Amazons Business Model: A Case Study

viragos Business Model A Case Study interchange of amazons business model, and the impact of training applied science for the internal judicature of contribute.What is their business model?Many academics believe that viragos outstanding success as an cyberspace retailer comp bed with many of its rivals has been due(p) man-sizedly to its ideal business model and swift response to the changing market since its inception. (Global merchandise instruction Database, 2003) To begin with, amazon chose the perfect output lines for e-commerce, with outputs that consumers did not need to handle in person before devising a purchase initially books, but then spreading to DVDs, melody and different media. Furthermore, consumers in the book and music categories tend to desire in traffic patternation when they shop online, which amazon was able to provide on its sites through re billets and recommendations. Amazon consumers appeared imparting to pay a forgetful extra for this co nvenience, although the new-made fighting of the market has forced the corporation to cut prices or use other promotional techniques, and shift the focus of its business model from pure lineament aimn back towards price driven.Amazon then turned to variegation, and extending its product offer in order to widen its guest base and improve margins, with the result being that the troupe has focused strongly on grammatical construction up its product portfolio to offer guests more choice. In 2001, Amazon increase its range of electronics and tripled its kitchen selection, as well as launching computer and clip subscriptions barge ins, and set up strategic partnerships with retailers such(prenominal) as Target and roofy City. In November 2002 Amazon.com announced the launch of a new online apparel stemma with items from retailers including The Gap, Old Navy, Lands End, Nordstroms, Cole Hahn, Osh Kosh, Spiegel, Eddie Bauer, and Foot Locker, amongst others. This diverse business model has enabled Amazon to grow both its market capitalisation and profitability, and dumbfound largely sure as the worlds runninging online retailer (Global Market entropy Database, 2003)The company excessively concentrates on improving convenience with new features, such as the recently launched Instant Order Update, which warns customers if they are round to buy the same item twice. Marketing itself as offering humanss Biggest Selection, the company aims to be the worlds most customer-centric company, operating through its one-third basic businesses Online Retail Marketplace and different and Third-party Sellers. Amazon also recently began to target the institutional market as well as consumers expanding its business model in order to drive a new source of r nonethelessue renting out its site-building run to other companies. It owes much of its relative financial well-being, compared with other pure Internet retailers to the site-building and hosting service it has s old to clients such as Borders and Toys R Us. (Global Market data Database, 2003)Indeed, a recent article by Sutton (2005) focuses on Sears Canada Inc., which has recently verbalise that it give turn oer the technology component of its online retail charge to Amazon to capitalize on Amazons years of expertness in customer-facing tissue sites. Sears.ca pull up stakes remain very much a Sears brand, according to spokesperson Vincent Power, (Sutton, 2005) with little to indicate Amazons involvement from a customers perspective, and Sears will continue to host the site, festering the same internal achievement raise that handles customer orders from the site and from the Sears catalogues. Amazon Services Inc., a subsidiary of Amazon.com Inc., will handle the arrangement which is only the latest in a serial publication that Amazon has struck with other retailers recently. The idea of retailers, both huge and small, outsourcing their Web sites has gathered momentum in recent year s, said retail analyst Jim Okamura with Chicago-based J.C. Williams Group (Sutton, 2005), and Amazons business model is now aligning itself to take full service of this fact.Strategic alliances are another constitutive(a) part of Amazons business model, and the company has entered into a enactment of agreements to expand its range of products and serve by allowing selected strategic partners to sell products and services nether co-branded sections on the Amazon.com website. These alliances have generally consisted of Amazon making, or having the hereafter right to come across, a minority investment in the companies, and the entry into technical agreements, which vary in scope, from customer advertising activities and links, to recently announced deals involving the sales agreement of products and services on co-branded sections of the Amazon.com website. These alliances have developed from the successful alliances the company spoilt in 2001, with such companies as America Online and Target in the US, and sodding(a) Wines in the UK. Amazon also expanded its product offering under its Toysrus.com strategic alliance to include Babiesrus.com and Imaginarium.com co-branded stores at www.amazon.com. In addition, the company entered into strategic alliances with Expedia, Hotwire and National Leisure Group to create its travel store, shape up fulfilling its diversification aims.Amazons marketing dodging is one of the most regular parts of its business model, being focused on strengthening and widen the Amazon brand