IT Semester Project Amazon. com Industry Description The online retail industry engages in the selling of final products to end users through e-commerce. One of the most well known companies in this industry is Amazon which specializes in three major product and service groups: web hosting, digital content, and tangible product items. The web hosting service provides resources on which to host web applications. These resources include Amazon elastic computer cloud, Amazon simple storage service, Amazon relational database service, Amazon Simple Data Base, Amazon Cloud Front, Amazon Simple Queue Service, and Amazon Mechanical Trunk.
These resources provide IT infrastructure services to business on a demand based need. Amazon’s digital content consists of portable e-reader content including books, newspapers, magazines, and blogs. It also includes a digital instant streaming video service and downloadable audio and music files. Amazon’s tangible product retail services are known as Amazon Marketplace, which provide final products to end users through e-commerce. This sells fixed price items and allows third party sellers to market new and used products from the same platform for a fee based off the final sell.
Amazon has an extensive customer review service of its products, has efficient delivery options, a proficient customer service commitment, and a fee based membership option, “Amazon Prime,” which provides customers with various incentives including free shipping. Amazon also has a developed marketing system which includes affiliates through third party sellers on other websites. Amazon also provides a drop shipping service for other companies, Amazon Fulfillment. The competitive forces of Amazon include the threat of new entrants into online retail and IT solution business.
Amazon does have significant barriers against this force, including patented technologies and unique distribution centers. Amazon also faces rivalry among existing companies which offer similar products to Amazon, including webhosting and IT infrastructure service companies, digital media e-commerce companies, and other major online retail companies like Walmart. com, Half. com, Ebay. com and others. Existing competitors also include retail of used items or third party seller websites. Competitive forces also include he bargaining power of buyers, which consists of buyers who use the internet to find coupon codes, exclusive sales, etc, to purchase items from other online retailers. Although Amazon has minimized this competitive force by offering goods at low prices, there are online sites that can generate discounted products for the savvy customer. Amazon also faces competition from the bargaining power of suppliers, particularly in sectors whose suppliers object to having Amazon offer items at below market price or object to having their items sold on a broad based internet platform.
Amazon also faces the threat of product substitutes, such as existing brick and mortar stores which can offer a live retail shopping experience. Finally, it also faces the force of complementors, or industries which affect business practices. These forces may include technology and internet changes, economic changes, government regulation changes, and culture changes. The value chain of Amazon consists of its inbound logistics, which includes its use of warehousing, drop shippers, and third party sellers.
Operations include Amazon’s use of technology to enhance the shopping experience of customers including its “one click checkout. ” Outbound logistics include Amazon’s various delivery options and methods, including methodical analysis of various postal carriers for each purchase, next day delivery, standard delivery and free delivery options, as well as third party shippers. Marketing and Sales consist of offering various quality and price options such as scaled prices based on the quality of items, ranging from used to new.
This also includes using strategic analysis of previous customer purchases and browsing histories to market specific items to target consumers. Amazon’s supply chain also consists of developed service and maintenance activities, including a customer service department to address consumer issues, as well as seller and product reviews/ratings from customers. All of these activities are accomplished via support activities including the procurement of items from manufacturers, distributors, and third party sellers.
Technological developments are also a crucial support for facilitating the above activities, as well as well developed management and firm infrastructure. Business Strategy: Amazon went public in 1997 and began trading on the NASDAQ under the leadership of founder and CEO Jeffery Bezos. Ever since the company went public they have been publishing a yearly letter to shareholders. This letter recaps the events of the previous year and discusses their strategy and focus for the coming year. Along with the new yearly letter to shareholders you can find the letter to shareholders from 1997.
The reason Bezos continues to attach the original letter to shareholders is to show investors that the company’s strategies, goals and views have not changed over the years. While the business and internet environment in which Amazon operates continues to evolve and change, their founding strategies remain. Highlighted in the original letter to shareholders Bezos states “It’s all about the long term, we believe that a fundamental measure of our success will be the shareholder value we create over the long term. ” From 1997 to today we have seen the strong dedication to the customer through Amazon’s product.
