Executive Summary:

Amazon.com is one of the most renowned names on the Web today. Amazon’s name

reflects the vision of founder Jeff Bezos, to produce a large-scale phenomenon like the Amazon

River; which it has definitely served to be in the e-commerce industry. The Seattle-based

company serves as the biggest most successful pure-online merchant, with the goal to “Offer the

Earth’s Biggest Selection and to be Earth’s most customer-centric company where customers can

find and discover anything they may want to buy” (Laudon). With three main goals of offering

the lowest prices, best selection, and convenience, the consumers are able to search and shop for

millions of new and used items on Amazon. From books, digital downloads, health care

products, to jewelry, computers, and automobiles, you name it, Amazon carries it. If they do not

carry it, they have created a system enabling consumers to participate in online transactions with

online merchants who rent space from Amazon. With Amazon’s stock increase of 155% since

April 2008, it is clear to consumers that their sustainable business strategy is successful and will

continue in the future.

With the growing e-commerce trend, Amazon is constantly adapting and innovating

changes in the environment to “maintain” its competitive advantage. Because of Amazon’s rank

as leader of the e-retailer industry with a market capitalization of $77.62 billion, there are few

companies that can compete. The company has been able to buy out companies like Zappos, and

IMDB, to alleviate their competition. Amazon has further expanded their Web presence in

becoming a single one-stop merchant on the Internet through integration of their “shopping

portal” and “product search portal”. This establishes intense competition from “online general

merchants” like eBay, and “general portals” like Google.

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 Ultimately, Amazon has proven to be immortal in the industry. However, there are

economic problems facing the company that could lead to their demise. With increasing oil

prices, Amazon is seeing rising transportation costs, which could directly hinder their ability to

provide free shipping and lowest prices on the Web. Another prevalent issue is the new taxation

laws in Web transactions, which have already been established in some states in the United

States. These new taxes pose a big threat to online companies and may introduce new

opportunities to compete with Amazon from the brick-and-mortar companies. In order for

Amazon to remain successful, they must identify resolutions to these problems. To relieve such

issues, Amazon must continue to do what has separated them from their competition, and remain

“customer obsessed”. By putting customers first, Amazon will be forced to innovate ways to

keep costs low for customers through economic recessions, and relieve issues surrounding online

sales taxes.

External Environment:

There are many different aspects in the general environment affecting Amazon in the

near future. The economic environment is constantly growing which requires Amazon to

continuously adapt. The e-retailer industry is growing at 10 percent per year while Amazon’s

growth is far beyond that (Morrissey). The socio-cultural aspect plays a huge role in Amazon’s

success. They are an online company that relies on millions of buyers to come and experience

their website. There are millions of accounts with Amazon where people can buy products and

post reviews about them. It’s success or failure is based mainly on social aspects, therefore

making it extremely sensitive to the socio-cultural environment. The global environment has

more influence as Amazon furthers its expansion globally. There are many different competitors

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all around the world that compete with Amazon which makes it difficult for Amazon to try and

compete with all of them, however they should focus on the significant competitors and worry

less about the smaller ones. Technology changes at an extremely fast pace and since Amazon

operates over the Internet, they rely heavily on technology. The technological environment plays

a very important role in Amazon’s success. They need to make sure they are continually

updating their technology while staying ahead of their competitors. They spent $1.2 billion on

internally furthering technology for the company last year. Up until recently, Amazon did not

have too many political or legal problems. However, many state governments are now trying to

make Amazon pay taxes for all the sales that have taken place in the different states. This could

have a negative impact on the profits Amazon makes in the next few years but it should not hurt

their well-established brand image. The demographics play a huge role in Amazon’s success

since they customize their marketing to each individual member of Amazon. They use special

software to help study the different segments and trends in their market. Overall, Amazon’s

general environment plays a large role in the success of the company; they must continue to

analyze trends and adapt as it changes.

Industry Environment: 5-Forces Analysis

The bargaining power of suppliers for Amazon is not very strong. Since Amazon serves

as a marketplace for many different merchants to come and sell their products, they have a large

number of suppliers. They also produce and sell their own products like the Kindle which can

only be found on their website, so the supplier of this product does have some power. For the

most part, there are so many products being sold from so many different companies, Amazon

could easily find another supplier if one disconnected ties with Amazon. The suppliers’ goods

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are critical to the buyer’s marketplace success, however since there are so many suppliers,

it would take a lot of suppliers to stop using Amazon for it to have a negative impact on

them. The suppliers pose little threat to integrating forward into the Amazon’s industry since

they are selling so many different products and have a diverse selection of suppliers to choose

from.

