Executive Summary
Amazon is an e-commerce company established in 1994 by its founder Jeff Bezos. The Company leads globally in e-commerce, cloud computing, online advertising, digital streaming and artificial intelligence. The Company has its headquarters in Seattle, Washington, DC. Amazon began as an online bookstore but has since diversified and become one of the largest online retailers globally. The Amazon company offers cloud hosting services, thanks to Amazon Web Services (AWS). The Company has also diversified its operations to produce consumer electronics, including the Kindle e-reader, Echo Smart Speaker and Fire Tablets. The Company also provides live streaming of movies and TV shows thanks to its product Primer Video.
Amazon Company has recorded excellent financial performance in recent years. In 2018, the Company registered revenues worth $232.9 Billion and a net income of $101.1 billion. Moreover, the e-commerce segment reported a 14% increase in revenue, while Amazon Web Services registered a 45% growth in revenue. Despite the outstanding financial performance, Amazon faces substantial competition from other e-commerce giants such as Alibaba and Walmart. The PESTLE and Five Forces Model depicts the kind of competitive environment Amazon operates in. Moreover, using the VRIO framework, Amazon’s key strengths in innovation, supply chain management and customer focus are analyzed. Consistent innovation and inventions are the key aspects that ensure that Amazon stays ahead of its rivals.
Background
Amazon is a multinational company that deals with e-commerce, among other technology-related services. The Company was established in 1994 by Jeff Bezos and had its headquarters in Seattle, Washington. The Company was established as an online bookstore; however, it has since diversified to offer a variety of goods and services. Retail selling, digital streaming, cloud computing, and artificial intelligence are among the various services offered at Amazon. The Company has also extended its services to operate in more than 100 countries globally.
The Management of the Amazon Company
Amazon was established by Jeff Bezos, who has been the Company’s Chief Executive officer until 2021, when he stepped down (Amazon, 2023). Bezos stepped down as CEO, however, he still remains the executive chairman of the board. Bezos paved the way for Andy Jassy, who took over the seat of CEO. Jassy has been in the Company since 1997 and previously ran the operations of Amazon Web Service (AWS). The board of management of Amazon Company, also referred to as the Board of Directors, comprises 11 more members apart from Bezos and Jassy. The other members are listed below, together with their positions (Amazon, 2023);
Brian T. Olsavsky – Senior Vice President and Chief Financial Officer
Douglas J Herrington – Chief Executive Officer, Worldwide Amazon Stores
Shelley L. Reynolds – Vice President, Worldwide Controller
Adam N. Selipsky – Chief Executive Officer, Amazon Web Services
David A. Zapolsky – Senior Vice President, General Counsel and Secretary
Directors
Jeffrey P. Bezos – Executive Chair
Andy Jassy – President and Chief Executive Officer
Keith B. Alexander – CEO, President and Chair of IronNet, Inc.
Edith W. Cooper – Co-Founder of Medley and Former EVP of Goldman Sachs
Jamie S. Gorelick – Partner with Wilmer Cutler Pickering Hale and Dorr LLP
Daniel P. Huttenlocher – Dean of MIT Schwarzman College of Computing
Judith A McGrath – Former Chair and CEO of MTV Networks
Indra K. Nooyi – Former Chair and CEO of PepsiCo, Inc.
Jonathan J. Rubinstein – Former co-CEO of Bridgewater Associates, LP.
Patricia Q. Stonesifer – Former President and CEO of Martha’s Table
Wendell P. Weeks – Chairman and CEO of Corning Incorporated
Invested Capital of Amazon Company
The operations of Amazon are funded through equity and debt, which are invested by investors. Equity finance entails the funds invested by shareholders such as private equity firms, institutional investors and individual investors through equity offerings (Amazon, 2023). Debt finance is acquired from banks and other lenders through bonds and loans. The exact amount of invested CapitalCapitalCapital for Amazon Company varies depending on the specific time period being analyzed and the method used to calculate it.
Amazon (2023) explains that Amazon invested Capital yearly trend continues to be very stable with very little volatility. Invested CapitalCapitalCapital is predicted to grow to about 402.7B in the year 2023. During the period from 2010 to 2023, Amazon invested Capital quarterly data regression pattern had a range of 396688052632 and a median of 64298000000 (Amazon, 2023).
Industry and Products sold by Amazon Company
Amazon operates in several industries, which range from e-commerce, could be computing, digital streaming, data storage and analytics, among others. Amazon Video competes with companies such as Netflix ad Hulu digital streaming industry. The Company sells goods online and even in physical stores (Warrier et al., 2021).
