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Report
On Application of Porters five forces on Amazon.com
Prepared For:

Mr. ZAINULLABIDEEN
Prepared By: Ahmad Hassaan Qazi #02
BBA (Hons) 7th (M) (Date of Submission: Nov 2, 2011)

Department of Management Sciences,

The Islamia University of Bahawalpur

Amazons PEST, SWOT and Porters five forces analysis

This will discuss the online books retailer amazon.com in four different aspects, initially we will comment the mission statement and the stated goals, followed by an extended report of the main external and internal factors affecting the strategy development in the organization at the present time. Thirdly, this document will comment on the performance of amazon.com during the past two years as well as the main factors now affecting the success or otherwise of amazon.com in the next two years.

EXECUTIVE SUMMARY
Amazon.com is greatly concerned with customer desires that are why one of its objectives is the personalization of clients wishes, therefore offering products that may meet their likeness. Amazon.com is aimed to provide the best buying experience on the Internet. Analysis SWOT, which stands for Strengths, Weaknesses, Opportunities and Threats, is a way to analyse and evaluate the current situation of amazon.com. PEST Analysis is a simple but nonetheless important and widely-used tool that helps you understand the big picture of the political, economic, socio-Cultural and technological focus on e-commerce for amazon.com It is clear that the performance of amazon.com during the past two years has been greatly successful, as we can observe amazon.com belongs to the prestigious Forbes 500. What is amazon.com? Jeffrey Bezos started Amazon.com in 1994, after recognizing that Internet usage was growing at a rate of 2,300 percent a year. Operating from a 400-square foot office in Seattle, Jeffrey launched Amazon.com on the Internet in July 1995. Amazon.com vision is to use the Internet to transform book buying into the fastest, easiest, and most enjoyable shopping experience possible. By the end of 1996, his firm was one of the most successful Web retailers, with revenues reaching $15.6 million. Almost overnight Amazon.com quickly became the worlds largest e-retail bookstore in the world. Amazon has continued to expand its customer base, and sales revenues have increased every year. The firms revenues increased from $15.7 million in 1996 to $2.76 billion in 2000. Today, Amazon.com is the

place to find and discover anything you want to buy online. Amazon offers the Earths Biggest Selection of products to 29 million people in more than 160 countries across the world making them the leading online shopping site accessed via the World Wide Web (amazon.com)

Mission Statement and stated goals of amazon.com

Amazon.com does not appear to have a predetermined mission statement, nevertheless, the basic mission and goals of the Company are evident in the words of Mr. Bezos, We have one strategy at Amazon.com - provide the customer with the best shopping experience.(thetimes.com) additionally, our goal is nothing short of building the worlds most customer-centric Company. Lastly, our Company mission is to influence technology and potential to provide the best buying experience on the Internet. (thetimes.com) Amazon.com customer services On the other hand, these quotes from Mr. Bezos could be combined to create an effective mission statement, as follows; The mission of Amazon.com is to influence technology and the knowledge of our invaluable employees to provide the best buying experience on the Internet. Our goal is nothing short of building the worlds most customer-centric Company capable of providing our customers with the best shopping experience online today, and into the future. (about.com) In addition, amazon.com is greatly concerned with customer desires, and one of stated objective of amazon.com is the personalization of clients wishes, in order to offer products that may meet their likeness, Amazon.com is aimed to provide the best buying experience on the Internet, (for more details see appendix C). Moreover Jeff Bezos has stated as main goal to make amazon.com the best online store (not the number one, the best). Amazon.com believes that the future of e-commerce is in the personalization of products as well as the diversification in their product in line to become the centric and easiest solution from any desire or request of any individual.

AMAZON.COM ANALYSIS: STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS

SWOT, which stands for Strengths, Weaknesses, Opportunities and Threats, is a way to analyze and evaluate the current situation. The principal reason of this analysis is to help identifying the most beneficial targets and strategies to pursue right now, based on the current situation as well as identifying strategies that will help preparing the future. Over the next section this paper will consider the main points in this case for amazon.com.

STRENGTHS
Brand recognition: amazon.com is synonym of sales online and their services are focused on customers satisfaction, for example one can observe this particular strength in the most recent release of amazon.com: the kindle digital book reader, where one can store up to 200 books. In its two first days the kindle has ran out of stock, despite the fact that it is not the first digital book reader into the market. The business model: the model has the advantage of increasing revenues without incurring highly direct costs. Diversification: the variety of products that amazon.com offers in different geographical markets suggests a large stability into the e-commerce field. Business evolution: during the past years amazon.com has continually reinvented their services, increasing their value.