The bargaining power of buyers is not extremely strong since there are hundreds of

thousands, if not millions of buyers. These buyers do not purchase large portions of Amazon’s

output output, which gives buyers little power.either so the buyers have little power. The buyers’

switching costs however are quite low since they could easily go to another website like eBay or

Craigslist to find a cheaper less expensive product. The products being bought on Amazon are

not a significant portion of Amazon’s annual revenues so this also takes power away from the

buyers.

With Amazon leading the e-retailer industry there is a minimum threat of substitute

products. There is a minimum threat of substitute products from Amazon since their company as

a whole is the leading e-retailer in the industry. The only threat of substitute products is if a

buyer were to go to a different website like eBay or Craigslist to purchase an item for a cheaper

price. However, there are usually multiple suppliers selling similar products on Amazon for

different prices,s which allowing users to choose the cheapest price available. The company

hasThey have so many differentiated products and provides relevant information on each product

offered that it reduces the chance that a buyer will travel to anothergo to a different website to

buy something. This eliminates any threat of substitute products because Amazon could be seen

as providing substitute products within it’s website.

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 Amazon’s dominance in the e-retail industry illustrates why there very little competition

among other firms. is the leading e-retailer in the industry and for that reason has very little

competition among other firms. Their main competitors are eBay, Barnes & Noble, Inc. and

Wal-Mart. The competition is not equally balanced, with Amazon’s leading presence, which

because Amazon is the leader so this reduces the amount of rivalry among firms. The industry

growth of e-retailers has grown about 10 percent but Amazon’s growth has increased by almost

40 percent in their last quarter (Morrissey). This growth not only exceeds the industry growth,

but its far exceeds the industry growth as well as its rivals’ growthas well. , eBay which only

grew 3.3 percent in the last quarter (Enright). There are very little storage costs since most of the

products being sold on Amazon are through different venders and companies who are

responsible for their own storage and shipping of products. Amazon also has many

differentiation opportunities to prevent rivalry among competing firms.There are also many

differentiation opportunities for Amazon so this prevents the amount of rivalry among competing

firms.

There is minimum if any threat of new entrants. Amazon is the leader in the e-retail

industry and its competitors are far behind them so for a new company to start up and compete

with Amazon would be suicide for the company. There is such a large assortment of product

differentiation that Amazon has accumulated so this makes it extremely difficult for new entrants

as well. A new company or entrant would have a very limited amount of access to distribution

channels compared to Amazon’s distribution channels making it difficult for new entrants.

Amazon is so large that they are able to provide quality products for cheaper prices than most of

their competitors. Overall, the threat of new entrants into the e-retailer industry is minimal for

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Amazon because they would easily be able to push them out of business by offering even lower

prices and better deals on products, shipping, or other customer-centric services.

Competitor Environment

eBay

Amazon’s number one competitor is eBay. eBay is an online auction and shopping

internet pure-click company. People can buy or sell almost anything from tangible goods to

services. It was founded in 1995, same year as Amazon, and is now a multi-billion dollar

business working in over 30 countries (eBay). They have a differentiated business strategy in the

sense that they sell almost anything that someone could want on their website.

There performance has not been as good as Amazon over the past three years. eBay’s

market share went from 19 percent to 17 percent in the past two years while Amazon’s share

grew from 3.7 percent to 5.3 percent (Maltby). The number of active sellers for Amazon is up

18 percent from a year earlier while eBay’s active seller count only increased 3 percent from a

year ago. The number of listings on eBay has increased 26 percent from a year ago but

ironically the rate of converting listings to completed sales has dropped 18 percent (Maltby).

This decline in performance was partially due to several new policies eBay put into effect. They

now require sellers to placed fixed-prices on items to sell for at least one dollar. This forced

people to spend more money on certain items which led to many negative reviews for a lot of

sellers. The sellers do not likeare not fond of this because there is no way tothey have no ability

to contest the negative reviews whichreviews, which in turn hurt the sellers’ reputation, in turn

diminishing as well as their profits. Many users of eBay are fed up with these new requirements

and have started switching to Amazon.

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 eBay has invested in several different companies including a 25 percent acquisition of

Craigslist as well as the acquisition of Skype in 2005, which they laterthen sold in 2009

(Wingfield). One of eBay’s strengths is it’s their leading global brand for online auctions,

serving as a marketplace and has a marketplace withfor more than 100 million buyers and sellers.

They have created a very strong brand image, recognized by most. which is known by many

people. The company also has a Customer Relationship Management program, which they use

to collect date on individual buyers and sellers. Economists then analyze this data to try and

determine different types of buying and selling trends that are popular. One of eBay’s

weaknesses is the amount of fraud that takes place on the website. eBay is a huge site and they

work hard to try and determine fraudulent items but with the enormous amount of users, it is

almost impossible to catch them all.there are so many users that they can’t catch them all. This

causes a lot of frustration among buyers on eBay and can lead them to use other websites that are

reputed trustworthy instead.

Barnes & Noble, Inc.

