The Amazon Effect - Case Study Example

Computer sciences and Information Technology: Amazon Amazon Amazon Company was established in the year 1994 by Jeff Bezos. Bezos regretted not having been able to participate in the boom in the internet business soon and therefore described it as “regret minimization framework”.Bezos quit his regular employment as the deputy president of a Wall Street company, (D.E Shaw &Co) and relocated to Seattle. Bezos started working on a business plan on what would finally become Amazon.com. After studying a report concerning the future of the internet, which had yearly web commercial growth projections of 2,300%, Bezos came up with a list of around twenty products which could be sold and marketed online. He reduced the list to just five products that he felt were most promising and they included computer hardware, computer discs, books, and videos. Bezos finally came to a decision that his company would be involved in selling books, because of the huge world-wide demand for the large number of titles that are available in form of print, literature and low price points for books (Chan, 2001). Initially, Bezos founded Amazon in his garage in Bellevue, Washington. Amazon began as an online bookstore, which was an idea that was triggered off after conversation with John Ingram, formerly of Ingram Book (now called Ingram Content Group) alongside Patel Keyur who is still a major shareholder in Amazon. During its first 2 months in business, Amazon was able to sell to all the 50 states in the US and 45 other nations. Within just two months, Amazon had increased to $20,000 in a week. Whereas the usual mail order catalog and brick and mortar bookstores could offer and carry around 200,000 titles, a store that is online could offer and carry many times more, because Amazon had almost limitless virtual warehouse compared to the actual product suppliers and makers. Bezos thought of a name that would begin with an “A” since he wanted it to appear first in alphabetic order. He chose Amazon since it was a place that was different and exotic (Chan, 2001). Amazon.com can be referred to as an “e-tailer”, a company that carries out its retail business over the internet. Amazon conducts all of its business on the web, and brick and mortar are not needed here.Amazon.com sells all types of products, from electronics, clothing, jewelry to food. This idea of carrying out business online is known as e-commerce or rather e-business. E-business is composed of the process of selling, buying, exchanging or transferring services, products or information via computer networks, such as the internet (Chan, 2001). Amazon.com being a retailer, deals mainly directly with consumers, they utilize business-to-consumer (B2C) to conduct business. In the model of B2C, organizations are the sellers and individuals are buyers. It therefore involves a huge number of buyers minting millions of different transactions each day with a moderately small number of sellers. This means Amazon.com should be able to manage hundreds of transactions each day, as if every customer is a very important one. This complicates B2C e-commerce and makes it difficult, since every product bought must be processed efficiently and shipped in a manner that is timely. Amazon uses B2C, by provision of the opportunity to buy and sell all kinds of products through the internet. It creates an opportunity for relationships to be formed so as to complete business transactions and sales. Provision of email addresses and having memberships that are personalized are some of the methods of dispensing sale advertisements and provision of discounts coupons are some of the uses of internet by Amazon. Instead of producing costly and time-intensive physical copies for every consumer, a centralized server and an email list can also serve up as a well-organized method for allocation of required information to the general members of the public.Amazon therefore makes use of B2C as a manner to demonstrate an online retailer that gives thousands of products for customers (Chan, 2001). Organizations of different sizes have embraced various information technology applications and tools so that they can attain competitive advantage. Several organizations usually devote a large percentage of their overall sales to budgets concerning information technologies. If there is proper employment of information technologies, they should be able to make organizations more effective and efficient. Professor Michael Porter of Harvard Business School, has discovered three categories that can be used for competing at the marketplace effectively, thus; differentiation, overall cost leadership and focus. Information system thus, can assist companies in the reduction of the cost of services and products and if correctly designed, will assist also with focus and differentiation strategies as well(Chan, 2001). Information technologies are also helpful in top-line and bottom-line strategies. The overall function of top-line strategy is in the generation of new revenues by the offering of new services and products to customers or making sure revenues are increased by selling existing services and products to new customers. Thus Amazon.com has adopted a business model that reduces costs of distribution dramatically. Thus Amazon.com uses the internet to sell antviruses and other computer soft wares. Customers can make subscriptions with like $30 and be able to download software and receive their updates for a whole year. Thus without the use of information technology, Amazon cannot afford to offer such software at such reduced prices. Several organizations are making use of enterprise systems, for instance supply chain management, enterprise resource planning, collaboration software and customer relationship management, to aid in the reduction of cost and improvement of customer service offered. The main aim of these systems is