WEAKNESSES
Strategies based on low prices: the best attraction of amazon.com is low prices and although it has worked, customers could be attracted by others stores that could provide better deals. Distribution: increase the variety of products and geographical position may present numerous difficulties in the distribution. Growth: the growing of amazon.com is not the best, except by extraordinary events such as Harry Potter releases or the most recent audio book reader. Delivering: all along amazon.com has offered free delivering in order to gain customers, nonetheless this strategy is expensive and not necessary stable. Amazon.com makes people wait days to receive books that they can obtain instantly from their neighbourhood bookstores.

OPPORTUNITIES
Pre-ordering: increasing pre-ordering of products (customer pay before the item is available and amazon.com pay the supplier just after they release the product) is a great business. Furthermore amazon.com receive the money in advance as well as charging prices that tend to be higher in earliest days. Various providers: include other stores such as Toy R Us, Circuit City, Office Depot, WH Smith and so forth. It may allow amazon.com to include new products in line to improve services and the image of the brand (amazon.com).

Web services: techniques of companies such as Linux or Facebook.com where third parties can access to technical contents in order to improve and develop their applications, could allow amazon.com to innovate the platform without incurring massive investments. International markets: the rapidly growth of use of internet and broadband throughout countries (including countries with real presence) would allow amazon.com to expand the brand to international markets.

THREATS
Competence: the e-commerce field has evolved rapidly and it is highly competitive, companies such as EBay, Wal-Mart and Google are a constant danger to the company. Inventory: in order to meet delivering times, amazon.com has to maintain an important inventory; this could be risky due to the fact that demand of products is constantly changing. Performance: the company has to demonstrate and justify the high value that others have given to into the financial market. Lack of confidence: from individuals to buy online, countries where use of internet is not as common as in developed countries, consumers may present a lack of confidence to process their bank details online, for example, in most of South American countries, EBay (named Mercadolibre.com for South America and Spain) present serious problems with customer payments due to the fact that in various countries, there is no regulation for online payments (Individuals do not trust sells online).

AMAZON.COM ANALYSIS: POLITICAL, ECONOMICAL, SOCIAL AND TECHNOLOGICAL

PEST Analysis is a simple but important and widely-used tool that helps you understand the big picture of the political, economical, socio-Cultural and technological issues that we are operating in. PEST is used by business leaders worldwide to build their vision of the future.

POLITICAL
International policies: International policies in particular countries may interfere with the expected growth of the company for example; google.com has been banned in China for governmental decision arguing that Google threatens the community and national market with inappropriate contents in his data bases. In addition, Google has lost potential market, as China could be, due to political decisions.

Regulations: safety above e-commerce is not considered as an important issue in various countries for example, 76% of internet users in Peru do not trust internet web pages and never have experienced a purchase online, a survey conceded by EL TIEMPO (national newspaper in Peru) conclude that internet users do not believe online contents and in some cases such as internet crime, one can not attend to legal authorities into the field because those do not exist.

ECONOMICAL
Currency fluctuations: in various countries where currencies are highly devaluated in comparison with the dollar, it may bring additional costs to the company. Furthermore some products prices may be increase, affecting the main attraction of the company (lowest prices). Economical tendencies: in most cases, individuals rather buy in their neighbourhood stores, than going online. Customers prefer doing the regular commercial process of going to the store, paying the product and getting it instantly than going online, processing their bank details and waiting for several days to obtain the item.

SOCIAL
Ethical and religious factors: In some cultures Internet use is not allowed due to the fact that at some point contents may damage their cultural, ethical and social believes.

TECHNOLOGICAL
Amazon.com is a company highly involved into the technologically field, and its success has been well achieved over the past six years, although many challenges face Amazon in the fast paced environment of the Internet hence, amazon.com has to face this challenge, finding innovative ways to stay ahead of their competitors.

AMAZON.COM ANALYSIS: PORTERS FIVE FORCES MODEL

The Porters five forces tool is a simple but powerful tool for understanding where power lies in a business situation. This is useful because it helps understanding both the strength of the current competitive position and factors affecting the strategy development. Subsequently, amazon.com will be analyzed under this model:

Supplier Power
On the one hand amazon.com has marked advantages with most of their providers (books, audio, technology) for the reason that these companies do not charge their products until the moment that amazon.com sell them (frequent strategy from big companies). On top of that, amazon.com pays suppliers for those products only 35 days after that the item has been sold, nevertheless companies are prepared and ready to provide services and products to amazon.com. On the other hand, amazon.com has switched its primary operational system (Windows XP) to Linux (for more details see appendix E), this movement is estimated to save more than 15 millions of dollars to the company. For small companies and publishers, amazon.com keeps a maximum of five items in their stock in order to reduce costs. Suppliers consider amazon.com as an important and prestigious company hence, their commitment with amazon.com is clearly noticeable and essential.

Buyer Power
Once, Bill Gates (Microsofts owner) said, I buy my books in amazon.com because I do not have time to go to the book store (thetimes.com). Initially consumers that buy goods in amazon.com tend to become regular clients due to the low prices that amazon.com can offer. In addition these prices can be hard to reach by the competence. Low prices is the principal attraction that amazon.com offers to each individual buyer. Moreover the low average of clients switching from amazon.com products and services to those of the competence is satisfactory.