Amazon offers a variety of products (Warrier et al., 2021); Retail Products: Books, electronics, clothing, and home goods are among the various goods sold online through the Amazon Com Website and Mobile App. Amazon Web Services (AWS) is a product of Amazon Company that offers a variety of services which include cloud computing, storage and databases through the Company’s cloud computing platform (Warrier et al., 2021). Moreover, Amazon competes with companies such as Showmax and Netflix due to its product Amazon Prime which is a subscription service that provides its members with free two-day shipping and access to streamlining services like Amazon Prime Video and Prime Music. Amazon Marketplace is a platform that allows for trading through the allowance for third parties to sell their products on Amazon.com (Warrier et al., 2021). The sellers have the freedom to choose to fulfil orders themselves or use Amazon’s fulfilment products.
Amazon has had several successful products thanks to its diversity capability; however, some of these products have gained global attention. First of all, Amazon Prime has gained over 200 million subscriptions from users around the globe (Sadq, Sabir & Saeed, 2018). The product offers its users two-day shipping and access to streaming services such as Amazon Prime Video and Prime Music. Amazon Web Services occupies the globe’s largest share of cloud computing platforms, with a market share of over 30%. Back in 2020, Amazon Web Services managed to generate 12% of the Company’s revenue. Echo and Alexa are virtual assistant products (Sadq, Sabir & Saeed, 2018). These products have recorded over 100 million sales and have helped in establishing Amazon’s presence in the home automation and voice assistant markets. The Amazon Marketplace has over 2 million active sellers across the globe and has been a significant source of revenue for the Company (Sadq, Sabir & Saeed, 2018). Kindle has revolutionized the reading of books by allowing for the purchasing of books online. The product was established in 2007, and since then, over 90 million devices have been sold since its launch in 2007.
Amazon’s Major Events in History
Since its foundation in 1994, Amazon has had various events that mark its history. First of all, in 1994, Jeff Bezos founded the Company, which was established as an online bookstore (Sheridan, 2020). He operated the Company outside his garage in Seattle, Washington. The Company’s history is marked between 1998 and 200 when the Company ventured into the sale of other products that ranged from music and video to electronics and toys (Sheridan, 2020). The Amazon marketplace was also founded in 2000 as a third-party seller platform whereby independent sellers were allowed to sell their products on the Amazon platform, thus, expanding the Company’s offering. The launch of Amazon Web Services took place in 2006 when the Company launched Amazon Web Services, a cloud computing platform which has been a source of revolution for the Company and has enabled it to host applications online (Sheridan, 2020).
2007 The Kindle e-reader was introduced in 2007, introducing a new era for the publishing industry by making it easier to purchase and read books from the online platform (Sheridan, 2020). 2017 marked another remarkable day in Amazon’s history when the Company decided to venture into the groceries industry. Amazon acquired the grocery chain Whole Foods for $ 13.7 billion. The entry into this new market was also an expansion opportunity for the Company into the brick-and-mortar business. According to Sheridan (2020), Amazon Go was launched in 2018, which is a technologically enhanced store that allows shoppers to shop and pay for items without waiting in long queues at the cashiers’. Amazon saw the potential in the entertainment industry, hence, launched Amazon Prime Video in 2011 and Amazon Studios in 2013 (Sheridan, 2020). Amazon Prime Video provides services for live video streaming, while Amazon Studios produces original content for live video streaming. The home automation and voice assistant markets also revealed much potential for Amazon, which introduced Amazon Alexa and Echo, which are virtual assistant products.
Where is Amazon Headed?
Amazon has revealed impressive growth over the years due to its ability to diversify and venture into new markets. The Company places a major focus on innovation and customer satisfaction, which are the key drivers towards its operation and success (Varia & Mathew, 2014). Currently, Amazon is seeking to introduce new products and venture into new markets. To promote efficiency in its operation as well as enhance customer satisfaction, Amazon is investing heavily in emerging technologies such as automatic cars, robotics and artificial intelligence. The Company also embraces the opportunities in the healthcare sector, hence, aims at venturing into these sectors by applying its technological advancements in these areas. Varia & Mathew (2014) explains that Amazon has branches in more than 190 countries across the globe, and the Company is also expanding its footprints into India and the Middle East.
What is Amazon doing now?
Amazon is one of the largest and most diverse companies, and here are the key initiatives being undertaken by the Company; Amazon aims to become the most sustainable Company in its operations and sale of its products (Varia & Mathew, 2014). The Company has launched initiatives such as the Climate Pledge Fund, which aims at enhancing the goal of Amazon to be Carbon Neutral by the year 2040. Amazon also aims to invest in logistics and transportation by establishing its own fleet of shipment and delivery vehicles as well as cargo planes (Varia & Mathew, 2014). The Company is also integrating the technology of drones and robots to enhance its operations. Amazon also aims to expand its product offerings to include fashion and beauty products. Moreover, the Company is also investing in its own label brand to gain a competitive advantage among other retailers.
