Introduction
With the rapid growth of digital transformation in recent years, many organizations have flourished across various industries, often against powerful incumbents by leveraging compelling and complex connections with consumers. The organizations have gained a competitive advantage by running multiple paths to engage with their consumers. Amazon is among the most successful organizations emerging in the transformed business landscape. Amazon has experienced a continuous transformation digitally since its launch in 1994 to an international company (Althafairi et al., 2019). The organization has gained a tremendous competitive advantage by using the technology effectively. First, the company is customer-centric, whereby the organization has been ranked the number one for various consumer satisfaction indexes.
Besides, the entire business structure of the organization is driven by digital technology in expanding its business offerings and enhancing the main business functions. In addition, the company provides a workplace culture that drives innovation and change. The company has grown from a book store to being the leading online store currently. The company continues to break into and create new markets successfully, which is only possible by being responsive and having its workers willing to move with the transformation. As novel technologies have continued to be developed, the organization has always stayed at the front end of the wave (Lisdorf, 2021). For instance, the organization uses drones for delivery and data analytics to make decisions on cutting costs through economies of scale and other efficiencies. This paper discusses the implications of the digital economy on Amazon.
Context
The digital economy is a hyper-connected economy that comprises growing inter-connected individuals, companies, and machines through the web and using digital means such as robotics and big data analytics (Barefoot et al., 2018). It involves a transformation in the economy due to the general use of developing digital technologies. The change results in a digital business based on e-business and e-commerce aimed at e-goods. The main building blocks of the digital economy include the internets, which enables organizations to offer goods for sale and allow consumers to browse the products they need. E-mail which allows cheap and instantaneous communications across the globe; digital automation, which is the processing power of computers that helps organizations make decisions based on the output, digital payments, which include credit cards, bitcoin, and bank transfer; and social media where people use it to share recommendation about business. Organizations embracing the digital economy use internet websites, social media reviews, e-sales, e-payments, and automation in their operations (Abdrakhmanova et al., 2021). However, the traditional economy is based on physical shops and cash payments. Some of the digital economy examples include Airbnb, which allows tourists to make reservations online, and Netflix, which will enable consumers to buy television series and films through the internet without any physical good.
Developments in the digital economy have led to positive and negative effects on organizations operating in the e-sector. The positive implications of digital economy development include more meaningful information enabled by the internet to help consumers have detailed information to make better choices. For instance, a consumer can use the internet to assess a specific product offered by different organizations and compare the prices. Besides, digital technology has helped save costs since the business does not require many employees hence saving on labor costs (Cassar et al., 2010). The organization also benefits by cutting out the aspect of the retail chain since it can send the purchased goods directly to the consumer rather than through shops. In addition, the digital economy helps create important data that gives significant insights to the company. For instance, an organization may use data analytics to analyze the trends in the economy and plan appropriately for the future. Also, the digital economy helps organizations reach a wide range of target consumers since it is not limited by location. With the use of the internet, a consumer can purchase products in different world locations. The goods are then shipped to the customers. Thus, the digital economy has helped organizations gain a wide customer base, which makes the company make more profits, hence more growth. The negative implications of the digital economy on organizations in the e-sector involve cyber-attacks (Hojeghan & Esfangareh, 2011). Since the organizations use information technology systems, they are prone to attacks such as disrupting the organizations’ approach, which may lead to loss of consumers or lack of trust from the consumers when they get manipulative messages from the attackers. Also, it breaches an organization’s privacy since it is challenging to have privacy in the digital world, and the organization’s data can be stolen or sold.
Business Model of Amazon
Amazon is an American international e-commerce organization launched by Jeffrey Bezos in 1994. When it faces competition, its brand remains unparalleled and hence remains in the lead (Investopedia, 2019). The business model of Amazon identifies the following critical success factor. The first factor is maintaining a solid brand name and location, then offering its consumers value and strong shopping knowledge, which then followed by considerable sales capacity and finally realizing economies of scope and scale. Amazon’s business model is set if business models rather than a single agency (Sadq et al., 2018). The business model of e-commerce organizations, in general, comprises eight key components, which include value proposition, market opportunity, revenue model, competitive environment, competitive advantage, market strategy, organizational development, and management team (Wadhwa et al., 2020). . The business model of amazon comprises the value proposition, revenue model, customer segments, essential resources, competitors, partners, cost structure, and customer relationship.