Through Amazon’s many goals we can see how they have developed their customer based strategy to become the number one online shopping site. The business strategy focuses on market leadership which will in turn lead to stronger invested capital through strength of their brand, customer growth and revenue growth. In 2010 a specific focus was placed on three characteristics; speeding delivery, reducing the cost structure and maintaining an in-stock position of even hard to find items. In 2010 Amazon set their business strategy through a number of detailed goals.
Each of these goals has a specific owner, deliverable and completion date. In the 452 detailed goals set by Amazon for 2010, “the terms net income, gross profit or margin, and operating profit are not used once”, while 360 of the 452 goals have a direct impact on the customer. Amazon believes the key is adding efficiency to operations through technology and customer feedback, which allows them to reach a wider range of consumers at a lower cost. Two goals important to Amazon are streamlining product content and user friendly website usage.
The content provided has been tailored to a consumer friendly and consumer developed website, where features are provided to the customer in an easily accessible manner. Innovation is also an important strategy that has helped Amazon get closer to their customers through an in house developed customer review system. This innovative technology allows customers to provide feedback on the products they have purchased through Amazon. The rating technology has become an important tool for Amazon and while it caters to customer demand, it also plays a role as a source of data collection important to Amazon’s success.
The technology touches on two important aspects of their strategy, catering to customer needs and understanding the customer. The continued focus on data collection by Amazon is very important to the overall business strategy of providing customers with information and products that are in demand. The concentration on both information and technology will continue to evolve and play a part in the strategies of Amazon going forward. Capturing reliable data from consumers and turning that data into useful information to help develop systems is crucial to Amazon’s future success.
The innovative “user-generated content” technology developed from the data of customers is also important in developing new and innovative technologies going forward. A passage from the 2010 letter to shareholders shows just how important the customer is to Amazon, “Taken as a whole, the set of goals is indicative of our fundamental approach. Start with customers, and work backwards. Listen to customers, but don’t just listen to customers – also invent on their behalf. We can’t assure you that we’ll meet all of this year’s goals. We haven’t in past years.
However, we can assure you that we’ll continue to obsess over customers. ” Product/Service Delivery Process With more than forty order fulfillment centers worldwide, shipping hundreds of thousands products a day, Amazons delivery system is integral to the overall success of the enterprise. Amazon has three major product/service groups that are delivered: web hosting, digital content and physical retail items. For a relatively small fee, corporate customers can get access to Amazon’s information technology infrastructure over the Internet.
Amazons web hosting service provides businesses and entrepreneurs’ access to Amazon’s web platform allowing them to create their own e-stores without the costs associated with “traditional” e-stores. The delivery of this service is quite simple as costumers log in to Amazon’s existing web platform. The second delivery service is digital content. Amazon’s popular e-book reader, the Kindle, requires digital content to be delivered to it for costumers to read. The kindle is available with Wi-Fi and 3G capabilities in order to receive digital content from Amazon.
Whispernet is Amazons name for the 3G feature on the kindle which allows consumers to download digital content without a Wi-Fi connection. The third delivery service and the most sophisticated of Amazon’s delivery processes is Amazon’s physical item delivery. Amazon prides itself on being the most customer-centric company on the planet, to that end timely and accurate delivery is key to their mission. A substantial amount of the over two hundred million dollars Amazon spend a year on business technology goes toward delivery development.
Amazon not only delivers its own stocked products it also holds inventory and ships for major retailers such as Target and Toys R Us. Additionally Amazon arranges drop shipments directly from manufactures for items not held in Amazon’s inventory. All of these methods are made possible by Amazon’s highly integrated supply chain. When a customer places an order with Amazon the order-management system communicates with inventory- and warehouse-management systems to find the optimal distribution center or centers for fulfilling the order.
The customer knows in less than a minute how long it will take to ship the items and whether they will come in one package or separately. Once the order is processed through the system, pickers will find the items in the predetermined warehouse for that order fulfillment and place the item on a conveyor belt. Once the items are placed on the belt the highly automatic packing system will box, label and sort the package to be shipped to the correct destination. Amazon’s order-management system also calculates which shipping carrier (USPS, UPS, and FEDEX) is the most cost effective and efficient for each order.
For Items Amazon does not stock the company uses a technique called “drop shipping,” utilizing real-time links to manufacturers, which ship goods directly to consumers on the Internet company’s behalf. Amazons delivery system has allowed the company to compete with brick and mortar businesses such as Wal-Mart and is expected to be a driving force of Amazon’s success in the future. Amazon communicates with its customers in a number of ways. Shunning traditional advertising much of Amazon’s advertising is subliminal and indirect.