Amazon’s Vision and Mission
The vision of Amazon Company is to be the Earth’s most customer-centric Company; to build a place where people can come to find and discover anything that they may want to buy online. Amazon’s mission statement is to be the Earth’s most-centric Company (Cuofano, 2022). The focus on the customer experience has been a driving force behind the success of Amazon (Cuofano, 2022). The Company aims at providing a convenient shopping experience, quick and reliable delivery of products and exceptional customer service. Through the following services, Amazon can gain loyalty from its customers.
Financial Analysis for Amazon Company for the Fiscal Year 2018
Amazon is a large company whose financial performance is an area of interest for many investors and analysts. In 2018, Amazon reported revenues of $232.9 billion which was a 31% increase compared to the previous year (Macrotrends, 2023). The Company’s net income was $ 10.1 billion, up from $3 billion in 2017. The strong financial performance was contributed majorly by Amazon Web Services through the provision of cloud computing services. In summary, the following are the variables for Amazon’s financial performance in 2018 (Macrotrends, 2023);
Revenue: Amazon’s overall revenue in 2018 was $232.89 billion, a considerable rise from the $177.87 billion in revenue from the previous year.
Net Income: Amazon’s net income for 2018 increased from $3.03 billion in the previous year to $10.07 billion (Macrotrends, 2023).
Operating Cash Flow: In comparison to the operating cash flow of $18.39 billion in 2017, the operating cash flow for 2018 was $30.70 billion.
Earnings per share: In 2018, Amazon’s earnings per share increased to $20.14 from $6.15 in 2017.
Return on Equity: Amazon had a return on equity of 28.3% in 2018, which shows that the business is making money for its shareholders.
Debt-to-Equity Ratio: In 2018, Amazon had a debt-to-equity ratio of 0.
Amazon’s Financial Performance
Amazon has revealed impressive financial performance over the years. The Company has registered consistent growth in revenue as well as profits thanks to its major focus on operational efficiency, customer satisfaction and innovation (Macrotrends, 2023). The following are the key variables that explain the Company’s financial performance;
Growth in revenues: Over the years, Amazon has routinely reported increasing revenues. The business made $280.5 billion in revenue in 2019 as opposed to $232.9 billion the year before.
Profitability: Due to its emphasis on investing in growth possibilities, Amazon has historically had poor profit margins (Macrotrends, 2023). But in recent years, the Company’s net income has significantly increased. Amazon announced a net profit of $11.6 billion in 2019, an increase from $10.1 billion in 2018.
Stock performance: The stock of Amazon has performed remarkably well on the stock exchange (Macrotrends, 2023). Since the Company’s initial public offering (IPO) in 1997, the stock price has surged by more than 2000%.
Cloud services: For the business, Amazon Web Services (AWS) has been a major source of revenue.
Macrotrends. (2023). Amazon financial ratios for analysis 2009-2022 | AMZN. Macrotrends | The Long Term Perspective on Markets. https://www.macrotrends.net/stocks/charts/AMZN/amazon/financial-ratios
Competitor’s Financial Performance
Amazon faces stiff competition from other large e-commerce companies and retailers such as Walmart, Alibaba, Target and Costco (Zhu & Liu, 2018). These companies have made tremendous moves in investing in their online businesses; however, their online sales and profitability do not match that of Amazon. Amazon has dominated the e-commerce market; hence these rival companies find it difficult to catch up with Amazon (Zhu & Liu, 2018). Amazon releases new innovations and inventions frequently, and these aspects allow the Company to lead in the industry.
Industry Financial Performance
With the inventions and innovations made in technology, the e-commerce industry has revealed rapid and consistent growth in recent years. This growth is attributed to the increased consumer demand for online shopping, which is contributed by the efficiency this mode of shopping provides. In 2021, it was estimated that online sales through e-commerce platforms were expected to rise to $4.9 trillion (Deshpande & Pendem, 2022). The increased use of e-commerce platforms will push the growth of the industry in the coming years.
Performing an External Analysis on Amazon using the PESTLE Model and Porter’s 5 Forces Model
The PESTLE analysis tool analyses the external macro-environment of a company and the various factors in this environment that could impact the effective and smooth running of operations in the Company. The following is an analysis of the Amazon Macro-environment using the PESTLE Framework.
Political Factors
As explained above, Amazon operates in more than 190 countries around the globe which subjects the Company to various political factors, such as trade regulations, trade contracts and government policies that differ from one country to another (Greenspan, 2019). Amazon has had a difficult time venturing into the Indian market, where there are rigid rules that make it difficult for foreign companies to operate in the e-commerce sector.