Competitive Rivalry
Amazon.com is one of the first companies into the e-commerce field. This gives to amazon.com a certain level of tranquillity into the market. Nevertheless amazon.com has innovated along the years reaching highest levels of customers satisfaction which can assure their position into the market for future years.

Threat of Substitution
As this paper mentioned before, amazon.com has innovated their services and products along the years and the name of amazon.com is well recognized and trusted into the field hence, amazon.com does not present threats of substitution at least in the short time.

Threat of New Entry

Internet has shown to us that a simple idea well developed can offer extraordinary results, examples such as Facebook.com, Plentyoffish.com, Youtube.com and so forth, these companies have developed their web sites in a short period of time with incredible final results. This can be the proof that a threat of new entries into the market is possible.

PERFORMANCE OF AMAZON.COM DURING THE PAST TWO YEARS

It is clear that the performance of amazon.com during the past two years has been greatly successful. As we can observe, amazon.com is part of the prestigious Forbes 500 (wealthiest companies around the world). On top of that the brand is well recognized and is synonym of customer satisfaction into the field. In addition, this paper will remark the main points of this success during the past two years. In amazon.com they have clearly understood the concept of electronic commerce focusing on customer desires and satisfactions. Over and above that Jeff Bezos knows how to form outstanding teams into his company with his theory of teams of one pizza (teams that can be feed with one pizza are more effective than others where more than one pizza is needed). From the moment that Bezos chose the name amazon.com until his new investments and alliances, Jeff Bezos has leaded the company of being an online bookstore to be an almost everything online store. For example in the last interview made to Maryam Mohit (Amazon.coms V.P. of Site Development) he commented the following experience: I remember in my first week at amazon.com, I said to Jeff, It is terrible someone else owns the books.com URL. Are not you bummed? He said, No, I do not want that. That is a small and narrow URL. There is a reason I named it amazon.com. As this paper mentioned before amazon.com customers that buy goods at amazon.com tend to become regular customers; it is clear that this is one of the main factors of success. Alliances and new acquisitions have secured amazon.com an imperative position into the field with more than 60.000 links between web pages, including successful web sites such as Google, Yahoo, AOL, AltaVista and so forth.

MAIN FACTORS AFFECTING THE SUCCESS OF AMAZON.COM IN THE NEXT TWO YEARS
In this part, we will consider the main factors affecting the success of amazon.com in the next two years. Initially amazon.com has positioned his brand with bright recognition and significant figures, nevertheless the expected growth may be compromise due to diverse cultural and local issues; for example, amazon.com uses local mail services to deliver their products. Although this service is efficient and usually satisfies customers, it can be deficient in other countries where amazon.com may be attracted to trade using it. This issue may impede the expected growth of the company. At the moment Google has 62% of the market share and with his new release Google checkout and several rumours (technews.com) saying that Google is planning to release an online store, it can become a real threat for amazon.com. Subsequently, the future performance may be dramatically compromise, at the same time with the new obsession of Mr Bezos Blue Origin (Aerospace Company focused on sub orbital spaceflights) amazon.com may be driven on the wrong pathway. I truly believe that amazon.com has the stability, experience and position to remain successful into the field in the next two years, however the presence of new threats have to be contrasted with diversification and standardization of service (amazon.com has been focused on this subject) as well as detailed and premeditated measures of international growing.

CONCLUSIONS
The success of amazon.com is not based on a simple idea of an online store, its success comes from the understanding of the electronic commerce, Jeff Bezos first researched the market before to know how to locate it, but the most important is that Mr Bezos understood the internet. It is clear that this knew-how was the main advantage of amazon.com in comparison with the competence. Amazon.com also knows how to conserve customers, offering importance and value to their services, this does not mean discounts, this is related with personalization of accounts, e-mails, discounts, safety in payments and velocity in deliveries. Nevertheless, amazon.com must be aware of potential threats such as Google and its first steps into the field. Although Amazon.com has experienced tremendous growth and increased in revenues over the past six years, many challenges face Amazon in the fast paced environment of the Internet. Amazon faces the challenge of providing excellent customer service, while trying to grow and expand their business. Amazon also faces the challenge of finding innovative ways to stay ahead of their competitors.

In addition and as I have mentioned before, one real issue for this company is the actual obsession of Mr Bezos with his new project Blue Origin (Aerospace company focused on sub orbital spaceflights) where vast amounts of money need to be invested in order to achieve results that could be ambiguous and unsecured. I consider this an interesting project that could be successful and profitable. However, after six years of researches and investigations the results are not satisfactory in contrast to the investment, moreover those actions are clearly reflected into the finances of amazon.com.

http://essaysbox.com/2009/06/amazons-pest-swot-and-porters-five-forces-analysis/