Amazon.coms Business Creation and Growth - Assignment Example

 Amazon.com’s Business Creation and Growth Introduction Amazon has been a success story of selling on the web. It has survived the crash after the dot com bubble of late 1990s. This paper looks at the company’s inception, growth and success in the light of factors that relate to entrepreneurship. Entrepreneurship as a subject has drawn many definitions and several factors have been attributed to it. A brief overview of the studies behind entrepreneurship is given to set the stage for discussing Amazon.com. Amazon’s diversification and release of its Kindle ebook reader product is also explained and its innovative position in the industry highlighted. Finally, the paper discusses the challenges Amazon faces at its relatively mature stage in growth. Theoretical background Entrepreneurship, as a subject, has been under study for a long time but has evoked varying definitions from scholars but for a long time had no “cohesive, predictive or normative theory” (Amit et al, 1993: p. 815). This was also later confirmed by Shane and Venkataraman when they asserted that there was no consensus on a “precise conceptual framework” around the idea of entrepreneurship (2007: p. 171). However, some agreements do appear in research. For example, Amit et al (p. 825) mention the consensus with regard to risk taking by entrepreneurs where they, based on earlier research, redefine the “risk” process as rather that of “low level of uncertainty aversion” or a different point of view to uncertainty held by the entrepreneur as compared to others. This redefinition is rooted in the fact that risks inherently presuppose the presence of probabilities of failure and success. Uncertainty is when the results are not known. Typically, when an entrepreneur takes on a venture, the probabilities of return are usually not known. This, then, brings the question of why behaviour rooted in uncertainty is a central factor in entrepreneurship. Amit et al go on to observe that this is caused by innovation which yields an “undermined amount of tangible and intangible capital with uncertain return” (p. 825). The innovation could be low or high on a “disruption” scale where it challenges the status quo in the marketplace (Christensen & Raynor, 2003: p. 48). The connection between innovation and uncertainty fits well with entrepreneurs quite often initiating their work with technical uncertainty with long term costs unknown, demand uncertainty with an unknown response to their innovation, and competition uncertainty where it is not known how competitors and imitators will affect the market. Shane and Venkataraman bring forward an interesting observation that while studying factors for entrepreneurship, focus on the entrepreneur alone is misleading and incomplete (2007, p. 172). An entrepreneur does not act in isolation and only operates in a setting where a certain level of opportunity exists. Therefore factors for entrepreneurship are intertwined between circumstance and the entrepreneur. These factors, then, comprise areas of “how, by whom, and with what effects opportunities to create goods and services are discovered, evaluated and exploited” (p. 172). In summary, therefore, we can safely mention some of the factors of entrepreneurship that we would also demonstrate through the discussion of growth of Amazon. These factors include, innovation, identifying an opportunity, taking an uncertain path to success, and access to support while exploiting the opportunity. Amazon’s Business and Growth Amazon.com was founded in 1995. Jeff Bezos, the founder, was working at D.E. Shaw, an investment management firm on Wall Street, before leaving the company to found Amazon. D.E. Shaw being an investment advisory firm, Bezos was well placed to be in an environment where new and upcoming businesses were discussed and evaluated as part of the job. Shaw had described him as “smart and creative” (Quittner, 1999). Talking to Time magazine when he was chosen as the 1999 person of the year, Bezos described his “Eureka” moment as when, in 1994, he went through statistics on the growth of Internet, still a nascent technology. He found that the Internet was growing at the “rate of 2300% a year” and that set him thinking on what kind of business could he run on the Internet (Quittner, 1999). E-commerce was practically non-existent on the Internet at that time and that is what Bezos set his eyes on. He then researched various possibilities of what he could sell online and settled for books, as mail order companies were simply unable to sell millions of books through catalogues. Later, when discussing whether he had any fear starting this business, he mentioned his “regret minimisation framework” where he would imagine he was 80 and whether he would regret his current decisions at that time. Realizing that he wouldn’t, he went ahead with his plan (Quittner, 1999). As mentioned in the theoretical section, entrepreneurs do not work in a vacuum and have to be near or perceive an opportunity for the process of entrepreneurship to take place. Hornsby et al suggest that among other factors, “precipitating events” provide an individual a choice to take action and become an entrepreneur (1993: p. 29). The situation with Bezos is a perfect example of an enterprising person where “precipitating events” of being at a company evaluating new business sees the growth of Internet, selects a niche and decides to act on the perceived opportunity that selling books through e-commerce would be a success. Not to take any credit away from Bezos, his idea was an innovation. Selling anything through e-commerce and creating virtual stores was unheard of. Even though brick and mortar book stores did exist, and so did mail order suppliers, the combination of the Internet, ease of ordering, wide choice in selection, and discounts because of lower costs were a new combination. Although disruption to the bookselling business was at the lower end (Christensen & Raynor, 2003: p. 48), it was clearly an innovation as described in the theoretical section above. The innovation was linked with uncertain results where his plan to sell books using an entirely new medium in a new kind of marketplace clearly had technical and demand uncertainty. Also, knowing fully well that the Internet was an open medium and he would face competition in no time, Bezos also decided to venture ahead with competition uncertainty. This is in line with the theoretical framework presented earlier in this paper about