Amazon - SWOT Analysis, Porter's 5 Forces, and Company's Financial Information - Case Study Example

Report on Business Case Analysis of Amazon.com Executive Summary: Since its inception, Amazon has seen rapid growths and declines yet it rebounded and improved after the post-tech bubble of early 2000s. Challenges to profitability of Amazon include competition and threats from internal and external environment, coupled with its strong desire to cut on costs to remain competitive and profitable. While these challenges remain, Amazon is backed by numerous tangible and intangible assets like strong brand, more than a million affiliate programs, above-industry value and experience it gives to customers, sales volume and economies of scale. As this paper ought to present, Amazon's business model will be dissected, including a SWOT analysis of Amazon to thresh out how well factors fit in to the online shopping powerhouse's strengths and weaknesses, and opportunities and threats to prospects for growth. By using the Porter's Five Forces analysis, we will subject Amazon to scrutiny of its related industry and its participants while considering the online e-commerce giant's earnings potential, and risk factors that can affect its profitability. In addition, we will look into the extent that Amazon could go to effectively harness its competitive advantage in order to protect itself from factors that might weigh down promise of profitability. Table of content Page Executive summary 2 Introduction 4 SWOT Analysis 4 Porter’s Five Forces 7 Financial Information 9 Recommendations 10 References 11 Appendix 12 Introduction: Amazon (AMZN), a company admired for consistently sticking to its strategy that emphasizes the widening of its reach within its business model through efforts geared at expansion and customer innovation, was founded in 1994 as Cadabra.com by Jeff Bezos. As Amazon.com, the online retail shopping giant went live in 1995 (Securities and Exchange Commission, 2010). Amazon today, however, while continuously posting its most positive and robust growth in decades in its industry, reinforced in part by its new e-reader innovations like the Amazon Kindle editions and the astounding growth in internet users globally. The trend towards mobile internet is also posing as a well-spring that the e-commerce giant can utilize to its full advantage. Along the way, Amazon has spawned a new market for e-readers, in turn, paving the way for new entrants and competitors who aim to seize the market share in this industry (Bensinger, 2011). Meanwhile, competition posed by Barnes and Noble (BNK) and Ebay, is also not yet over and there are other factors that Amazon must contend with to remain profitable. Economic recession, decline in demand for printed publications as the world sees shift to e-reader and tablet platforms, regulatory and legal shifts in US and other foreign countries are some of these factors. SWOT Analysis: By combining the advantage of increasing its strategic alliance and investments in acquisitions, Amazon.com has continually reinforced its market leadership position over the years which it already started two years after going live in 1995. These, however, only paints just a glimpse of what we can make out of the approaches to business made by Amazon. Through a method called SWOT analysis we can delve deeply into the e-commerce superpower's strengths and weaknesses, as well as threats to its status in the technologies sphere and the opportunities that it can further explore to meet its long-term vision of consistent leadership in its industry. Barely two decades, but the Amazon story has been replete with the drama of winning and losing and then winning once again, thus only briefs us of a portion of what we can learn from this analysis. In a short period of time, Amazon.com has expanded into vast territories in the internet technology business through strategic partnerships and acquisitions, the company has slowly but gradually built a taxonomy of small seeds planted elsewhere that it expects to bear fruits in the long-term. On the downside of this so-called long-term vision of the customer-centric company, such remains not an easy sell to Wall Street, which views a company as good as its last quarter only. This is one of the reasons why Amazon is not very attractive to some investors. Some investors even feared that Amazon's relentless desire to give huge discounts would keep slicing away at profit margins of the company in spite of its outstanding revenues and earnings. In effect, investor perception of