Barnes & Noble is a leading competitor of Amazon’s Kindle as well as all e-book

readerss. They are the largest book retailer in the United States. The company originated in

1873 however it did not gain its reputation as a huge book store until the 1970’s when it changed

ownership and began selling used books as well as new (Blair). The company grew during the

70’s, 80’s and 90’s to become one of the leading sellers of magazines, newspapers, DVDs,

graphic novels, gifts, games and music. They company operates 705 stores in the U.S. as well as

636 college bookstores (Barnes & Noble Booksellers).

Barnes & Noble sells an e-reader called the Nook. The Nook is an electronic book reader

which was released in November of 2009 for a price of US$259 in response to Amazon’s Kindle

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(Fried). Amazon had released their Kindle First Generation on November 19, 2007 and was

charging US$399 (Amazon.com). The newest Kindle, the Kindle 3, can be bought at the low

price of $139as cheap as US$139 (Amazon.com). The sales of their Nook as well as the sales of

magazines, newspapers, DVDs, graphic novels, gifts, games and music make Barnes & Noble a

notable competitor of Amazon.

Barnes & Noble wants to create a comfortable atmosphere for people to come and spend

their leisure time. This is similar to the strategy that Starbucks uses which is why most often

Starbucks’ can be found inside Barnes & Noble locations. there is almost always a Starbucks in

a Barnes & Noble. They have performed quite well over the past few years. Barnes & Noble

ranks first among the specialty stores industry with a gain of 1.81 percent (Brian). Their stocks

have been known to outperform the average. They have been innovative in creating products

like the Nook and want to continue to do so in the future. The strengths Barnes & Noble include

offering a wide variety of products in store as well as online. They are the world’s largest

bookseller and are known for having a comfortable ambience at their stores. The one weakness

they have is their high operating and overhead costs due to the face that they have 705 different

locations in the United States (Barnes & Noble Booksellers).

Internal Analysis:

History

Amazon.com is the world’s largest online retailer. Amazon is a Seattle-based company

founded by Jeffrey Bezos in 1994. The company was founded by Jeffrey Bezos in Seattle,

Washington in 1994. It is highly invested in offering services to consumers, sellers, and

developers through its retail website. The company initially started as an online bookstore when

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it sold its first book in 1995, but expanded to reach other consumers by selling CDs, DVDs,

video games, sporting goods, tools, toys, clothes, furniture, computer software, and much more

(Amazon). In 1997, Amazon became a public company with its announcement of an initial

public offering (IPO). The following year, the company launched its first international sites.

Furthermore, Bezos was named Time Magazine’s “Person of the Year” in 1999 for his

accomplishments with the company. E-commerce started to change the way the world shopped,

so Bezos beat out the competition to achieve the prestigious award. Amazon did not expect to

earn profits in its first few years, but in 2001, the company saw its first positive profit. In 2005,

the company started its own brand, Pinzon, to sell textiles, kitchen utensils, and other household

goods. Amazon gained even more popularity when the company introduced the Amazon Kindle,

an electronic book reader. In 2007, Amazon started a grocery service named , AmazonFresh, in

the Seattle area that delivers groceries to customers’ homes in the Seattle area. During the same

year, they launched a MP3 music store, which sells songs and albums that are slightly cheaper

less expensive than its primary competitor, iTunes. In 2011, the company launched an online

music storage and player service called Amazon Cloud. Its service enables users around the

world to wirelessly access their music library through any Internet capable deviceto access their

music library from any computer in the world as long as the internet is functional (Geelan).

Management

There is a large management team that helps run Amazon.com smoothly. Bezos serves

as President, Chief Executive Officer, and Chairman of the Board for Amazon. Thomas Szkutak

is the Senior Vice President and Chief Financial Officer. Jeffrey Blackburn is also the Senior

Vice President with emphasis in Business Development. Andrew Jassy’s role as Senior Vice

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President includes making sure the company’s web services are functional and accurate. Diego

Piacentini is the Senior Vice President of the International Retail department. Sebastian

Gunningham, Steven Kessel, Marc Onetto, Shelley Reynolds, Brian Valentine, Jeffrey Wilke,

and Michelle Wilson also serve as Senior Vice Presidents of Seller Services, Worldwide Digital

Media, Worldwide Operations, Principal Accounting Officer, Ecommerce Platform, North

America Retail, and General Counsel, respectively (Amazon). While there are not any physical

Amazon stores, the top management team helps to make the Amazon shopping experience is

quick, easy, and convenient; and provideshas all the services that customers look for in an online

retail company.

The management team at Amazon created a strategy to be the first-choice provider for

customers seeking online products and services. They strive to be a leading supplier of goods

and services to retail customers in a market that is constantly seeing changes, from recessions to

new competitors. Innovation is crucial for Amazon. After they introduced their own product,

Kindle, it became the company’s biggest selling product and built up a 90% share of the nation’s

electronic book industry (“Amazon.com”). They compete with other e-book sellers by allowing

users to purchase books anytime and anywhere and have contracts with certain publishers that

give them the right to distribute their books. Good management pioneers strategies that help the

company succeed, and Bezos and his team have done that.