Jeff Bezos, the founder and CEO summed up his advertising philosophy when he said Advertising is the price you pay for having an unremarkable product or service. Rather than running Super Bowl ads Amazon places their ubiquitous banner ads offering daily specials on many websites. Through numerous partner relations, Amazon has ample space for its unique style of marketing. The kindle has been an exception to Amazon’s general marketing strategy. Amazon has employed print media as well as television and internet to advertise the award winning e-book reader.
Perhaps more important than communicating with customers through advertising is the way Amazon connects with the customer while on Amazon’s website. Amazon is able to recommend items to customers by examining the items the customer previously purchased, items the costumer tells Amazon they own, and items the costumer rated. Amazon then compares activity on the site with that of other customers. Using this comparison, Amazon is able to recommend other items that may interest the customer.
This highly personal communication not only helps Amazon sell more products it also gives the customer a feeling of familiarity which promotes repeat shopping. IT Strategy Amazon’s IT strategy is one of the foundations of its success. Considered by many to be a technology company Amazon’s IT system plays a vital role in every aspect of the enterprise and is not just used in a support role. The specific IT strategy of Amazons fits into the overall business strategy namely to be customer centric. Amazon uses embedded marketing techniques to customize the users shopping experience.
When Amazon launched its cloud in 2006 the only operating system that users could access was Linux, now Windows server 2003 and 2008 are available. As more people migrate toward digital media, music and communication server space is at a premium. Amazon is an innovator leader in storage solutions. Recently Amazon made the first move in this highly competitive market by introducing a music locker to store customers’ music in the cloud. Considered the leader in cloud computing solutions Amazon boasts a who’s who client list.
Recently (April 21) when an Amazon data center in Washington DC experienced technical problems, major internet sites were affected. Foursquare, Reddit and HootSuite all reported being completely down at some point during the day. Other noteworthy clients of AWS include Netflix and Zynga Inc. , which runs Facebook games. For Amazon to run its operations efficiently requires a massive technology infrastructure. Notoriously tight lipped, little is known for certain about Amazons IT core infrastructure. Randy Bias, a technology analyst estimated in 2009 that Amazon requires 40,000 servers to run its web services’ EC2.
In 2004 Oracle assisted Amazon migration of its data warehouse to Linux. At that time Amazon possessed the world’s three largest Linux databases, totaling over 7. 8 terabytes. Amazon employs the Netscape Secure Commerce Server using the SSL for security encryption. The diagram below illustrates the complex nature of Amazons IT process. In conclusion Amazon relies heavily on IT for every aspect of its operations. Constantly innovating and reevaluating the features and content of the various communication tools it uses Amazon is a definitive answer to Carr’s does IT matter.
Amazon’s answer to that question would be to look at its very healthy (of late) bottom line. Alignment With so many different facets and layers of the enterprise, from retail products to web services, the company’s alignment is vital to its success. The business strategy, organization strategy, and the technology strategy are all aligned and share common goals. An excellent example of the alignment at Amazon is its supply chain. Amazon built their supply-chain from the ground up customizing it to very specific capabilities across the enterprise.
Similar to Cisco’s ERP system that we discussed in class Amazon’s supply chain is extremely integrated. When a customer places an order the order management system communicates with inventory and warehouse management systems and calculates the best disruption center to ship the items from as well as telling the customer in how many packages will their order ship, all in less than a minute. This highly integrated supply chain is a product of MOT alignment. The system communicates across the various divisions of the enterprise creating an open environment as opposed to isolated departments.
Amazon’s alignment is also apparent thru its capital IT investments. In our CIO interview with Ms. Louise Finn she explained that Loyola’s IT investment is around 5% of revenues which by way of comparison Amazon has in the past invested more than 11% on IT investment. The management’s philosophy is to trade short term profits for a strong infrastructure to compete in the future. In 2010 Amazon had capital expenditures of 979m and much of that was spent on expanding data centers. Analysts consider Amazon’s commitment to IT as an important component that will continue to differentiate it from weaker companies.