name, increasing customer traffic to its websites, building customer loyalty, encouraging repeat purchases and developing incremental product and service revenue opportunities. However, the unique part of this section of its business is that in order to effect this, the company employs tactics such as delivering personalised pages and services and using a variety of other media, business development activities and promotional methods. Amazon also relies on public relations activities, as well as online and conventional advertising, including radio, television and yarn-dye media, and direct marketing, however one of the elemental substances the company directs customers to its websites is through its Associates Program. This enables associated websites to make products available to their customers with fulfilment performed by Amazon, and is remarkably successful by 2001, more than 700,000 websites had enrolled in the Associates Program. (Global Market Information Database, 2003)What many consider to be the defining characteristic of Amazons business model is that the firm has no physical retail activities, operating only via the Internet. However, its virtual operation is very much underpinned by administrative and service facilities, and in 2001, these consisted of US fulfilment facilities in upstart Castle, Delaware Coffeyville, Kansas Campbellsville and Lexington, Kentucky Fernley, Nevada and Grand Forks, North Dakota as well as a seasonal worker fulfilment centre, used as necessary, in Seattle, Washington. The company also leases and operates three European fulfilment centres located in the UK, France and Germany and, in Japan, the courier company Nippon Express provides fulfilment services for orders from www.amazon.co.jp. These fulfilment centres comprise in complete around four million sq ft of warehouse space, and in addition, Amazon leases four off-site facilities that fluctuate from 340,000 to 710,000 sq ft of space, which support the storage and fulfilment functions of the US centres. (Global Market Information Database, 2003)What are the technologies used by the organisation in pursuit of competitive advantage?In Hamids (2005) article, he focuses strongly on the fact that Amazon offers many interesting variations on the strategic applications of Internet technology, in order to enhance customer kindred and acquire customer loyalty. Obviously, Amazons offerings of personalised se rvices, confirmation of orders in real time and other value added activities substantiated the ability of the Internet as a competitive tool. As the number of internet users is growing rapidly around the world, retailers are under great pressure to take advantage of this huge online market potence. However the challenge is whether online retailers can match up with other, bricks and mortar competitors worldwide in terms of services rendered on the Internet. Hamid investigated the train of Internet technology applied by web sites in view of global electronic marketplace competition, decideing that many Internet retailers are still lagging behind in fully utilizing the strategic potential of the Internet particularly in enhancing customer relations. However, Amazon is already way a foreland of this, using some of the technologies described above, and plans to cement its lead further in the next five to ten years and, in doing so, knock over the book business yet again.Curtis (2005 ) analyse Amazons recent eruditions of on-demand book scoreer BookSurge and e-book company MobiPocket, claiming that they may signal a orgasm transformation of the publishing business, one that includes an end to the industrys biggest problem that of returns. Since practical print on demand (POD) technology became available in 1998, it offered retailers the vision of a book business driven by demand-and-supply, rather than the veritable dedication model, and Amazon is ideally placed to turn that vision into reality (Curtis, 2005) stipulation that the retailer take ins or leases well over four million uncoiled feet of warehouse space, no small portion of which is devoted to books, and employs 9,000 people to affect orders, it would benefit immensely if it could forward orders to a printer to drop-ship books directly to customers. non only would this benefit Amazon itself, but also potentially the publishers, destiny Amazon develop strong relationships with yet another stake holder group. ace strategy might be for Amazon to print pre-sold books in its stimulate comprise which, aside from shifting printing and shipping be from publishers to the retailer, would also aggressively reduce the guesswork for publishers setting print runs. Given current economies of measure for large print runs of big books, its standardisedly publishers would, at least for the predictable future, continue to print books the traditional way for brick-and-mortar accounts. However, Curtis (2005) claims that even a cock of POD and traditional printing makes more sense than the current logical thinking that you can make more money by printing a million copies and selling fractional of them than you can by printing half(prenominal) a million and selling all of them.Though POD manufacturing be are currently far higher than those of traditional long print runs, longer POD print runs, and lower unit costs, will become more common if the number of pre orders on the site cont inues to rise, and as the technology continues to improve, especially given Amazons access to detailed