Functions

In addition to selling products to consumers, Amazon offers the ability for people to sell

their own products on its website. Customers can buy Amazon products, use its services, sell to

other customers, or buy from other customers solely online.

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 The company’s major divisions include Amazon MP3, AmazonFresh, Amazon Connect,

AmazonWireless, and Amazon Cloud. Amazon MP3 is the company’s online music store that

was the first to offer music without digital rights management. This service competes with

iTunes with its cheap prices. For instance, Billboard.com’s highest rated song, “Grenade,” by

Bruno Mars’, song, “Grenade,” sells for $0.99 on Amazon compared to its selling price of $1.29

on iTunes. Additionally, AmazonFresh provides grocery services to customers in the Seattle

area. Amazon Connect allows authors to electronically comment on their book pages to

customers. AmazonWireless allows customers to shop for cell phones and plans. Amazon’s

33,700 employees help the company function in the United States, Canada, China, France,

Germany, Italy, Japan, and the United Kingdom (Amazon).

Acquisitions

Amazon has made several acquisitions over the years, including Internet Movie

Database, Lovefilm, Woot, Joyo.com, BookSurge, Fabric.com, Woot.com, Audible.com,

Shopbop, Quidsi, and Shelfari. More notable and recent acquisitions include BoxOfficeMojo,

Zappos.com, and Touchco. BoxOfficeMojo is a site that releases information on how much

money a particular movie grosses, and the website was acquired in 2008. In addition, Amazon

acquired Zappos, the web’s most popular shoe store, in 2009. In 2010, Amazon attained the

technology company, Touchco, which develops touch screens for products (Slawski). These

divisions and subsidiaries of Amazon.com help the company generate additional revenue beyond

their basic services.

Key Capabilities

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 One of Amazon’s most prominent strengths is its claim of being the leading online

retailer with a market capitalization of $77.62 billion (money). As of January 2010, for example,

Amazon acquired approximately three times the internetInternet sales revenue as the next leading

retailer, Staples, Inc. This has helped the company create a powerful brand image. Amazon is

known for initiating online e-commerce, and it is one of the original online companies that

developed a customer base of over 30 million people in a ten-year period. This gives customers

a sense of brand loyalty and that prevailing image keeps consumers coming back. Furthermore,

another strong attribute is Amazon’s business strategy. Customer Relationship Management and

Information Technology help drive its business strategy. For instance, the company records user

data behavior and recommends a bundle of items based upon preferences of items purchased or

viewed. While many people still associate Amazon with books, the company made a good

business decision to expand to hold a more diversified product portfolio. In addition to books,

customers can now purchase clothes, electronics, food, CDs, DVDs, household items, and much

more. The company also sells the Kindle, which held 90% of the electronic book industry when

it was launched. The Kindle also outnumbered the sales of hardcover books in 2010 with a ratio

of 143 Kindle books sold for every 100 hardcover books (“Amazon”). Moreover, Amazon is

good at innovating services that have an edge of its competitors. Amazon rivals iTunes by

offering MP3 downloads at a cheaper price. The company also introduced Amazon Cloud in

2011, which is bound to change the way users store and listen to music. Bill Carr, Vice

President of Movies and Music at Amazon, stated, “Our customers have told us they don't want

to download music to their work computers or phones because they find it hard to move music

around to different devices. Now, whether at work, home, or on the go, customers can buy

music from Amazon MP3, store it in the cloud and play it anywhere” (Geelan). Finally, Amazon

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strives to provide services that encourage customers to keep returning to the website. The

company has good shipping and delivery services that make it easy and cheap for the customer to

shop; they offers free shipping and delivery for products that cost over $25. Amazon offers

superior customer service because pleasing the customer is what helps drive the company.

Weaknesses

While Amazon is a leading online retailer, it has encountered some weaknesses. Even

though Amazon has a diversified product portfolio, many people still associate the company with

only selling books because that is what the company originally sold. Thus, product expansion

risks weakening the brand image due to some confusion with customers. Amazon also tends to

only market book products, such as the Kindle, rather than advertising for broader customer

bases who are interested in music or electronic services. Additionally, the company depends on

external delivery firms to distribute products to customers. The free delivery and shipping is

advantageous for the customer, but it costs Amazon a lot of money, especially with increased oil

prices and vehicle taxation (Amazon). Furthermore, constant system maintenance is necessary to

maximize customer satisfaction, but increases company costs. Customer service is the most

important thing for the company, so there cannot be any delays in the system. Another weakness

Amazon faces is the lack of physical stores. Shopping online is convenient for many customers,

but if there is an issue with a product or service, customers must call the support phone number

and talk to someone over the phone. This is often inopportune, and some customers may choose

to shop at a rival store to encounter with store employees.