Amazon would remain a threat to the company's market acceptance. Meanwhile, the e-reader format that it launched several years ago effectively harnessed and maximized would keep the company afloat with more opportunities. By innovating new and reliable products that the market would embrace and eventually adopt, Amazon has a a vast market to explore and expand into. Technological innovation may be expensive but with effective marketing push, backed by the e-commerce giant's wide arsenal of strategic alliances and partnerships, reaching its intended audience and market would be a easy. It can also benefit largely from researching and developing innovations for mobile users, a trend that many analysts see would eventually push further the use of Internet worldwide. However, it should also be remembered that while Amazon currently holds 90 percent of the market share in the e-book market through its revolutionary 2007 Amazon Kindle, however, it must be noted that Apple's release of the iPad and similar competing products may snatch a huge percentage of the market share currently held by the online retail store's innovative e-reader gadget. Table 1: SWOT Analysis Strengths First-mover edge. Brand values and trusted by customers for its efficient delivery services. 90% of the e-book and e-reader market share 19% of the book market share.(Weinman, 2010) $135 million to $194 million sales from e-books (Weinman, 2010) $34.20-billion revenues coming from more than 22 categories of products, other than books. (FastCompany.com, 2010) Against competitors, it has a 36 percent quarterly revenue growth. $77.05-billion market capitalization (Ycharts.com, 2010) $1.15-billion net income in 2010. (Brohan, 2010) Highly-diversified online retail store with investments in digital e-books market, movies, music, and more. One-click technology patent, making it an exclusive licensee of this technology. Launch of e-reader Kindle. Widest strategic alliance and partnerships than any retail store online around. Recruitment strategy include hunting for industry experts from related and competitor industries. Weaknesses Campaign to give huge discounts that keep slicing away market margin. Economic uncertainty Risk of governmental interference (China, etc.) Expenses in research and development alone s bigger than net earnings (see 2010 financial report) Opportunities Promising e-reader market. Increase partnerships with e-reader publishers as the market for this segment increases. Word-of-mouth marketing and advertising from satisfied customers of its e-reader ventures. Investments in research and development for mobile. Promising ventures for other innovations that will cater to streaming video market. Threats Risk of shrinking e-reader and e-book market brought about by the introduction of Apple's iPad and other competing e-reader tablets. Economic uncertainty. Intellectual property rights claims. Risk of strategic alliances falling off and eventual collapse. Online spoofing or email forgery/fraud that undermines customer confidence. (Websense.com, 2006) What is the source for most of this information? Porter's 5 Forces: Theoretically, the pure competition model will not satisfy everything that need to fulfilled in understanding new and emerging markets, like internet business (Porter, 2008). With the use of Porter's 5 Forces approach, we can understand better the industry context in which Amazon operates to help the company maintain its overall leadership and market edge. By substitution, in order for Amazon to understand what is up to, forces outside this online retail giant that directly or indirectly influences the nature of competition within it, as well as inside forces at Amazon that may impact its profitability will be considered. Apparently for its 15 years of existence, Amazon appears to understand what it is up to and what its environments and industry pose to its dynamics, operations, future plans and long-term investments. Through its e-reader Kindle product, Amazon must have awakened the consciousness of some tech giants around like Apple, Google, and other tech companies who would like to also take a sizable share of the e-reader and e-book market (Weinman, 2010). Relative to the intense competition, new technological innovations, user-focused features and the like are some of the forces that Amazon must contend with. By fully understanding the nature of these forces, Amazon can develop strategies to effectively counter these forces. With Michael Porter's suggested method, he identified three that can be used to create