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SWOT analysis of Amazon

By Ovidijus Jurevicius | 15.02.2013 | Comments

Company Background

Name Amazon.com, Inc.
Logo Amazon.com logo
Industries served Internet, Online retailing
Geographic areas served Worldwide
Headquarters U.S.
Current CEO Jeff Bezos
Revenue $ 61.09 billion (2012)
Profit $ -39 million (2012)
Employees 88,400 (2012)
Main Competitors eBay Inc., Netflix, Apple Inc., Barnes & Noble, Inc., Wal-Mart.com USA, LLC.

Amazon Inc. is an American online retailer that primarily sells products over its online marketplace and offers many other products and services through its subsidiaries. Amazon.com sells in 11 countries and ships internationally. It is one of the biggest retailers and is steadily growing every year.
You can find more information about the business in its official website or Wikipedia’s article.

SWOT

Amazon SWOT analysis 2013

Strengths

Weaknesses

  1. Cost leadership strategy
  2. Superior quality services and products
  3. Strategic acquisitions
  4. Efficient distribution chain and logistics
  5. Economies of scope

Weaknesses

  1. Only online presence
  2. Selling at zero margins
  3. Negative publicity

Opportunities

Threats

  1. Online payment system
  2. Release more its own brand products and services
  3. Increase services and product portfolio through acquisitions
  4. Open more online stores in other countries
  5. Physical presence

Threats

  1. Online security
  2. Lawsuits
  3. Strategic alliances
  4. Legislation against tax avoidance
  5. Regional low cost online retailers

Strengths

  1. Cost leadership strategy. The goal of cost leadership strategy is to produce products and services with a lower cost than the competitors do. The key to achieve this strategy are the economies of scale. For Amazon to succeed with the cost leadership strategy it has to provide the widest range of products to achieve the economies of scale and benefit from the low costs of displaying those products on its online marketplace. In a result, the business became the largest online retailer in the world.
  2. Superior quality services and products. Amazon delivers only the best quality services and products. It is reliable, convenient, offers one of the lowest and fastest shipping, the lowest price, many free additional features with its services and has the widest selection of goods. Amazon has a brand reputation for great customer service.
  3. Strategic acquisitions. Amazon has been successfully acquiring new firms to bring the new products, services, capabilities, assets and skills to the business. Due to these strategic acquisitions Amazon is now capable of offering cloud services, has developed its information management (IM) and customer relationship management (CRM) skills.
  4. Efficient logistics and distribution. Amazon has a number of fulfilment warehouses in each market it operates. The warehouses are geographically spread in each country so the goods could be dispatched faster and with lower cost.
  5. Economies of scope. Economies of scope are the savings that come from producing two or more goods (or providing services) at less cost than producing each individually using the same resources and technology. Amazon experiences economies of scope by using its superior IT skills to offer the largest range of products online (instead of offering fewer products). It also uses excess server capacity (which originally were built to support online marketplace) to provide cloud computing services.

Weaknesses

  1. Only online presence. Amazon lacks physical presence like retailers such as Wal-Mart and Target. People can see and touch the purchases there and buy them instantly.
  2. Selling at zero margins. Many of the products the Amazon offers are sold at zero margins to gain the market share and push the competition out of the market. In a short term, it is a strong tactical move (due to Amazon’s cost leadership strategy) but in the long run it only hurts firm’s profits. Competitors will adapt and can easily gain their market share back by pursuing differentiation strategy.
  3. Negative publicity. Amazon has recently attracted much negative publicity due to its tax avoidance in the countries (UK and US) where it earns most of its revenues. Amazon is also criticized for poor warehouse conditions for workers, anti-competitive actions, price discrimination and etc.

Opportunities

  1. Online payment system. Amazon could extend its current payments system and introduce the service similar to PayPal. Amazon’s payment system would be of great use for mobile buyers who usually by on the go and find it hard to provide bank details or other personal information that is required when purchasing the product. In addition, such service could be used by many other online retailers for a small fee.
  2. Release more own brand products and services. With an access to such large market, Amazon could benefit by releasing more of its own brand products.
  3. Increase services and product portfolio through acquisitions. The company has already acquired many companies to successfully extend its products and services offering.
  4. Open more online stores in other countries. To sustain current growth levels, Amazon could open its online marketplaces in other large and growing economies in Asia and Europe.
  5. Physical presence. The business could establish some physical presence in the markets it operates. Smaller store-warehouse (like Argos’ stores) outlets could serve as warehouses, distribution centers, the stores where customers could pick up their purchases and physical contact points. Amazon’s brand presence would be significantly improved.

Threats

  1. Online security. Amazon stores its online shoppers’ personal information, such as bank account details, which is a target for online thefts. The more online customers Amazon has, the more attractive as a target it becomes.
  2. Lawsuits. The business has already attracted much negative attention from UK and U.S. authorities for tax avoidance and is subject for litigations and fines. Lawsuits are costly and consume time.
  3. Strategic alliances. Although Amazon is a massive online shopping mall and can’t be easily surpassed by small competitors, it faces serious challenges from strategic alliances. For example, the strategic alliance between Apple and e-books content providers allowed the content providers to demand that Amazon would sell e-books for higher price or that they will sell their e-books through Apple store only. Without the strategic alliance, content providers were unable to compete against Amazon’s bargaining power.
  4. Legislation against tax avoidance. There are growing concerns over how huge multinational companies, such as Amazon, avoid paying taxes for the countries they operate in. Eventually, governments will pass a legislation requiring that all companies would pay a fair share of taxes. In this case, Amazon’s profits would be significantly affected.
  5. Regional low cost online retailers. Regional low cost online retailers could outrival Amazon on faster and cheaper shipping, localized product offering and better knowledge about home market.

Sources

  1. Amazon (2013). Amazon Investor Relations. Available at: http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-irhome
  2. Gillmor, D. (2013). Amazon's AutoRip: a great service – with strings attached. Available at: http://www.guardian.co.uk/commentisfree/2013/jan/11/amazon-autorip-great-service-strings-attached
  3. Wikipedia (2013). Amazon. Available at: http://en.wikipedia.org/wiki/Amazon.com

Written by Ovidijus Jurevicius

I'm interested in strategic management and business strategy. I like sharing my knowledge and ideas about these topics with you.

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