to utilize information system in the creation of the most effective, efficient link between organizations and their customers. In order to effectively improve differentiation strategies, firms try to make their services and products as different as possible from those of their competitors. Amazon.com has been able to differentiate its website by the use of specific information technologies, like personalization technologies in recommending products to their customers on the basis of their previous purchases. Amazon also utilizes the one-click system for such purposes as fast checkout. This system enables customers to enter their addresses and credit card numbers once, such that while on subsequent visits they simply click once in order to buy, without necessarily having to re-enter the information again (Hossein, 2010) Amazon Web Services (AWS) is mostly a compilation of remote computing services (also web services), that jointly form a cloud computing stage, obtainable online by Amazon.com. The most well-known and central of these services are Amazon S3 and Amazon EC2.This kind of service is made known by provision of a large computing capability(possibly several servers) much cheaper and faster than coming up with a server farm that is physical. Amazon Web Services is positioned in eight different geographical “regions”. The first is US East (Northern Virginia) which harbors most of the AWS servers, US West(Northern Carolina),Brazil(Sao Paulo),Europe(Ireland),US West(Oregon),Brazil, South Asia(Singapore),Australia(Sydney) and East Asia(Tokyo).GovCloud is also another region that is based in the Northwestern United States, which is particularly provided for United States government customers, which complements existing agencies of the government already utilizing the US East Region. Every region is fully contained within one country and all of its services and data within the selected Region (Hossein, 2010) Every region has got many numerous “Availability Zones”, which are discrete data centers, offering AWS Services. Thus availability zones cut off from one another to avoid outages from scattering amongst zones. Numerous services function across Availability Zones such as S3,DynamoDB),whereas others can be configured so as to duplicate across zones, avoid downtime from failures and spread demand.AWS was officially launched in 2006 and provides online services to other client-side or web sites applications(Hossein, 2010) Several of these services aren’t directly exposed to end users, however they offer their functionality that can be used by other developers in their own applications. AWS’s provisions can be accessed through HTTP, by use of SOAP and REST protocols. All the services offered are billed on their usage, and the measurement for billing differs from one service to another. At the end of 2003, Pinkham Chris and Black Benjamin made a presentation paper making a description of his vision for Amazon’s computing retail infrastructure that was entirely automated, entirely standardized, and would depend expansively on web services for such services as storage, which would draw mostly on internal work by now happening. They later mentioned the probability of selling services that were virtual, claiming that the organization would generate returns from the innovative infrastructural investment. By June 2007, Amazon said that around 180,000 developers had registered for them to utilize Amazon Web Services. Amazon uses the Amazon Relational Database Service (RDS) which is a web-based service and simplifies setting up, operating and scaling a relational database within the cloud. Thus Amazon’s RDS takes care of all the “dirt” of relational database management letting its users to concentrate on their business and applications. Amazon has had a long record of fine tuning their data management solutions to ensure that their systems are cost-effective and reliable as they continue to scale. It has always been clear to Amazon from the start of operating the Amazon ebusinesss platform that its reliability, scalability, cost-effectiveness and performance were all reliant on the manner that data was controlled (Paul, 2003). In the beginning years of Amazon.com, the site was structured like a conventional two-tier web system: a compilation of application servers that are connected to several backend of databases. In the Amazon architecture of services, every service is in charge for its own data management, which implies that each service team can exactly pick those resolutions that are preferably suitable for the specific application they are employing. It allows for customizing of data management system so that they receive maximum reliability and performance that is guaranteed performance at the cost that is right as the system balances itself up (Paul, 2003). Data management systems that are structured are conventionally attended by relational databases even though these complicated systems have got their own limitations, particularly when it concerns reliability and scale. Most of the time they also require remarkable expertise to function reliably and efficiently particularly when scaling up. Basically a notable part of the controlled data world does not need the RDBMS characteristics such as complicated relations and transactions and can be attended by a much simple and swifter system (Paul, 2003). Such a simplified controlled storage system, for instance doesn’t need the use of rigid schema and can permit indexes and characteristics to be tailored on the fly. This specific system has led to the production of AmazonSimpleDB where customers get the advantages of such simplified scalable controlled storage system with no need to mind about duplication, buffer cache optimizations, backups, resizing of data bases and so forth (Paul, 2003). A centralized organizational structure is characterized by levels of management ranging from the frontline