competitive business advantage, namely – cost leadership, differentiation, and focus. When Amazon adopts these strategies, it can be helped by strengthening itself to defend against the adverse effects of the five forces. Table 2: Porter's Five Forces Table Force Impact on Amazon.com Threat of new entrants Apple and Google is aggressively pushing the boundaries in the mobile sector segment, intensifying developments in mobile Internet (Bloomberg, 2010). The e-reader market is fast-growing with developments being made by Apple (the iPad) and other competing rivalries. Other entrants may offer bigger discount in prices being offered, and this may pose some risks to Amazon. Switching costs is relative to agreements signed with vendors in the e-reader market. Apparently, Apple recently allowed publishers to offer subscription-based services, that in itself may impact on the cost of e-books. There is a low level differentiation as customers would be more impressed by a feature-rich iPad than a minimal-featured Kindle. There is also a high strategic stakes as Amazon loses some market share in the e-reader market, with the entry of new tablet or digital reader makers. Bargaining power of supplier There is a credible forward integration threat by the forthcoming Microsoft and Nokia integration that will introduce 80 percent of mobile users with no Internet to finally have this feature soon (Wortham, 2011). Competition elimination and dominance is apparent as Apple and Google are opening up their own e-book and e-publishing stores, that will compete to Amazon's previously dominated market (Weinman, 2010). Publishing industry's rules with whom it allows companies to sell its members' publishing products (Yukari, 2011). Bargaining power of buyers Customers are constantly demanding a lower price on items they would like to buy online. Web users are becoming more sophisticated and demanding of other services at lower or for gratis. He asked me what this word means I said I got it from the internet so please give me the source. The emergence of multiple e-reader and e-publishing stores may have to satisfy different sets of customers. Substitutes are available and sometimes offers better customer service and ease of purchase. Microsoft and Apple are co-partners in several search facilities that Apple offers. This may eventually have an impact to Amazon when customers demand for more features for less. Threat of substitute products or services (including technology) Users are more demanding of sophistication and bigger discounts from online retail stores. Inclination to substitute a product is driven by more users getting accustomed to web practice than a decades ago. Users are after more secure transacting and less fraud from their use of a website. Users are finicky about their interests and could switch immediately if their requirements of needs are not met. Degree of rivalry among existing competitors First-mover edge is important, tantamount to credibility, integrity and maturity. High-value brand and recall is important. Rivalry is between Barnes and Noble and Ebay, now, in another segment, it will be between Apple, Google and Amazon (Bloomberg, 2010). Transaction security practice can easily be set. Financial Information: Shares at Amazon.com amounts to $186.62 as of this week. The Seattle, WA.-based company has its shares listed on the Nasdaq Global Select Market under the symbol “AMZN” since May 16, 1997. Its founder, Jeff Bezos, one of the major direct holder of stocks, currently holds 88.136 million shares since February 1, 2011 (Yahoo Finance, 2011). By breakdown figures, 21 percent of shares are held by all insiders and 5 percent owners, while 67 percent of shares are held by institutional and mutual fund owners with a total number of 681 institutions holding these shares. In its industry, Amazon is second only in terms of number of people it employs with 33,700, however it leads in terms of market capitalization of $84.17-billion, followed by Ebay with $44,74-billion and Barnes and Noble's $1.08-billion. In terms of net income, Amazon places second with $1.15-billion earnings, against Ebay's $1.8-billion. Meanwhile, it registered record revenues, with $34.20-billion, followed by Ebay's $9.16-billion and Barnes and Noble's $6.80-billion (Yahoo Finance, 2011). Recommendations: Amazon.com is a highly-diversified internet retail giant that is seems more poised than any other companies in the world today to aggressively push through and exploit consumers’ switch from the traditional purchasing mode to the online