Financial

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 MSN Money states that analysts give Amazon an average rating of 1.97, which translates

to a moderate buy recommendation. Twenty analysts suggest a strong buy motion for stock in

Amazon, while 12 are saying to hold it, and only 2 suggest selling it. Even though the stock

price dipped, the 20 analysts recommending “to buy” indicate that the stock will rise again.

Analysts are expecting to outperform the market over the next six months with less than average

risk. StockScouter gave the company a 6 out of 10 rating. Over the last three months, there have

been mostly motions for strong buys and been consistently rated as a stock to hold onto. Over

the last year, the company has done well. Earnings growth is holding steady for Amazon. Sales

were $34.21 billion over the last 12 months, which is a 32.14% growth over the last 5 years.

Income was $1.15 billion last year, which is a 28.17% five-year growth. Revenues per share

were $75.05 and earnings per share were $2.53. Like most companies after a crisis, there was an

upward price trend. The stock peaked at $191.60 last year. It has seen a 44.8% positive change

over the last 12 months with a relative strength rating of 76. Additionally, it Amazon.com saw a

return on equity of 19.02%. The company had a debt to equity ratio of 0.09. This is a low ratio,

but it is more attractive to investors and lenders because they are better protected if there is a

decline in business, so the lower ratio can potentially attract additional capital.

Barnes & Noble, Inc. and eBay, Inc. pose as two of Amazon’s major competitors.Two of

Amazon’s major competitors are Barnes & Noble, Inc. and Ebay, Inc. Although Barnes &

Noble has been around for a while, it does not show the strength of Amazon.com and seems to

be underperforming in the market. Their net income is -$28 million and -$0.51 EPS, while

Amazon.com holds $1.15 billion in net income and $2.53 EPS. Despite eBEbay’s greater net

income of $1.80 billion, their EPS is $1.36 and has a P/E of 23.44, while Amazon.com has P/E

of 68.59. The higher P/E ratio means that the industry is expected to do big things soon. The

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interactive chart below indicates how the three competitors have performed in the stock market

from April 2008 to April 2011. Clearly, Amazon is the market leader with the stock increasing

over 155% since April 2008.

After Amazon made its first profit in 2001, the company’s revenue and profits have

steadily increased. Below is a graph displaying the revenues and profits in millions that Amazon

made between 2008-2011.

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 40,000
35,000
30,000
25,000
20,000 Revenue
15,000 Profit
10,000
5,000
0
2010 2009 2008

The chart below compares the gross profits for Amazon, eBEbay, and Barnes & Noble in

2010 with $7.643 billion, $6.591 billion, and $1.676 billion, respectively. Amazon has almost

16
equal profits of eBEbay and Barnes & Noble combined.

2010 Gross Profit

Amazon
EBay
Barnes & Noble

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 2010 Gross Profit

Amazon
EBay
Barnes & Noble

Identification of Problem Areas:

Problems

Amazon’s current problems are the industry competitors, changes in state sales tax

legislation, and customer satisfaction. On-line retailing industry is rapidly growing and

competitors are taking advantage of the demand in their own operations. Amazon needs to

continue innovating to meet customer demands if it wants to continue being ahead of the game as

it currently stands in the industry.

Competitors’ Strengths

Competitors of Amazon are rapidly gaining strength from all angles. Competitors of

Amazon share the “search site” and “online retailing” industry making it a constant challenge for

Amazon to innovate creating an intense pricing pressure. There are too many competitors to

name but a few of the top competitors gaining strength are Google and Apple.

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 Google is continuously innovating and gaining strength in the “search site” industry

while Amazon Inc. is slowly moving forward as its main focus is to stay as the top retail website.

Amazon’s A9.com , a supposedly innovation system in search technologies that helps people

find what they want on the world’s leading e-commerce sites has never gotten traction. Its

features got recently downsized by AmazonAmazon recently downsized its features. Google, on

the other sidehand, has outperformed in the “search site” industry raking number 1 in customer

experience (Keynote). In relation to competition, Google is constantly innovating. It’s ahead of

the game in the creation of apps to the Android phone while Amazon is slowly catching up. For

example, Amazon’s SnapTell’s app, (which is an image recognition application allowing user to

ID a product and find ratings and pricing information,) has been struggling with the competitor

Goggle’s Shopsavvy app, (a similar application but rather uses barcodes and allows you to keep

record of products for future reference) (A9.com). This is definitelyThis is a prominent problem

a problem for Amazon because application suppliers and buyers can easily switch to Google.

With that said Amazon needs to improve on this industry, as the “online search” industry is said

to become a $100 billion market (A9.com) (Menoni).