entrepreneurs innovating despite uncertainty looming ahead. In later years, Amazon diversified extensively and included toys, clothing, music, home supplies and numerous other categories in its portfolio. As the company grew to be one of the largest companies with online business, it did not stop innovating or lose sight of the entrepreneurship principles it followed in its earlier days. Amazon has excelled in creating personalized and “enhanced encounters” with its online customers (Gutek et al, 2002). For example, without any human interaction, Amazon provided its customers a personalized interface where a buyer of a product is able to instantly see what other buyers with similar tastes are searching or buying (Gutek et al, 2002: p. 139). Kindle In its quest for diversification and new segments, Amazon released Kindle, its first hardware product, in 2007. Kindle is a portable e-book reader which allows the owner to download, store and read e-books anytime anywhere. The first release of the product had a six inch screen while the latest version, the Kindle DX, has a 9.7 inch screen, is about 1/3rd of an inch thick, light weight, can hold about 3500 books, and can load several formats of ebooks include the proprietary Amazon format as well as PDF files (Amazon, 2009). The display is an “electronic paper display” which gives a realistic feel of reading an actual book (E-Ink, n.d.). In its first year of sales, Amazon sold about 500,000 units of Kindle (Johnson & Wunker, 2010: p. 175). While Amazon does not specify Kindle sales explicitly, it is rated as the highest selling and most popular item on Amazon. Kindle does not require a connection with a computer to download books and they can bought and downloaded using a 3G wireless network available in whichever country it is sold. Users can directly access Amazon’s web store and download books which are typically priced lower than the print edition. At the end of 2009, Amazon claimed to have a collection of over 460,000 books available for purchase for the Kindle platform (Bezos, 2010). Amazon was not the first company to sell e-book readers. There were other e-book readers on the market before Kindle including one from Sony, the giant in consumer electronics. Amazon’s product strategy, however, brought greater success to Kindle than its competitors (Bulik, 2009). Amazon’s innovative treatment of the existing concept of e-book readers is to build in a connection from Kindle to Amazon’s site via a 3G wireless connection. This internal cell phone like connectivity is transparent to the user. The customer does not have to worry about buying connections or subscriptions for this facility as the price has already been covered in the cost of Kindle itself (Richardson, 2010: p. 82). In this way, Amazon offers the same user friendly and popular user interface of its web store to the Kindle customer without having to pay anything extra. These have been the two innovative differentiating factors that kept Kindle apart from competition. Challenges With sales in 2009 over $ 24 billion (Bezos, 2010), selling almost the entire spectrum of retail products through its platform, competing with almost every retailer in the world, and venturing into newer areas like e-book readers, Amazon faces its own set of challenges every day. This is compounded by the fact that while maintaining leadership, Amazon’s margins could be pressured by the very nature of the Internet which opens space for new players to enter the market much easier than in a brick and mortar situation. However, even while growing and operating in an increasingly competitive market, Amazon has been able to achieve “reasonable” of margins of up to 15% owing primarily to its superior customer differentiation and relationship model (Ellison & Ellison, 2005). As Amazon entered the digital music download market, it stood in direct competition with Apple, the industry giant ruling the music download business through its iPod product. Thanks to the evolution in technologies and company growth, Apple, previously known only as a hardware vendor, and Amazon, previously only an online book store, have now come face to face selling low cost music to their customers. The same evolution of the marketplace in a digital world has also brought further challenge for Amazon. With the success of Kindle, Amazon has been leading the e-book reader market. However, the introduction of smart phones, and now iPad from Apple, has introduced new levels of competition for the company. This trend is a serious threat to Kindle because this “distribution channel” of smart phones, and soon iPads, is much more common and entrenched into people’s lives and they may not need Kindle to read books (Chen, 2009: p 32-33). Already Apple is on its way to offer tools to read e-books on iPhone and iPad. iPad, with its colour screen and the ability to turn pages with the flick of a finger seems today to be more user friendly and versatile than Kindle. Kindle’s strength remains its large collection of books but it is uncertain how its leadership can be maintained. Pitting of Apple and Amazon, both companies founded on innovation and responsiveness to customers, against each other is one of the largest challenges Amazon faces. Amazon is already said to be developing its response to iPad through the acquisition of a startup, Touchco, which specializes in touch screen technology. This may also signal an end to Amazon’s use of E-Ink technology and plans to launch a competing product to iPad (Bolton & Stone, 2010). Amazon also faces challenges in the international market. For example, in Europe, the online arm “Fnac.com” of French retailer PPR, is growing rapidly in and grew more popular than Amazon in France and Spain (Boone & Kurtz, 2008: p. 239). Conclusion It has been shown, by first establishing a theoretical basis based on ideas from scholarly research and then through examples from Amazon’s history and strategies that the company is fits the entrepreneurship framework quite well.It is also one of the few companies that survived the dot com bubble crisis and, through constant innovation, Amazon continues to build on its leadership in the marketplace. The company’s philosophy is best described in the founder Jeff Bezos’ own words, ‘‘One of the only ways to get out of a tight box is to invent your way out.’’(Strategic Direction, 2008: p. 10). References Amazon (2009) “Amazon Extends Battery Life of Newest Kindle by 85 Percent and Adds Native PDF Reader”. 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