operations to top management. The business owner or top managers makes the decisions and leads the way by providing the company’s direction and thus authority remains with the upper management levels. Amazon’s organizational structure is centralized. Thus there is a hierarchal decision making whereby all the decisions and company procedures are strictly handled at the executive or top level. In Amazon, managers and employees down in the command chain are not allowed in the decision making process and are not allowed to implement any new policies that are off course without the executive’s approval. In Amazon, all the major decisions in regard to everyday running of the business are mostly made by the business owner or the upper level managers. Policies are laid down to make sure the rest of the company implements the decisions of the executives. Jeffrey Bezos is the president of Amazon and is assisted by several directors and other heads of development. Thus in Amazon, the revised standard of the scientific management is applicable and much related to the organizational structure, control, design and management. Thus in Amazon, management control is a natural strategy whereby employer or management’s role is to make sure that all policies and procedures for production in the company are stabilized and whatever challenges and issues that could come up are subject to the managerial decisions. In Amazon.com therefore, the executive ensures that everything within the organizational in every department and division are in their right positioning and proper order. Normally the decision making process as well as formulation of rules and guidelines inside the organization is left to the management. In Amazon.com, therefore, the control and management over the resources, employees’ welfare and production processes are all under management’s supervision. Amazon was founded with the vision that the internet would completely revolutionize the manner in which to sell products and services to consumers. Initially the race to the success of internet was financed by fanatical excitement which was guided by a basketful of awful practice in the run for customers, with so many dot.com firms not creating any value. Fuelled only by the lure of free giveaways and wide discount, customers ran away once the companies tried to get better margins. All this was typical bad marketing manner of reasoning, not a revolution. Amazon on the other hand has proved to be a category leader in sales, acquisition, retention performance and sales with outstanding bonding levels, thus demonstrating what internet really is all about. Amazon has illustrated several of the opportunities that are accessible via the utilization of technology that is good. Because of this, Amazon.com has exceptionally been successful in producing very high levels of bonding in customers. Amazon has got an interactive technology that is quite smart and naturally is keen on servicing the high net worth customers and thus its services give good returns to the regular shoppers, at the same time very effective with the low value customer. It thus adds up the margin on an individual customer and finds out their interest. Amazon’s website is thus designed in such a way as a complicated communication tool that makes the whole process of creating value for the customer by identifying his or her interest automatic. Thus Amazon’s CRM, is a direct interactive marketing tool that makes it possible for a stream of interaction between the brand and customer. As the consumer buys or does not buy products from the store s/he increases his/her knowledge and so does the ability to serve their needs and interests. The internet system for Amazon also provides other related services which complements this. For instance the consumer is able to make a registration of their interests, and these are later utilized in profiling, later on registration can be made to allow for receiving information in the form of newsletters. Amazon uses Bitnami X2CRM which is a pre-configured ready to use image for running X2CRM on Amazon EC2. Thus X2CRM is a specially designed marketing, sales and service application that is designed for organizations that need a tightly based customer information system (Hossein, 2010). Special emphasis is given to the sales force speed and process optimization to aid in the reduction of the amount of time needed to enter and update records. The other software that Amazon utilizes is SugarCRM powered by Bitnami which is also pre-configured and ready to run image for powering SugarCRM on Amazon’s EC2.This software is a quite flexible CRM solution for several companies of all sizes. SugarCRM can quickly and easily be integrated and customized with other software. The core functionality includes marketing campaigns, force automation, support cases calendaring and project management (Hossein, 2010). Amazon.com attributes much of her success to her enhancement of the shopping experience; however the real strength of Amazon lies in her ability to hinge on supply chain and fulfillment capacities, alongside continuation of acceptable pricing strategies. A very big benefit for Amazon is the fact that it ships and manages not only her own inventory but also that of fellow retailers like Target and Eddie Bauer, providing it with economies of scale that really beats her rivals. Currently Amazon has the capability of shipping around 10 million products as compared with 500,000 of Walmart. Thus Amazon is able to offer same-day, second-day and other fulfillment options making it possible for Amazon to compete effectively with bricks and mortar organizations each day. By use of drop shipping, Amazon.com has got real-time connection to manufacturers, which dispatch goods directly to the consumers, on the behalf of internet-company. Amazon is able to keep very popular products in its inventory; however it’s also able to use a mix