The future of the e-book market is also at stake. Although Amazon was the first to

launch the Kindle, an e-book reader, and isKindle, and it currently is doing well in the e-book

market, it will likely have to be shared with competitors like Apple and Google in the future.

Apple poses to be a threatening rival, with plans to integrate an e-reader into their mobile device,

the iPhone. being the biggest rival as it is looking into making the e-reader available to the

Smartphone maker rather than just within a device. Analyst predict that Amazon, Apple and

Google will each share 35% of the e-book market but that doesn’t include the consideration of

other competitors such as Acers (Disqus). Apple’s new invention of the iPad has definitely

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added to Amazon’s competition. However, Amazon has responded to Apple’s threat by getting

as many publishers to exclusively sign a contracts with them. This allows them to get as many

books out of Apple’s reach and having the capability and flexibility to have set its own process

on their website.

In an effort to continue fighting its competitor Apple, Amazon has even started an App

store on its website. Although Amazon had good intension it has lead to some issues. The

store’s name has prompted a lawsuit as Apple claims it is a trademark infringement (Miller). If

won Amazon could lose a lot of money not just as far as court expenses but also lose customer

who have adopted “the app store”, apple’s trademark, as the way to buy apps. Amazon may

have the best system for purchasing applicationss but it will not be profitableany good if theyit

don’tesn’t figure out an alternative way to promote it among customers and create and identity a/

trademark of its own to lure in customers.

Competition in the online-retail industry will continue to increase as more and more

retailers such as Costco, Wal-Mart, Microsoft and other switch to the online business. Like

Amazon, these competitors are creating value for customers by providing the “e-commerce” way

of shopping; as now a day’s customers value the option of shopping online especially during

these times when gas prices are increasing. Most shoppers have found that Internet shopping

allows for a more informative, browser friendly experience with the ability toNot only that but

some shoppers prefer to be able to compare priczes online and enjoy being able to browsesurf

with a clickque of a button rather than physically being physically located at athe store.

Amazon definitely needs to keep innovating in this industry to stay ahead of the game as the

number one online-retail provider.

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Costs

Costs are definitely going out of control. For years Amazon has been fortunate enough to

not have to pay for state taxes for on-line customerstransactions. They benefited and made

many profits without having to pay state taxes. However, now that states are going through

budget cuts and resources, are deficit states are changing legislations to charge on-line retailers

sale taxes for customers that purchase online. Uncollected taxes will have a negative effect on

Amazon if states win cases such as in the case of Texas. Texas sent Amazon a bill for $269

million after stating that the Dallas-area warehouse qualified as a local address under state tax

rules. An administrative hearing is to be taken place to decide on the results. Lawmakers in

California, Hawaii, New Mexico, Minnesota and Vermont have introduces similar legislation in

an effort to collect taxes against Amazon and other online retailers. If cases are won Amazon

should expect a significant loss in revenue. Not only that but it will definitely continue a trend in

other states who claim they have the right to collect taxes from on-line retailers (Kopytoff).

Aside from tax implementation for online retailers, Amazon is facing costs from the

external environment. Gas prices are going up and in turn affect the supply the chain Amazon

engages in as part of their business practices. This in turn will put a strain on the price they will

be able to afford to charge on the deliveries of the items customers purchase online. It’s a

concern Amazon will have to closely watch, and analyze what cost effects come from it.

as far as what effects it will have on their cost.

Expansion

The following is not a foolish expansion but rather a difficult expansion Amazon is

currently facing. Currently, Amazon is experimenting in its expansion into the search services

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such as through the use of A9. It was not successful in its promotion and as mentioned earlier its

features got downsized. Amazon’s mission statement is to offer the Earth’s Biggest Selection

where customers can find and discover anything they may want to buy. With technology

innovating at an astronomical rate Amazon may have a difficult time being able to accomplish

this. It serves as a large risk for Amazon, yet still furthers their business strength of innovation.It

puts a constant stretch on Amazon but at the same allows for continuous innovation on

Amazon’s part.

Efficiency

One of Amazon’s major customer concerns is its change in private policy. Its new policy

has raised concern among customers, enabling Amazon to share their consumers shopping habits

to others. as the company could share their shopping habits to others. The new policy allows

Amazon to share information with affiliated companies, compare e-mail lists with other

businesses, and build customer profiles by exchanging data with others to avoid fraud risk.

Amazon’s new business practice of selling customers information is at question.So its business

practice as far as selling customer information is at question right now.

Cost Efficiency

Amazon is renting out almost everything it uses to run the business. This includes rack

space, warehouse, data storage, and even some of the millions of lines of software code it has

written to coordinate all that ("Jeff Bezos' Risky Bet."). For the most part this is saving Amazon

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some lots of money, as it is not required to pay taxes in some states in which they do not have a

physical stores/warehouses operating in. However, as legislation is changing and states are

fighting to charge on-line retailers taxes Amazon may need to compromise and start running its

own operations. It may be more beneficial in doing thisthis, as giving Amazon will have more

control in its operations. if it does this.

