Amazon Identify the market structures in which three core businesses of the company your group was allocated operate.
1. Online Retail 2. Internet Services - AWS (i.e Media (Amazon Prime)). 3. Kindle Ecosystem (Noren, 2013)
Barriers to Entry Due to the nature of Amazon’s business, and the online industry, there is a constant threat of new entrants because of the relatively low cost to enter the market (i.e. no physical stores). Currently, existing physical stores such are Target and Walmart are joining the online retail industry, who already have massive economics of scale and brand recognition, therefore posing a huge threat through strong competition from Amazon. Amazon deter new entrants to the industry though:
1. Substantial Economies of Scale: Amazon work with over 10,000 vendors and has 75% repeat purchases. Hence they have a market capitalisation ahead of their most nearest competitors. 2. First Mover Advantage (FMA): Amazon have the necessary brand awareness and credibility as a strong reliable presence in the market. 3. Massive Product Variety (Product Differentiation): Amazon provides any type of product thats available; meaning there is a strong suppliers base relationship. Amazon has established relationships with publishers, producers, movie studies and music producers - hard to form and replicate (Entrepreneurial Insights, 2014).
The Kindle has gained a huge lead (FMA), through being the first brand that jumps to mind when people think of an eReader. Kindle is the number #1 book App from the iPhone, the kindle store has the lowest book prices and has more new books than any other store (ireaderreview, 2010). Amazon: $67,855,000,000 Apple: $18,300,000,000 Staples: $10,400,000,000 Wal-Mart: $7,700,000,000 QVC: $4,800,000,000
(Banjo (wsj), 2014) Amazon Web Services (AWS) accounted for 37% of the $9 billion infrastructure as a service market in 2013. According to ‘Evercore’, The IaaS market is growing by 45%, but AWS has a growth rate or 60%. Additionally, AWS have five times more in computational capacity than its 14 next IaaS competitors combined (Business Insider, 2014).
*AWS include their Prime loyalty program and cloud-computing business (Anderson, 2015). (IDC, 2015) = APPLE = SAMSUNG = LENOVO = ASUS = AMAZON.COM (csmoniotor, 2015) = OTHER Amazon’s profit margin
•Amazon focuses on market share rather than profit margins
•Low operating margin because of Amazon’s investment in marketing, content and technology to drive volume sales growth and keep competition at bay
•CEO Jeff Bezo has a long term strategy - Revenue is increasing, profit will come later. Does Amazon spend much on advertising?
- Among the top ad spenders in the tech industry - Large total sum spent; 4.322 billion US dollars in 2014 - 4.9% of the Net Sales Revenue (i.e, their Marketing to Sales Ratio) is spent on marketing - this is a relatively low rate (which means that the marketing effort is effective) - As a comparison, eBay’s Marketing to Sales ratio is 20.1 and Etsy’s of 20.3. Do they compete with price & output?
- Alibaba spends 14.5 billion packages a year vs 5 billion from Amazon. - Alibaba made $420 billion sales in 2014 vs $74.4 billion of Amazon. - Amazon worth $207 billion vs $212 billion Alibaba (June 2015). - Amazon has relatively small profit margin (0.8% in 2013). Acquisition: A corporate action in which a company buys most, if not all, of the target Do they merge or acquire other companies? company's ownership stakes in order to assume control of the target firm. (Investopedia, 2015) ‘Throughout its 16-year history, Amazon.com under CEO Jeff Bezos has tended to snap up startups and small companies’ Merger: Voluntary amalgamation of two firms (Engleman, 2010). on roughly equal terms into one new legal entity. (Business Dictionary, 2015 Amazon Growth Strategy 1. Aggressive - Investing everything that the company earns right back into it (a focus on sales growth rather than profitability (Mourdoukoutas. 2014)). 2. Stock price increased by 234% in the past 5 years. 3. Company Valuation = $120 Billion 4. Wide brand portfolio to drive global growth (Euromonitor International, 2015). (Richter, 2013)
Invests in ‘in-house’ initiatives such as Kindle Electronic Books, however the retailers drive to be a player in other sectors (staying competitive) such as media, may lead towards acquisitions (Engleman, 2010); and has done, hence the acquisitions of media- based brands, Audible, LoveFilm, Twitch and IMBd (Euromonitor International, 2015).
On the other hand, Amazon is increasingly using different brands to sell specialist products, i.e. Vine, Zappos and diapers (Euromonitor International, 2015). (Business Insider, 2009 & 2014) (Business Insider,2009) Can a link be established from structure through conduct to performance in the case you examined? Discuss the issue of reverse causation between structure, conduct and performance
- New infrastructure → economies of scale
- Internet → collect data & discover market trends
- Cloud based services
- Less competition and less inventory → new market and cost structure
Source: Lipczynski, Wilson & Goddard, 2013 Relate the dynamic nature of internet companies to the Austrian school and the Schumpeterian view of entrepreneurship.
The Austrian School claims that monopoly profits is important for competition. It motivates entrepreneurs to innovate which might lead to monopoly Schumpeter says that competition is driven by innovation. If successful, monopoly status and profits until competitors do the same. Only temporary, that is why R&D spending is important. Amazon has played a key role in developing new technological innovations. Amazon’s R&D Spending is $9.1 billion
Source: wikinvest References
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