Value proposition
Value proposition involves specifying how the products and services of the organization are combined and extended to meet the needs of consumers. The company targets middle-class and upper-class individuals who have experience in technology and those that do not have time to buy products from physical outlets (Wadhwa et al., 2020). Thus, the company has positioned itself as a local and global e-commerce giant where consumers can purchase anything and get it delivered at any remote location. The company has obtained many information technologies and e-commerce start-ups intending to offer high value to their consumers using the digital technology of the acquired companies at a low cost (Wadhwa et al., 2020). . The company used big data analytics to record consumer data and analyze consumer behavior which helps the organization provide consumers products, related products or bundle the items together as an offer depending on consumer preferences demonstrated through purchases.
Revenue Model
The revenue model involves ways the organization uses to generate a higher return on investment and profits. The revenue model of e-commerce includes promotion, subscription, sales, fees, and affiliate revenue models. The organization sells goods directly that consumers visit since they assume they will obtain affordable products readily available for purchase and shipping. This helps the company to get direct sales. The company also receives revenue by offering other retailers a platform to sell products to their consumers. The company gets a commission from the sale prices of the retailer’s products. Besides, Amazon retains a subscription-based business model via its Amazon Prime serves, where consumers pay an annual fee to secure free two-day or same-day shipping on eligible items and access streaming media such as digital music and movies (Wadhwa et al., 2020). Also, the organization makes revenue from Amazon Kindle, an e-reading package whereby the consumers can purchase, surf, and copy files, publications, and broadsheets (Wadhwa et al., 2020). Amazon’s advertising platform is another source of revenue for the company since it offers a marketing platform for sponsored ads and videos. The company owns more than 1000 patents, which is another source of revenue for the company.
Customer segments
Amazon consumer segments can be separated into three categories: suppliers, consumers, and inventors. The suppliers are the organizations that utilize the e-commerce stage of Amazon to sell their products to Amazon’s broad consumers. Inventors involve every public involved with Amazon web services which are Amazon cloud computing platforms (Pereira, 2020). They include customers and partners of all sizes in each industry. The buyers are the people across the globe seeking to purchase products and services via Amazon’s channels. Amazon keeps data of its consumers to track consumer behavior through characteristics such as consumer interests, engagements, and personal information.
Amazon Competitors
The competitive environment in the business model entails the competing firms working in the same market space, possible competitors in the market, manufactured goods alternatives available, and the bargaining power of the consumers and sellers. The organization has many competitors who challenge it to continue providing better services to its consumers to remain at the top. Some of the competitors include online stores, approximately more than 24 million currently (Ritala et al., 2014). Another competitor is Walmart which has a significant presence online and is ranked as the second most popular store in the United States. Besides, china-based online retailer Alibaba is another competitor of Amazon, specializing in whole selling. Other competitors include Otto, Jingdong, eBay, Flipkart, Rakuten, and Newegg (Pereira, 2020).
Amazon Key Resources
The organization’s primary resource is the technological infrastructure, which is essential for ensuring the whole chain of the business is operating without disruptions and losses. Others include physical spaces such as warehouses and automation (Pereira, 2020). Human resource is another significant resource that ensures efficient communication with the partners.
Amazon Key Partners
Amazon has always assimilated, financed, and amalgamated with industries that align with their current and future growth while re-investing incomes from their sales into long-standing growth in novel marketplaces and ground-breaking exploration (University of Toronto, 2013). The significant partners of the online store include sellers who are the essential associates of the trademark because they are the producers of Amazon’s leading basis of returns. The company has more than 7.9 million sellers globally who generate approximately half of the firm’s returns (Pereira, 2020). Other partners are affiliates who are bloggers that promote traffic for the platform and earn commission through referrals that lead to a sale and therefore help in boosting sales, developers who are system integrators and software vendors, content creators who independently use Amazon Kindle to publish their works, and subsidiaries which involve organizations that offer storing places, and structures to products and goods established by Amazon.
