Critical Appraisal of Amazon.Com Current E-Business Strategy and Activities
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Business strategies and activities play a very crucial role in the future development of the organization. These strategies become more important, in case of e-business organization such as Amazon.
Every organization uses different business strategies in order to remain in business. Some adopt customer- centric strategies; some uses strategies to maximize their profit. For a long time, many organizations have made quality as their selling point.
The goal of this report is to analyze the Amazons e-business strategies and activities. This report also discusses the result of strategies adopted by Amazon and how far it has been successful.
Introduction
According to the definition of Whatis.com “E-business (electronic business), derived from such terms as “e-mail” and “e-commerce,” is the conduct of business on the Internet, not only buying and selling but also servicing customers and collaborating with business partners.”[1]
In todays competing world, many organizations are rethinking their strategies in terms of the online business and its capabilities and culture. Organizations are taking advantage of the widespread web to buy and sell goods from other companies and recently from individual customers. Exploiting these opportunities of convenience, availability and widespread reach of the web or Internet, many companies such as Amazon have benefited from the use of web successfully.
What is Amazon?
From “EARTHS BIGGEST BOOKSTORE” to “everything to everybody” to “Wall Mart of the Internet” to “Worlds most customer-centric company”, Amazon has been tagged with these kind of labels by its customers and followers.
The reason for these many labels is because of the Amazon changing business model. Starting from Single-product, customer centric and an intermediary with little inventory in 1995-1997 to Multi-product, profit-making, Client-centered, investor, Services provider in 2000. Amazon has been changing its business model according to market conditions.
One indication of a smart company is to continuously change its business model; it is an indication of smart company and ultimately the smart management team. It is also an indication that the company is learning and adopting itself to the external and internal environment.
For the first time in year 2000, Amazon management has set its focus of making profit. Again, it is an indication of nothing but smart, opportunistic management that utilized its strength to grow. It is very clear that Amazon management team is very focused.
In order to meets its future targets, Amazon has implemented a restructuring plan. It will allow Amazon to reduce operating costs, reduce employee staff, and strengthen some of its fulfillment and customer service operations. According to the quarterly report released by amazon.com for quarter ended September 30, 2004 “There has been a steep decline in operating costs.”[2] This has improved the performance of the company.
Amazon Business Strategies
Since its beginning, Amazon has adopted various e-Business model to increase its customer base and recently set its focus on making profit. Given below are the strategies adopted by Amazon.
Expertise and scaling
Amazon has a track recording of first gaining expertise in the market and then scaling into other areas. For ex. Amazon started with a web-based bookstore model and after gaining expertise in various operations expanded to other segments and geographies. Another example is, after capturing the US market; it expanded its business to Europe- U.K, France and Germany and then to Japan.
One advantage of this approach is that the incremental costs to expand the business, whether to multiple product line or geographically, are small. This strategy of perfecting before scaling helps in long-term survival and growth of the company.
Customer Focus
Since its beginning, Amazon has always kept focus on the needs of its customer and never lost sight of it. This gives Amazon a strong foothold of the internet retail business. Playing on this customer strength, Amazon has struck deals with industry leaders retailers Toysrus.com, Borders, Drugstore.com, and Target to help them draw customers to their Web sites, thereby giving birth to its services segment. Amazon is playing on its strength here and in the process creating a place for itself as a provider of e-tail services.
Cooperative model
Under this model, the partners do not compete with each other and try to lessen each other risks. This cooperation represents a symbiotic relationship, where the two partners do what they do best while depending on each other to eliminate respective weaknesses.
On August 10 2000, Amazon and Toyrus announced a strategic alliance. According to the press release by Amazon “The two companies have entered into a strategic alliance under which each company will assume responsibility for specific aspects of the toy and video games and baby products stores. Toysrus.com, in collaboration with its majority shareholder, Toys “R” Us, Inc., (NYSE: TOY), will identify, buy and manage inventory; Amazon.com will handle site development, order fulfillment, and customer service, housing both Toysrus.coms and its own inventory in Amazon.coms U.S. distribution centers.”[3]
This alliance helped Amazon in eliminating its inventory risk, as it does not have to purchase or store any toys until the customer have ordered and paid for the goods.
Coopetitive Model
Under this model the two parties act as provider and customer. Both the parties compete with each other but one party tries to lessen other risks and in return gets the share of others business.
On Apr 11, 2001 Amazon and Border announced strategic alliance. According to the press release by Amazon on Apr 11, 2001, “Amazon.com will be the seller of record, providing inventory, fulfillment, site content and customer service for the co-branded site. The new site will continue to offer content unique to Borders.com, including store location information and in-store event calendars. “[4]
In this case Amazon will continue to sell books on its own, but will also provide services to Border. In return Amazon will get a share of every sale by Border.
“Click and brick” Strategy
According to