A possible explanation for Amazon’s strong alignment is the genesis of the company. Jeff Bezos created Amazon in 1996 in his parent’s garage selling books. Bezos has tried to maintain that homegrown culture even as Amazon has become one of the most successful companies in the world. Without the corporate barriers that usually pervade the relationship between management and it Amazon’s alignment is able to thrive. When discussing Amazon’s position on McFarlan’s Strategic Grid it is important to look at Amazon’s evolution. When Amazon was selling books on the internet the company was placed in the support quadrant of the grid.
At that point IT’s role was as a medium to reach customers. As Amazon grew in early 2000’s and introduced its integrated supply chain the company relied on IT for operations in a more significant manner. During this time period Amazon was in the Factory quadrant. As was discussed above technology has now become a central aspect of Amazon including the actual sales of web services. Currently Amazon would be placed in the Strategic quadrant. Evolving in a Click World Amazon is an online retailer and is required to continually evolve and change as the industry continues to evolve and change.
Amazon is operating as a business to customer company where all of their business is done online. Any company operating in the online retailing industry is working in a continually changing environment, and one that will continue changing for years to come. The industry is fighting with some of the concerns consumers expressed from the beginning of online purchasing. One of the main concerns that has challenged the online retail industry since its inception is the idea of security of purchases over the internet.
There needs to be great consumer confidence in this area in order to have customers shopping online. Today that same concern plays a large role in Amazon’s evolution in the “click” world we now live in. The trust that has developed over the years of online shopping is crucial to the success that Amazon has experienced. However, this reputation can quickly change with just a couple mishaps in controlling the security of the customers. Moving forward it will be important for Amazon to maintain this reputation that has been developed over the past fifteen years.
Amazon is one of the top players in the online retail industry, if not the top player, and in order to continue the success Amazon will need to continue to evolve. As the world continues to move further into a “click” world there will be even increasing competition for Amazon. The cost advantages of doing business with customers online rather than in a physical location are great and range from salary expense to property or leasing expenses. Many of the large retail companies have been transitioning a lot of their business to include online sales as well as the store sales.
Many of these companies are moving and will continue to move to a more online based system, with a large central distribution center, and items are shipped from the central location. Amazon on the other hand is already set up to capitalize on this market, being that it is the basis of their business plan. The last thing Amazon needs to continue to provide in this “click” world is an easy and user friendly web system. The time and effort placed on the consumer generated website, complete with a rating system and customer driven web pages is what will continue to set Amazon apart from the competition.
Operating in a business to customer environment it is crucial to keep in mind what the customer wants and demands. As the online shopping experience continues to grow and competition continues to grow so will the need to listen to the customer and the development of a personalized user experience. Given the large amount of data collected from this “click” world it is getting easier for companies such as Amazon to develop a system where the customer that has signed into the site is now looking at items that have been consistent with past buying habits.
The next ten years will be a very telling time for companies working to transition to or implement B2C in their business plans. Amazon has great opportunity to continue its growth as some predictions say that by 2015 nearly 35% of retail will be purchased online. This great growth potential shows the future of the B2C companies will continue through 2019. One area that Amazon will need to continue to monitor will be cannibalization in the market. As many companies are beginning and have built in B2C e-business there is a potential for the customers to retreat to specialized sites for purchase of their items rather than Amazon.
As long as Amazon continues to listen and evolve to the customer’s needs there is great growth potential for the company through 2019. Remaining Competitive In order for Amazon to remain competitive in 2019, the company will have to ensure that they keep up with society’s fast-changing trends. In particular, Amazon will have to deal with the trends of increased globalization, diversified demographics, various social changes, political transitions, technological advances, organizational revamping, and social networking booms.
In regards to globalization, Amazon will need to deal with the opening of the world’s market to their target consumers. In 2019, their will likely be an increase in the number of people doing international business, and dealing with international markets which may be able to offer goods and services in competition with Amazon’s products. For example, today one can buy a well made lamp from Amazon for a reasonable price. In 2019, Chinese manufacturers may be offering the same lamp, with improved manufacturing quality than that of today, for a reduced cost due to their compromised labor costs.
In order to survive the ramifications of world globalization, Amazon will have to innovate ways to reduce labor and overhead to compete with the world. Socially and politically, the world is moving away from tyrannical governments and becoming increasingly accepting of Western democratic ideals, as displayed by the recent unrest and revolutionary changes in Middle Eastern countries. In order to thrive in this changing social and political arena, Amazon will need to keep up with the world’s new markets and economic changes.