Amazon Cost structure
The costs incurred by the company involve the maintenance of the information technology systems, a good customer service center, promotion of its products, ensuring the security of its websites, and payment of rents and lease on their physical stores and delivery stations (Pereira, 2020).
Amazon Channels
The company’s leading and the most significant channel is the Amazon website and other channels, including Amazon App, Amazon Prime, and affiliate program. Since the company is internet-based, it utilizes digital marketing, which involves e-marketing and advertisements (Pereira, 2020).
Amazon Customer Relationship
Amazon has, over time, maintaining a strong and enduring connection with the consumers (Pereira, 2020). This is because the company’s main objective is to be consumer-centric, and it does this by maintaining different communication approaches that are easy to use by their consumers, such as telephone calls and online chats. The company’s greatest strength is ensuring complete customer satisfaction and excellent customer service (University of Toronto, 2013).
Amazon Key Activities
The key activities of the institution revolve around the establishment, preservation, and growth of its extensive network. Thus, the company capitalizes on website and application creation and administration and the whole logistics and supply department and information security (Pereira, 2020).
Challenges and Opportunities
Amazon has been facing various challenges in its operations, including regulations in some countries. For instance, the Indian government restricted all overseas corporations from using e-commerce to vend their goods openly to Indian customers. This made it difficult for Amazon to reach consumers in India without involving intermediaries. This, in return, increases the labor costs, which reduces the company’s profits. Another challenge Amazon faces include limited infrastructure to allow easy reach of goods to consumers. Some countries have poor infrastructure, making Amazon take more time before delivering products to its consumers. This wastes many resources which are essential to the company. Besides, the consumers who lack patience give bad reviews about the company, which affects the brand’s image. To deal with this, the company ensures constant communication with consumers in case of a challenge in delivering the consumer goods to let the consumers know that the goods may be delivered late. A good customer relationship through constant communication helps the consumers develop trust and loyalty to the organization. Another challenge the company faces is competition from its rivals through the pricing of products or substitute products (Chhabra, 2021). The company faces this challenge by offering its products at low and competitive prices to keep up with the competition. The company uses dynamic pricing, which involves changing the prices of different products more than 2million times each day. It also uses psychological pricing to keep its costs competitive and attract more customers by providing huge discounts on best-selling and popular products. This makes customers find Amazon prices to be the lowest all-time and purchase from the company. Besides, the company ensures competitive and low prices through competition monitoring and repricing, which involves placing a tab on the prices of every product offered by its competitors and considers repricing its products to attract more consumers to its platform. Despite the challenges, the companies have diverse opportunities in the digital economy. The company has the chance of expanding its operations in other countries, such as the developing states. Also, the company can establish more physical stores to compete with the brick-and-mortar operations, which may be more robust because they engage customers more (Akram, 2015).
Conclusion
Amazon is an international e-commerce company based in America and was started in 1994. Amazon has successfully remained competitive in the digital economy due to its continued investment in new technologies. The digital economy involves using digital technology to connect organizations and people. Some of the digital economy organizations include Netflix, Amazon, and Airbnb. Developments in the digital economy have impacted the e-commerce sector significantly. It has provided consumers with the availability of more information to make informed decisions before purchasing products online. For instance, consumers can visit different online companies offering the product they need and compare prices before buying. Besides, it has provided the businesses with the ability to reach a vast population of their target customers. However, the companies in the digital economy face various challenges such as privacy concerns whereby their information and consumer information is can be accessed by cyber attackers. Amazon has a business model which includes multiple components such as value proposition, revenue model, cost structure, key partners, customer segments, customer relationship, competitors, and critical resources. The revenue model entails the different sources of revenue for the company, including direct sales to its consumers, commissions from retailers using their platform, and Amazon Prime. The company faces challenges which include government restrictions from selling directly to citizens, which the company has faced successfully by developing physical stores in those countries. Other challenges include stiff competition from other companies in the e-space and poor infrastructure, which easily hinders the delivery of products to consumers. The opportunities include the company can open stores in other countries such as the developing nations.
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