their dividends, and covering the organizations cost of administration. According to Martin (2018), all companies should consider investing in cash cows to maintain high levels of productivity.

Stars

Amazon Prime Air, which is the second category of products, is part of the star that holds a high share of the market. As is reflected by the name, these are products that are emerging as the leading generators of revenue for organizations. It is worth noting that the financial gains accrued from stars are not the same as the economic gains of cash cows. The future of stars is, however, quite bright and promising, and that encourages managers to continue investing in them. It is also a fact that high investment is required in these products, and there is a high likelihood that with time, they would grow into cash cows. Most of the time, first-to-market products and monopolies are usually referred to as stars.

Question Marks

This is another quadrant included in the BCG matrix. These are the parts of a business that, while having high growth prospects, also have a low market share. What that implies is that their returns, concerning the amounts invested, are lower (Zinovchuk, 2016). In the long run, question marks lose money. However, the question marks unit snowballs and has a high potential of turning into a star. It is always advisable that every organization considers investing in question marks if the product has the potential for growth, and in the event it has none, it should be sold. Within Amazon, Amazon Fresh has rather high chances of growing into a profitable venture. Its limited market share, however, makes its business units as prime generators of revenue. It is no doubt that the industry is in a growing phase, which suggests that there is a considerable possibility that, eventually, the question mark will morph into a rising star. However, that will only happen if Amazon is well capable of setting the right directions for its products.

Dogs

These are products and units that have low growth rates and small market shares. Generally, these dogs are considered as cash traps, and that is because at all times, businesses always have money tied up in them, and that is even when they do not bring anything back in return. In Amazon, Amazon Studios could qualify as a dog because it does not generate high sales and has also not been capable of establishing very considerable market shares in comparison to the other Amazon products.

Worldwide platform share of action/adventure digital originals: Adapted from Parrot Analytics (2019).

Efficient cost structures

Amazon earned US$140.235 in 2017 from online sales (Macrotrends, 2019). The sales were higher than the sales of any other online retailer. It is observed that Amazon`s growth has been faster than that of the broader e-commerce market of the United Kingdom. What that implies is that the company has taken over from its competitors and as such, increased its market share. Amazon`s low-cost structure goes a long way in lowering of prices. That, combined with a vast product range, brings about a better customer experience. With no doubt, customers who are satisfied return to the company`s websites, and that creates ever-growing traffic. Subsequently, that attracts third-party sellers to the market place of Amazon. Through online sales, Amazon cuts on expenses that would have been incurred in the running of physical outlets of retail. From time to time, Amazon has been observed to invest in existing centres and also in additional fulfilment centres that have facilitated reductions in shipping costs and order fulfilment times. Lower prices come about from these savings on time and expenses, which are then passed on to consumers. Amazon has created alliances that are quite strategic with other companies in a bid to differentiate itself and also to offer superior customer services. These companies include Qualcomm, Mediatek, NXP Semiconductors, Tencent, Microsoft, and many others (Wayne, 2018).

Amazon`s background is quite strong, and, generally, the company also has deep pockets. Over the last two decades, Amazon has morphed into an e-commerce giant globally.

Amazon growth rate compared to e-commerce sales growth in the U.S adapted from (Jurevicius, 2019)

Amazon also has a robust Customer Relationship Management system that has gone a long way in creating processes that are customer-centric that carefully and precisely record data of the customers buying behaviours. That puts Amazon in an excellent position to offer related items and individual items in line with the preferences of consumers, which is demonstrated by the visited items and the items purchased successfully.

The accommodation of third party sellers in Amazon`s business model with the capabilities of offering their products on sites owned by Amazon has worked for Amazon`s favour. These third-party sellers provide alternative products and other products that are not available through the retail division of Amazon.

Close Collaboration

The three key businesses that Amazon is involved in include; Amazon Marketplace, Amazon Prime, and Amazon Web Service. All these are offerings that provide support for one another. That goes a long way in building benefits that would not have been achieved had the operations of the businesses been independent. AWS provides APIs and on-demand computing platforms to governments, companies, and even individuals on a pay-as-you-go basis that is metered. Amazon, being an online retailer, largely relies on its website for its sales (Amazon, 2015). The company was forced to invest heavily in server infrastructure as a result of the large number of people who visit its website daily. AWS has been able to grow tremendously as a result of these investments and the resulting server capacities. In reciprocation, AWS provides size and speed in for Amazons websites. For a large online retailer like Amazon, slowness in the loading of pages brings about a lot of losses. AWS works to ensure that the page load speed in Amazons websites is as low as possible to ensure maximum customer satisfaction. Additionally, during peak times, Amazon relies on AWS` huge capacities to cope with the increments in the number of visitors.