Political and social changes bring new opportunities for commerce, as well as new people into the workplace and marketplace. Amazon will need to address these changes in order to continue to maintain dominance in the world’s marketplace. It may be wise for Amazon to consider developing a special personnel team dedicated to analysis of the needs of various developing countries which are advancing in their contributions to the world’s market. Amazon will also need to address the needs of a diversified demographic. A projection from the U. S.
Census Bureau (April 2005) stated that the population of people aged 65 and older will grow faster than the total population in every single state. Moreover, the amount of people with foreign cultures and origin will increase significantly as we head to the future. Amazon will need to market their products and services to people of a changing demographic. They may need to modify and innovate incentives and programs for the changing demographics. Recently, Amazon launched an incentive program called “Amazon Mom,” geared towards parent’s purchases for children.
By 2019, Amazon may need to launch incentives to draw seniors to their services. Technologically, the world as we know it today may be a vastly different one in 2019. The technological advances we see today are almost instantaneous and viral. Amazon will need to allocate tremendous effort into investing in advanced technology to keep its appeal with a consumer whose expectations of technological efficiency will keep rising. Amazon will need to address the need to offer advanced technology products to its customers, as well as ensure that they have access to manufacturers of these technological advances.
If not, the consumer will no doubt seek alternate venues from which to purchase the latest technology. Additionally, Amazon will need to keep up with changing their purchasing and service platform and software to match the latest technological developments in these areas. In the fast paced world of technology, there is no room to remain stagnant and satisfied with the current status. In order to remain competitive Amazon needs to dedicate intensive programming and resources to technology development.
These technological developments are closely related to the organizational changes which Amazon will need to keep up with as 2019 approaches. The world’s marketplace will become increasingly demanding, and the demands will proportionally affect Amazon’s organizational structure. Amazon may need to develop and modify shipping and customer service organization in keeping with the changing organization of the world. For example, email is currently being used as a way of communicating with Amazon’s customers regarding shipping notifications and any customer service needs.
However, in 2019, the world may not be using email as a way of organizing and delivering. Today’s youth prefer using social media and other like forms of communication, instead of email. Amazon will need to modify their own organizational structure as the world changes. Finally, in order to remain successful and thriving in 2019, Amazon will need to watch the boom of social media and its effect on people’s purchasing choices, spending habits, purchasing trends, and purchasing interests as a whole. Additionally, social media may change the way business as we know is conducted.
For example, the current model of manufacturer, distributer, delivery, middleman, etc, may be quickly changing with the instant communication webs which are developing through social media. Amazon will need to remain competitive with a manufacturer who may decide to sell their products directly through a social media contact. Social media is also effecting people’s expectations for an increase in quality service and delivery, as well as increasing people’s access to discounts, purchasing incentives, and membership royalties.
Amazon will need to make changes in keeping with the viral nature of people’s expectations in these areas. The Future In order for Amazon to stay competitive in 2019 they will need to need to improve upon their existing technology and create new technology to keep up with the rapid changing times. Currently Amazon is laying the groundwork to continue to be a leader in their field for the foreseeable future. One of Amazon’s main services is their cloud. Currently their cloud stores data and runs application for thousands of businesses. These services require Amazon to be on the cutting edge in software and hardware development.
Currently it said that cloud computing for business is not necessarily a sound financial investment for the business. In order for Amazon to acquire more businesses to utilize their technology, they will have to come up with ways to stay competitively priced, yet still offer superior service. One possible way for Amazon to stay at a lower price threshold is to subcontract their services out in an effort to reduce their cost of data centers and equipment. This strategy might reduce the overall cost, but Amazon needs to make sure that with outsourcing their data services, they do not decrease their level of customer service and support.
Another way to stay competitive in the future would be to penetrate the individual consumer market as opposed to offering only business oriented services. Amazon realized this and just started an on line music storage service for personal use. This new service keeps people involved in Amazon through which they might purchase music and other items directly from them. In the future though, their consumer services might not be confined to music, but for anything and everything, for example, Amazon can offer data security and on line back up for the average person or family.