customer data which it can use to predict future retail trends. Equally, Amazons acquisition of the e-book retailer, MobiPocket, enables the company to contemplate developing virtual publishing in its purest form eliminating hard copies and delivering virtual books electronically to customers at a fraction of the current cost. As Amazon masters these technologies and delivery systems in the coming years, possibly even becoming a publisher in its own right, it will be harder and harder for traditional publishers to support the outdated consignment model, and potentially gravid Amazon its highest ever level of competitive advantage. Indeed, trade publishers may find themselves shifting to a system in which most books are pre-sold, disregarding of the channel, further increasing Amazons advantage over the traditional stores. Curtis, R. (2005)What are the implications of this techn ology on the internal organisation of work?One of the key implications of the importance of technology to Amazon is that the company has to maintain its bounce in technology an edge that is more critical than ever as Amazon increasingly squares off against sophisticated e-commerce survivors like eBay, whilst controlling the potentially massive costs of said technology. Just two and a half years ago, Amazon spent 11 cents on tech for every(prenominal) $1 in sales, but now the company fall outs only nigh 6 cents. All told, Amazons tech spending has fallen 25 portion from its September 2000 peak, even as the company added nine new categories to its retail lineup and signed on dozens of new incarnate partners. However, scorn the need to slash unnecessary costs, at other times, its much bust to invest your way to efficiency and, as Amazons head of technological development claims You cant be cheap for the wrong reasons. (Thomas, 2003)As such, Amazons internal cater have embraced open-source coding, transposition Sun servers with Linux boxes from Hewlett-Packard, and necessitating a whole new organisational structure for the technological development staff. For every $1 spent on the new hardware, the company deliver $10 in license fees, maintenance, and expected hardware upgrades, but also has to learn and adapt to the new processes and systems. The company has also been willing to spend to save, maintaining its own warehouse-management software package, which has to be built and maintained by internal staff, even though ready-made alternatives like Logility might cost as little as $375,000. However, with its own software, Amazon can tweak inventory algorithms whenever it wants so that, for example, a book isnt shipped to New York from a Nevada warehouse when it could be move faster and cheaper from Delaware, and managers can have greater control over their own warehouse staff. (Thomas, 2003)Equally, although Amazons partners are primarily intended to supply revenue, they are also used to help control internal costs the company has recently began to invest in Web services and tools that make it easy for partners to hook into applications Amazon had developed for its own use. Now retailers like Nordstrom and Gap can feed their inventory into Amazons new apparel store without a lot of custom coding, and freelance programmers can build their own online stores using Amazons payment, fulfilment, and customer services, meaning that Amazons internal staff only need track these stores and ensure they are using the services correctly, rather than have to handle all the marketing and coding themselves. For example, a Romanian coder created www.simplest-shop.com, which uses Amazons Web services tools to extract product data from Amazon and then fashions side by side comparison tables, which is a feature not available on Amazon.com, essentially doing Amazons marketing and retailing for it. (Thomas, 2003)Amazons recent shift towards sour cos ts has also has an effect on its internal organisation of work in 2001, Amazon embarked on a restructuring plan which would lead to a reduction in its personnel numbers by some 1,300, or 15% of its workforce. This also involved the consolidation of Amazons corporate office locations in Seattle the closure of its fulfilment centre in McDonough, tabun the operation of its Seattle fulfilment centre on a seasonal footing the closure of its customer service centres in Seattle, Washington and the Netherlands and the migration of a large portion of its technology infrastructure to a new hardware and software platform. The company estimated that the restructuring would result in costs during the first half of 2001 majestic US$150 million relating primarily to severance, fixed asset impairments, act lease obligations and other exit costs related to the restructuring. The restructuring has also lead to fundamental changes in the roles of its staff, and the organisational structures within which they work, with many staff taking over greater responsibilities and a greater scope of work. (Global Market Information Database, 2003)ReferencesCurtis, R. (2005) gone Today, Gone Tomorrow? Publishers Weekly Vol. 252, slue 30, p. 74.Global Market Information Database (2003) Amazon.Com, Inc. Euromonitor International.Hamid, N. R. A. (2005) E-CRM Are we there yet? Journal of American Academy of Business, Cambridge Vol. 6, Issue 1, p. 51.Sutton, N. (2005) Sears Canada turns over Web management to Amazon. Computing Canada Vol. 31, Issue 7, p. 11.Thomas, O. (2003) Amazons Tightwad of Tech. 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