Outsourcing

Amazon currently outsources a lot ofin its business operations. In fact it is even

considered a weakness as it depends on external delivery firms, which greatly increase costs.

Amazon should look to develop firms under its official title, resulting in reducing costs and

convenience of managing them.This increases cost for Amazon and as a suggestion Amazon

should consider developing firms under its official title to help reduce cost and manage them at

an easier convenience.

Critical Problem Facing Amazon.com:

The nature of the online retail industry creates a highly competitive,; ever changing

environment. Intense competition makes it difficult for top companies, such as Amazon, to

continuously differentiate their products and services from those offered by competitors in order

to remain ahead. One essential environmental change that must be accounted for in future

periods involves forecasted increases in the price of oil. Increasing oil prices will directly

increase transportation costs that are directly passed down to, and incurred by the

consumer.ultimately assumed to be passed down to, and incurred by the consumer. Amazon

currently outsources its delivery function to a third party. Amazon’s current policy of offering

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free shipping does not appear to be a feasible strategy moving forward as the competitive

environment will need to adapt to these increased costs.

Future profits will likely begin to erode if Amazon continues to absorb such tremendous

increases in transportation costs without spreading a portion of the costs to its customers. Along

with the potential of increased consumer costs, other factors may also have a negative impact on

Amazon’s brand image. Amazon’s current product expansion extending out to a vast portfolio

of products (not related to books) may also pose risks to their brand image, distorting its initial

position as the leading online retailer for books in the minds of consumers. The changing

economic environment will also pose future threats Amazon must take into consideration moving

forward. As economic conditions begin improving and other businesses begin to expand price

competition will become fierce amongst competing firms, driving down price levels and placing

pressure on Amazon to lower its prices. Due to the unmatched magnitude of Amazon this may

have less of effect on their operations but is essential to consider when hedging against the

competition in the future. As economies of scale continue to shrink reduced buying power will

eventually limit Amazon’s ability to offer promotional deals and low prices, both of which are

key factors in attracting new customers. In addition, international competitors could potentially

encroach upon Amazon’s expansion into foreign countries as joint ventures, strategic alliances

and mergers could result in Amazon losing its prime position in various markets. New taxation

laws being established throughout an increasing number of states must also be considered

moving forward.

Over the last three years New York, Rhode Island and North Carolina have established

new laws regarding new affiliate taxation, nicked “Amazon Taxes.” This new law, “requires

retailers that have contracts with "affiliates"--independent persons within the state who post a

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link to an out-of-state business on their website and get a share of revenues from the out-of-state

business-to collect the state's sales and use tax,” (Henchman). This affiliate taxation forces

internet-based business to track a wide variety of sales tax bases and rates in order to properly

identify the costs associated with collections involving customers in different states. These

businesses incur the risks and liabilities associated with paying the taxes which an extremely

costly procedure. Initially established to generate state revenue growth and provide brick-and-

mortar companies greater opportunities to compete with online retailers, the laws have not

proven effective in either case. Online companies are now simply severing ties with their

“affiliates” and states are experiencing reduced income tax collections. With such rapid

technological improvements provided throughout this day and age, even the smallest of

businesses can more readily and feasibly extend their business over geographical borders. As a

result of exposing such businesses to tax compliance as well as liability risks simply because

they contain customers in a certain state, these businesses become less likely to expand

operations into other states placing a burden on inter-state commerce, (Henchman). With

numerous changes occurring throughout the environment surrounding Amazon, ample

opportunities for improving operations arise in order to remain in front of the competition and to

hedge against some of the potential risks discussed.

One such opportunity involves build partnerships with the public sector. By using public

libraries to provide a search option and catalogue for potential users, millions of books, including

rare and antique ones, will become available on Amazon’s website for customers to navigate

through and ultimately purchase. Developing relationships with publishers themselves may also

prove to be an advantageous endeavor for Amazon. Through establishing exclusive offers with

publishers and launching authors exclusively for the Amazon could potentially generate a

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flawless stream of revenue growth absent of any third party involvement. Customers who are

partial to specific authors will be inclined to repeat business. As previously mentioned, the

outsourcing of Amazon’s delivery function increases their costs as a result of uncontrollable

third party errors. Amazon may need to establish and invest in an internal, more cost efficient

method of product distribution.