of other techniques in delivery of goods. This is able to give Amazon a competitive edge that its competitors find it difficult to replicate. Amazon has been able to launch and implement same-day shipping in 7 of the major US cities and has expanded its free dispatching offers in other regions of the world. Amazon has been able to unveil an easy to interact with and use online checkout system known as PayPhrase and has also initiated virtual private cloud computing so as to facilitate corporate clients to interlink their current infrastructure to computer resources of Amazon. Amazon uses U Route software for its supply chain management .Route is a powerful software that is user-friendly transportation management system designed to tighten the connection between shippers and their key carriers.U Route offers a wide range of features in a scalable environment that is web-based. Amazon’s fulfillment process begins with the concerned person. The way you ship the inventory Amazon’s fulfillment centers can affect the length of time it takes for the products to be available for selling and fulfillment. Amazon assists in making sure that the inventory does arrive safely and that it is received quickly. Thus the first step begins with the customer selling the product and then Amazon does the shipping. Amazon has been able to create one of the most complicated and advanced networks on earth. Many businesses have benefited from Amazon’s expertise. Thus with Fulfillment by Amazon (FBA) a customer is able to store his/her products in Amazon’s fulfillment centers. Amazon then picks the products, packs and ships them, and finally provides customer service in respect of these products.FBA can also assist a customer scale up their business and reach out to more customers. In a survey carried out in 2013, 73% of FBA respondents claimed that there was an increase in their Unit sales on Amazon.com in excess of 20% since joining FBA. Several benefits arise after registering with FBA, such as a customer’s products being eligible for Amazon Prime Free Two day Shipping, FREE Shipping and a horde of other benefits, customers are also able to get Amazon’s trusted customer service and returns-thus FBA handles customer service and returns for all Amazon.com orders. The other benefit is that Amazon’s services lets a customer’s business grow and expand quickly.FBA also allows a customer to fulfill orders from other channels using Multi-Channel Fulfillment. This is done by use of inventory stored at an Amazon fulfillment center. Lastly, FBA is simple and effective. Pay as you go-makes sure that you are charged for only the orders filled and storage space. FBA works in the following ways; foremost a customer sends his/her products to Amazon which could be used or new. Secondly, Amazon catalogs and stores the customer’s products in their ready-to-dispatch inventory. The third step is the searching and purchasing of the products by potential customers directly from Amazon.com. Fourthly, Amazon picks the products from inventory and packs the customer’s products. Lastly Amazon dispatches customer’s products and provides support. Thus it’s the duty of Amazon to finally ship products to consumers from their network fulfillment centers. Amazon’s shipping strategy has changed many people’s lives by provision of the same-day shipping service. Amazon agreed to do be collecting taxes and has been spending millions of dollars into new facilities that will be serving several parts of the US, including the Midwest, Mid-Atlantic and even the San Francisco Bay Area .Amazon could therefore send customer orders overnight for almost next to nothing and customers could easily pick up their merchandise on their way home. Apart from that Amazon also raised the minimum order size needed for most customers from the US so as to qualify for free shipping. Amazon’s strategy to increase in the minimum purchase for free delivery was aimed at an effort to push customers to register for Amazon Prime, which provides two-day delivery for $79 annually. Amazon raised the minimum from $25 to $35, claiming that it was the first time it was doing such a change in a period of one decade. Amazon mostly uses PayPal as a means of payment used by most of its customers and likewise from customers to Amazon. Amazon’s payment unit is on the verge of working on a mobile solution based on Near Field Communication. This service would allow Amazon’s customers be able to make payments for products in traditional brick-and-mortar stores by use of their mobile phone. Finally, Amazon.com’s hard work within itself, customers and other stakeholders has ensured that it meets the various needs of its growing client’s expectations and made it very successful. Amazon at present is not only the largest retailer online, but the seventh largest retailer of any type. Amazon has achieved this by maintaining top-notch and latest software, almost near perfect customer service. This has also been possible by integration of data efficiency and customer service in a manner that has not been done in the past-creating a process which at times is known as “The Amazon Effect.” References Chan Henry, L. R. (2001). E-commerce:Fundamentals and applications. New York: Wiley India Pvt ltd. Hossein, B. (2010). Management Information System. New York: Cengage Learning. Paul, C. E. (2003). A History of Modern Computing . New York: Massachusets Institute of Technology Press. http://www.centreforintegratedmarketing.com/gfx/documents/amazon_bonding_customers_with_integrated_service.pdf http://digitalcommons.liberty.edu/cgi/viewcontent.cgi?article=1008&context=busi_fac_pubs http://www.edtechmagazine.com/higher/sites/edtechmagazine.com.higher/files/customer-relationship-mgnt-white-paper.pdf http://services.amazon.com/fulfillment-by-amazon/benefits.htm?ld=NSGoogleAS http://www.allthingsdistributed.com/2009/10/amazon_relational_database_service.html Read More