Once customers are enticed through their web services, they would be more inclined to use Amazon for other purposes as well. Amazon is currently the world’s largest on line marketplace. In order for the market to stay competitive in 2019, they will definitely need to improve the way they reach their customers. Currently Amazon is known for their personalization. When a user logs on, Amazon suggests items the user might be interested in based on their recent purchases. In the future, when users are already plugged in to Amazon through the use of their web based services, the avenue of communication is already open.
This can be exploited through advertisements and daily specials sent to web service customers in addition to only marketplace consumers. Amazon also will need to take full advantage of the evolution of social media in an effort to reach consumers and stay on top of the trends. One way of taking full advantage of social media is for Amazon to create their own social media platform where users can discuss products and things they might be interested in as a way for Amazon to gain insight in to the wants and needs of each consumer.
Since Amazon is ultimately products based business, this information is vital to their success. Another way of communicating with the customer could be to launch a line of Amazon branded products that combine product use and services. In order for Amazon to create new value for their company, it would be prudent to exploit their current product offerings. Amazon currently has a thriving grocery business and a way to expound on that business might be to create an Amazon branded refrigerator with a built in computer in which the fridge senses much used products and might order more of them when the supply is low or iminished. Risk Assessment There are definitely risks involved with undertaking projects to improve the enterprise. Due to the capital undertaking these new projects would require there is definitely an executive risk. Share price may suffer due to the initial investment but it is important that management commit to and support these investments to further add value to the enterprise. Another risk involved with our strategy is project risk. When undertaking different projects, we have to make sure that we don’t over extend ourselves in the various types of projects we take on.
Amazon has been criticized in the past for engaging in seemingly unrelated businesses and lacking an identity. There is also the element of Functional risk. Amazon must control the business processes used to implement their goals. They have avoided risks associated with legacy system integration as Amazon has developed their supply chain systems and technologies from scratch. One of the primary functional risks associated with the future is reliability and usability. This risk was recently illustrated by the crash of an Amazon data center which wreaked havoc in the online community.
Many websites that utilize Amazon’s web services were forced to shut down. The organizational risk of implementing future goals is present in Amazon’s case due to their specific corporate culture. Since there are many different facets of the Amazon enterprise, which are often not directly related, it is very difficult to attain organizational alignment. The main risk associated with our future state of Amazon is the technological risk. This risk really encompasses the Amazon web services section of Amazon’s business.
In an effort to stay competitive Amazon will need to invest heavily in software and hardware. The true technical risk however is security. In an effort to expand their cloud based services, Amazon wants to take in more consumer information to the cloud. Security is of the utmost importance because if people don’t feel that their data is secure then they won’t back up their data with us. This also applies to the business customers as well. In order to stay truly competitive in the future and have more customers utilizing our web services we must make every effort to secure the information of our customers.
This also encompasses the risk of disaster recovery, because if we cannot guarantee that everyone’s information will be available under any circumstance, then what competitive advantage do we have. This risk also applies to the retail side of the company; in order to remain successful in that arena we must also guarantee data security to our customers. The average customer will be nervous about providing personal information such as credit cards and addresses if we cannot stand behind our data security.
In conclusion, evaluating risk is one of the most important steps in undertaking new projects for an enterprise. Through the risk categories we have discussed, the enterprise will be able to make sound analytical decisions to reach their future goals. Sources Question 1,2: www. amazon. com http://aws. amazon. com/what-is-aws/ http://www. crunchbase. com/company/amazon http://www. internetretailer. com/2010/10/22/what-amazons-strong-growth-means-competitors http://www. strategy-business. com/article/10479? gko=7b809 Question 3 http://www. informationweek. om/news/18300054 http://www. internetretailer. com/2006/01/04/amazon-ships-out-more-than-100-million-holiday-orders www. amazon. com Question 4 http://news. yahoo. com/s/nm/20110426/wr_nm/us_amazon_earnings http://www. datacenterknowledge. com/archives/2009/05/14/whos-got-the-most-web-servers/ hhttp://www. datacenterknowledge. com/archives/2011/03/24/amazon-cloud-turns-five-keeps-adding-services/ttp://www. msnbc. msn. com/id/40196935/42577822 Question 5 http://www. businessinsider. com/why-i-jeff-bezos-keep-spending-billions-on-amazon-rd-2011-4