As the leading online retailer, Amazon has ample opportunities to partner with other e-

commerce retailing organizations as their size provides tremendous appeal. This may prove

necessary in order to maintain a competitive advantage in the future and has already been

utilized in some of Amazon’s recent investments. A central component in Amazon’s Amazon

Web Services, or AWS, Amazon’s is the new EC 2, which provides users access to Amazon’s

proven web-scale computing on a pay-per use basis. However, security issues pertaining to the

“cloud” have come to light in the past. In order to maintain customer loyalty, safety and future

business, appropriate corrective measures must be determined and installed. Outside of e-

commerce retailing organizations, other notable collaborations include the NBA, Target, and

Toys-R-Us.

Expanding into international markets is another golden opportunity Amazon has been

taking advantage of several years and must continue doing so in the future. Amazon established

a joint venture with British retailer Marks and Spencer to sell its products and service online.

The Luxembourg-based division plans to offer personalized technology services to retailers in

Europe. Also purchasing China's largest online retailer Joyo.com in 2004, Joyo provides similar

services to those of Amazon throughout China.

The critical problem facing Amazon today is maintaining their position as a leader in the

online retail industry containing such an intense level competition. Continuous innovation

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combined with relentless efforts in customer relationship management is essential to maintaining

a competitive advantage in the industry. They currently offer a vast portfolio of products in

order to remain a top competitor will need to continually find new product markets to enter while

enhancing the ones already serviced. Amazon’s already enormous size, scope and positive brand

image can all be used to ease its struggles in differentiating their products and services.

Recommendations:

After identifying several key problems with Amazon certain recommendations have been

made for the company to address these problems. The three recommendations are continued

innovation, resolve the sales tax issue, and maintain customer obsession. These three

recommendations best resolve the key problems identified earlier in the report.

The first recommendation is for Amazon to continue to innovate. The online giant is

already known for its innovation being ranked number 2, only behind Facebook, in innovation by

Fast Company. This recommendation addresses the key problem of competition. In the e-

commerce field competition comes from a variety of sources for example other similar websites

(ebay.com) and brick & mortar stores websites (walmart.com). Amazon needs to continue its

innovation to remain a step ahead of its competition. Recent innovations by Amazon include the

start of Amazon Fresh, Amazon Prime and the Industrial & Scientific Division. The first

innovation, which could be made, would be to expand the Amazon Fresh division to other major

US cities, currently only offered in Seattle, but this would mean setting up physical presences in

more states. The second innovation is to expand Amazon Prime further by allowing members

more benefits. The third innovation is the Industrial & Scientific division, which is a relatively

new segment of Amazon. The Industrial & Scientific division focuses on the business-to-

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business market. If Amazon continues their ability to innovate successfully the company will

maintain an advantage over its competition.

The second recommendation is for Amazon to resolve their sales tax issue with certain

states. Amazon currently does not charge customer’s sales tax in states Amazon has no physical

presence. The reason Amazon is able to avoid sales tax goes back to a “1992 Supreme

Court ruling says that retailers can't be forced to collect sales tax on out-of-state shipments unless

they have offices in those states.” Due to the recent recession states are seeking out ways to

maintain current budgets, which includes trying to collect taxes through Amazon. Amazon has

refused to cooperate with state governments constantly using the prior mentioned Supreme Court

ruling to justify their operations. The recent lawsuits requiring Amazon to collect taxes has

caused much uncertainty in company’s future. The reason for the constant court battle is

Amazon wants to have as many benefits as possible for its customers and reasons this is why

they continue to refuse to collect sales tax. If Amazon is able to resolve this issue in the near

future it will help ease shareholders and the company as whole allowing them to move forward.

The best recommendation for Amazon is to maintain customer obsession. This is the best

recommendation because it will require Amazon to complete the other two recommendations and

it resolves the key problem of privacy issues. First, Amazon’s continued obsession with their

customers will force them to innovate so they always offer the best to their customers and it will

help them in their continued fight for not collecting sales taxes. Second, Amazon is trusted by

their consumers because of their customer obsession approach, which is said to be the foundation

of Jeff Bezos' company. Amazon was ranked the most trusted brand in the US by scoring “123

in MillwardBrown’s “TrustR” survey – only 1% of all global brands scored higher than 120”.

The trust customers give Amazon can be traced to this obsession. If customers trust Amazon,

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then Amazon will make sure the customers best interest is always in the forefront of their

decisions.

The implementation plan for Amazon to maintain customer obsession is to keep hiring

qualified personnel who display the ability to “work long, hard, [and] smart”. The different ways

Amazon can maintain the customer obsession and show their dedication to their customers is to

keep responding to customer complaints quickly and effectively. Two services Amazon could

introduce are first an instant messaging service and second a smart phone application to submit

problems or issues. The instant messaging service could be setup for certain times (regular

business hours) and could help resolve simple ordering issues or problems with products. The

smart phone application for customer service could be synced with Amazon’s shopping

application and the customer’s account. The application potentially could speed up the process

of resolving wrongful charges on customer’s accounts and or help resolve other basic issues.

Amazon will continue to attract customers as long as they maintain their current level of

obsession with service.

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