Weaknesses

Amazon`s model of business is easily imitable. In the current digital world, online retailers have become quite common. That makes it quite easy for rival firms to imitate the business model of Amazon. Today, Amazon is being given a hard time by its different competitors like Oyster, Hulu, eBay, and Barnes & Noble.

Amazon is also clouded with numerous issues of avoidance of tax. These are issues that have attracted a lot of negative publicity on account of evasion of tax in different countries like the UK and the US. These markets are the sources of most of the revenue for Amazon. In the past, a lot of anguish has been expressed about the latest Amazon accounts for its UK operating company (Murphy, 2019). Last year, Amazon disclosed that it`s Britain Tax bill was around £4.6 million for 2017 in a filing. This amount was almost half the amount the company had paid in the previous year, 2016, of £7.4 million. In actual sense, the amount that was paid was only $1.7 million, factoring in tax deferrals. According to Amazon`s statements, they always pay all the taxes as required in the UK and in all the other countries where they operate within. Britain requires corporations only to pay 19% of their profits in tax. There have even been plans to lower the percentage to 17, come 2020 (Browne, 2018).

One of the anti-tax avoidance agencies based in the UK named The Tax Justice Network refers to the low tax payments as insults. According to them, that is the most unambiguous indication that the tax system globally is broken and urgently needs to be fixed. Failure to do so would see the ruining of small and medium enterprises at the expense of the global players. These global players are observed to be more aggressive in controlling more market share and pushing down the rates of tax. The Tax Justice Network argues that these large multinationals must be forced to report on their financial activities on a country-to-country basis. In their defence, Amazon, however, argues that profits form the basis for corporation tax and not revenues and that the earnings of the country have generally remained low. That is a result of the fact that retail is a low margin business that is highly competitive.

Amazon has also experienced a fair share of product flops. In the US, they launched the fire phone, which, to no small extent, was a flop. They also started kindle fire, which failed to pick up with the same gusto Kindle had picked up with. These product flops have with no doubt dented the company`s deep pockets.

Opportunities

Amazon has a chance of coming up with its In-house brands in the different categories of products. They could also possibly differentiate their offerings. That could go a long way in making them more profitable in the market of e-commerce that is quite competitive.

Amazon is also quite stable financially and thus should consider buying out other e-commerce companies to decrease the levels of competition. Through the acquisition of other companies, Amazon will also be able to use those companies' specialized capacities.

Amazon should also consider opening up physical stores in different parts of the world, which would provide its customers with better opportunities to engage with the brand, leading to repeat purchases and increments in the base of loyal customers.

Threats

Imitation is quite easy as many new entrants have been coming up in the market with business models that are the same as that of Amazon.

The E-commerce market has other major aggressive players like Walmart and eBay, which makes it very competitive.

Amazon`s business proceedings are by large affected by government regulations. For instance, Amazon does not ship to Syria, Sudan, Iran, and Cuba.

Conclusion

With no doubt, Amazon is doing well business-wise. Moving forward, however, and in a bid to beat the intense competition by its competitors, Amazon should consider offline retail for some of its products like the retail products, fresh groceries. Other products like Amazon Kindle and AMAZON Prime would better stay online. Amazon owns more than half of the global e-commerce industry. Also, the company`s web advertising and cloud computing businesses make it one of the tech industries' most powerful players. However, e-commerce only makes up for a small percentage of the overall spent in retail. If Amazon has intentions of maintaining its market share and growing it, even more, it would be necessary that it comes up with fresh ways of selling products. To a large extent, that would require moving into the real world, offline (Statt, 2018). It is in the real world where more money is spent on household goods, groceries, food, and drink. It is quite clear that the biggest hurdle for Amazon is not competition from other e-commerce company`s but the evidence from the behaviours of consumers that there exist purchases and products whose existence is almost exclusive offline. Amazon risks ceding ground to those companies that possess the physical footprints that are necessary for the creation of robust networks for shopping as envisioned by Amazon. Amazon should rely on its brand name, efficient cost structures, and deep pockets to venture into these offline stores for some of its products. Setting up physical grocery stores would see Amazon Fresh turn into a star and eventually maybe even turn into a cash cow. Retails goods that are already cash cows would, with no doubt increase their market share.

To turn Amazon Studio from a dog to at least a question mark, Amazon should first consider buying out smaller video sites like Hulu, CBS All Access, DC Universe, and all other smaller sites. That would increase their market share and broaden their operations.

Way Forward

With no doubt, Amazon`s future looks complicated than just the ordinary sale of products across the internet. Moving forward, Amazon should consider moving to the physical world from the internet. There are other ways through which Amazon is also observed to adopt in a bid to shift the behaviours of customers from offline to online. Same-day delivery of household goods and products is offered by Amazons Prime Now services, but only in a few markets.

Amazon should also really consider acquisitions of other smaller companies who are in the businesses in which they operate in like Hulu.

References

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