web to remain the leader in this field. To remain successful in this endeavor, Amazon should further increase its investments in sealing strategic acquisitions to help reinforce its financial portfolio, more particularly its online resources. Along this recommended strategy, Amazon can further boost its advertising reach, value chain, synergies, and talent absorption against specific technologies. Some of the things it has been doing in the past years must be continued as well. In terms of human resources pooling, Amazon should continue to hire some of the best minds in the industry, investing to obtain these leading industry people who are experts in the supply chain and distribution, technology and product development. In terms of technological innovation, Amazon should continue to push the boundaries to innovate and invest on technologies that will help achieve its brand promise as a one-stop retail destination online. With sophisticated technologies and innovations, these advantages will complement its wide collection of products and services that can be had in the cheapest price, making it the only company to beat in the world for this advantage. The company should also continue to focus on its development and innovation in the digital e-reader category. The market for e-readers and e-publishing is still young and there are still many uncharted terrains in this category that Amazon can exploit. Along this line, Amazon can also tap the vast mobile technology market to harness to further expand its reach. References Amazon.com. 2010 Form 10-K, Amazon.com, Inc. United States Securities and Exchange Commission [online]. 17 February 2011. Available at [Accessed 17 February 2011] Amazon.com Inc. Yahoo.com [online]. 17 February 2011 [Accessed 17 February 2011] Amazon.com.. Ycharts.com. [online]. 17 February 2011 [Accessed 17 February 2011] Bensinger, G., 2011. Amazon E-Book Market Share to Fall as Industry Grows. Bloomberg Businessweek [online] 17 February 2011. Available at [Accessed 17 February 2011]. Brohan, M., 2010. Amazon sales and profits boom in 2010. InternetRetailer.com [online] 27 January 2011. Available at [Accessed 17 February 2011] Debson, C., 2010. Amazon: Profit Margins Up but Faces Shrinking Market Share. The Epoch Times [online]. 23 April 2010 [Accessed 17 February 2011]. Information Systems Security Association, 2006. Phishing and Pharming. Websense [online]. Available at [Accessed 4 March 2011] Most Admired Companies: Amazon. FastCompany.com [online] 17 February 2011 [Accessed 17 February 2011] Munarriz, R.A., 2011. Is This How Barnes & Noble Beats Amazon? Motley Fool Online [online] 16 February. Available at: [Accessed 17 February 2011]. Porter, M. E., 2008. Competitive Strategy: Techniques for Analyzing Industries and Competitors. Chester: Simon & Schuster. Regan, K., 2008. Amazon Aims to Light M-Commerce Fire with TextBuyIt. E-Commerce Times, [online] (Last updated on 08 April 2008) Available at: [Accessed on 14 February 2011]. Sinkwitz, J., 2003. Google's Acquisition Report Card. (Last updated May 2003) Available at: [Accessed on 14 February 2011]. Thompson, J. L., 1997. Lead with Vision. Manage the Strategic Challenge. London: International Thompson Business Press Publishing Co. ? Weinman, S., 2011. Amazon's E-Book Market Share May Plummet: Great News for Amazon. Daily Finance [online] 17 February 2011. Available at [Accessed 17 February 2011]. Wortham, J., 2011. Nokia Wants to Bring 3 Billion More Online. The New York Times [online] 16 February 2011. Available at [Accessed 17 February 2011] ? Yukari, I., and Adams, R., 2011. Apple Opens a Door, Keeps Keys. Wall Street Journal [online] 16 February 2011. Available at: [Accessed 17 February 2011]. APPENDIX A: Financial Information AMZN BKS EBAY PVT1 Industry Market Capitalization 84.17B 1.08B 44.74B N/A N/A Employees 33, 700 40, 000 17, 700 N/A N/A Qtrly Rev. Growth (yoy) 36.00% 64.10% 5.20% N/A 0.00% Revenue (ttm) 34.20B 6.80B 9.16B N/A N/A Gross Margin (ttm): 22.35% 26.20% 71.99% N/A 0.00% EBITDA (ttm): 1.79B 230.91M 2.84B N/A N/A Operating Margin (ttm): 4.11% 0.04% 22.66% N/A 0.00% Net Income (ttm): 1.15B -28.00M 1.80B N/A N/A EPS (ttm): 2.53 -0.51 1.36 N/A N/A P/E (ttm): 73.76 N/A 25.34 N/A N/A PEG (5 yr expected): 2.33 4.67 1.88 N/A N/A P/S (ttm): 2.46 0.16 4.89 N/A N/A BKS = Barnes & Noble, Inc. EBAY = eBay Inc. Pvt1 = Wal-Mart.com USA, LLC (privately held) Industry = Catalog & Mail Order Houses (Source: Yahoo Finance, 2011) SOURCE just in case you want to contact me – you may email me personally at ryanborja@gmail.com Read More