Economic Factors
The strength of the global economy predicts the success of operations of Amazon. Greenspan, (2019) explains that inflation rates, GDP and currency fluctuations influence consumer behaviours and, consequently, the revenues derived by Amazon. Consumer demands drive the growth and success of Amazon.
Social Factors
Consumer behaviours, cultural trends and demographic shifts impact the sales and operations of Amazon (Greenspan, 2019). Amazon has been receptive towards consumer trends and the increase in mobile commerce, and the increased daily demand for goods and services.
Technological Factors
Being a technology-driven firm, Amazon depends significantly on its technological infrastructure to run its business (Greenspan, 2019). Artificial intelligence, robotics, and automation are just a few of the technological developments that might drastically change how Amazon runs and improve both operational efficiency and consumer experiences.
Legal Factors
With the operation of Amazon in various environments arises the challenge of subjection to various laws and regulations (Greenspan, 2019). Amazon has faced charges such as data privacy violation, antitrust and issues related to labour practices.
Environmental Factors
Amazon has been seeking to implement environmental sustainability in its operations (Greenspan, 2019). Therefore, sustainable packaging and the use of renewable energy are some of the factors that are increasingly important for Amazon to consider in its operations.
Porter’s Five Factors Model
Porter’s five-factor model is a tool that examines the competitive factors that affect the operations of a company. According to Porter’s Five Forces paradigm, the following factors influence Amazon:
The threat of New Entrants: Because there are so many obstacles to entry for the e-commerce sector, the threat of new entrants is very minimal (Edrawmax, 2023). It would be challenging for new competitors to replicate Amazon’s extensive infrastructure, which includes its customer base, technology platform, and distribution network.
Due to its scale and market dominance, Amazon has relatively strong negotiating leverage with suppliers (Edrawmax, 2023). With suppliers, Amazon is able to negotiate advantageous conditions, and it can utilize this leverage to reduce prices.
Competitive Rivalry Intensity: The presence of numerous major rivals like Walmart, Target, and Alibaba has led to a high level of competitive rivalry in the e-commerce sector (Edrawmax, 2023). However, Amazon has a competitive edge due to its monopoly on the market and its capacity for innovation and swift adaptation to shifting consumer trends.
Buyers’ Bargaining Power: Because it’s so simple to compare prices and there are so many different options available, buyers have a fair amount of negotiating power in the e-commerce sector (Edrawmax, 2023). However, Amazon’s solid reputation and devoted client base help to reduce this danger.
The threat of replacements: The presence of other purchasing channels like physical retail outlets makes the threat of replacements in the e-commerce sector relatively strong (Edrawmax, 2023). However, Amazon stands out from rivals because of its broad assortment of goods and services and easy online shopping.
Internal Analysis of Amazon Company using the VRIO Framework
The VRIO Framework is a viable tool for assessing the internal resources and capabilities of a company. The following are the capabilities of Amazon that have been assessed using this framework;
Human Resources – Amazon is equipped with a skilled and talented workforce that focuses on innovation and enhancing the experiences of customers (White, 2019). Amazon invests heavily in the training of employees and new staff using techniques that are quite difficult to copy.
Reputable Brand – Amazon is a reputable brand by itself that is quite complex for any party to imitate (White, 2019). Quality services and products, convenience and efficiency in operations and customer service have enabled the Company to gain loyalty from its customers.
Technology – Amazon Web Services among other technology platforms have enhanced the operation of the Company (White, 2019). The use of technology gives the Company a competitive advantage as this is a resource that cannot be easily imitated by competitors.
Distribution Network – Delivery services, partnerships with retailers and many fulfilment centres enhance the delivery of goods and services for Amazon, which is a rare resource possessed by the Company’s competitors.
Strategic Implications
The VRIO analysis reveals that Amazon has several strengths that give the Company a competitive advantage in the e-commerce industry. A strong and reputable brand, extensive distribution network, highly skilled human resources, strong technology, and enhanced delivery services are the major strengths that give Amazon a competitive advantage over its rivals (White, 2019). The Company seeks to continue investing in technology and innovations to enhance customer experience.
Conclusion
Amazon remains to be a dominant company in the e-commerce industry, and this is relevant from the financial analysis and performance of the Company as well as in comparison to its rival companies. The Company is recognized for its innovative customer-centred approach and efficiency in offerings its services. With constant inventions in technology, Amazon remains to be a leading company in e-commerce. Moreover, commitment to customer service has built a loyal customer base for the Company. The Company faces major issues associated with economic and regulatory factors; however, the Company’s strong and reputable brand, distribution network and technological capabilities make it well-positioned in the e-commerce industry.
References
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