Amazon.com †a case study Essay

viragones MissionOur vision is to be mankinds most node centric company to build a butt where pack whoremonger observe to find and disc over anything they energy want to buy online. amazon.coms quest to become earths most client centric company is largely drive by its commit of technology. In point, its continuous innovations atomic number 18 all driven by big enthronisations in tuition systems (Laudon and Laudon 2005).Information systems not only maintain their mission, but in fact drive their job strategy. In this piece of music , Amazons use of data at each(prenominal) set up of porters re appraise kitchen range will be considered. Their innovational and forward looking use of information systems to generate competitive returns will be analysed in the context of Porters 5 forces and we will besides hold back a look at how they fox formed Amazon perk up formed strategic alliances to overcome authorized competitive forces.Future plans to sustain comp etitive edge will be examined Amazon not only continue to use technology to purify their customer centric operations, but ar now in fact disruption up this technology and providing technical and logistics solutions to tonic(prenominal) homes.The place chain of mountainsThe concept of Value train Anaylsis is described at length by Michael Porter (1985). He notes that every firm is a collection of activities that ar performed to design, produce, market, deliver and support its crossroads or receiptss. He identifies specific, critical-leverage points where a firm send packing use information technology most effectively to enhance its competitive position (Laudon and Laudon , 2005). In his determine chain model, Primary Activities such(prenominal)(prenominal)(prenominal) as inbound logistics, operations, turn outbound logistics, gross sales and marketing and service, are seen as basic activities that amplify a margin of value to a firms products and service. Since Amazon s inception in 1995, they have use information technology to manage each stage of the value chain. inbound logistics including receiving, storing, inventory control are managed by advanced(a) technology such Transportation Optimization and commission Systems (TOMS). They, use a set of applications for judge and validating customer devotes, placing and tracking orders with suppliers and managing and assigning inventory to customer orders. In fact in 2007, Amazons systems have become so efficient in managing inventory that they generally collect from customers before their payments to suppliers come due ( randomness1 2007).Amazons marketing strategy is designed to cast up customer traffic to their websites, drive awareness of products and work, promote repeat purchases, win incremental product and service revenue opportunities, and strengthen and broaden the Amazon.com sword name. (Amazon Annual Report 2007). Technology, once again, is the conduit for their marketing strat egy.Amazon were the first to deliver individualized Web pages and services. For exercise, their technology keeps track of user penchants for books and CD purchases etc, and give the gate recommend titles purchased by separate customers.Their advertising consists primarily of online advertising, including through their Associates program Amazon.coms affiliate marketing program, where web developers, by linking to Amazon products and services to their sites, can receive up to 10% in referral fees, sponsored search, inlet advertising, e-mail campaigns, and other(a) initiatives.Customer service is another key area where technology adds value to Amazons strikeer. From the outset, in line with their customer-centred mission, Amazontried to entrust superior customer service through email and telephone customer support, online tracking and shipping information, and the ability to pay for purchases with a single check of the mouse using credit card and personal information provid ed during a previous purchase. This was handleed 1-click express shopping, and was considered so attractive that Barnes and alarming, Amazons prepare contention in the online book selling markets attempted to ape it with its submit Lane system (McAfee 2005). Amazon later obtained an injunction on Barnes and Noble and sparked a huge debate around the question of which software, and even business processes can or cannot, be patented. (http//www.oreilly.com/ bleaks/patent_archive.html)The Extended Value Chain in e- dividing lineIn their book, Strategic Planning for Information Systems, Ward, J and Peppard, J (2002), discuss how the value chain information pay heed is now macrocosm challenged by e-Business They refer to Rayport, J.F and Sviokla (1995), who have place two crucial new areas in this information flow, namely promotional information flow and newsworthiness gathering information flow. These two areas searchs to be paramount in Amazons value chain management..Accord ing to Ward and Peppard, the implications of the promotional flow of information which informs customers further d accept the chain of the products and services available have to be understood. David Chaffey (2007) speaks of Amazons automated email measurement and optimization system. As users of Amazon will know, once weve bought something on Amazon, we are on a regular basis sent emails with information on books or product recommendations. In order for this promotional system not to descend into what one might call Spam, and for it to remain relevant and customer centred, Amazon have put IS systems into place to control this activity.A new system automatically optimizes content to purify customer experience avoids sending an e-mail campaign that has low clickthrough or high unsubscribe rate includes inbox management (avoid sending multiple emails/week) has growing program library of automated email programs covering newreleases and recommendations. In this way, Amazon add value to the promotional flow of information through their value chain, and intelligently use and disseminate the information provided to them by their technology.Ward and Peppard conclude that E-business offers huge electromotive force to gather information and intelligence about consumer and customer preference and attitudes online, rather than through traditional market research. When customers shop on Amazon, their choices are stored in the information systems which can then use this intelligence to judge future claims.Industry Value Chain Supply Chain ManagementThe Value Chain of the business unit is only one dish out apart of a larger set of value-adding activities in an industry the Industry Value Chain (Ward & Peppard 2003). A firms value chain is conjugated to the value chains of its suppliers, distributors and customers, and each of these players can add, or indeed take away from favor which has been earned along the way. (Laudon & Laudon 2006).Amazon has one of the mos t-sophisticated return chain systems in the world. Proprietary applications handle nearly every panorama of its append chain warehouse management, transportation management, inbound and outbound shipping, demand forecasts, inventory planning, and much. (Information Week) Amazons release chain is so tightly integrated that when an online customer buys a book, for example, the order-management system communicates with inventory- and warehouse-management systems to find the optimal dissemination centre or centres for fulfilling the order. The customer knows in less than a morsel how long it will take to ship the items and whether they will come in one package or separately. Effective supply chain management, has been identified in a survey by The Economist, as macrocosm an natural contribution to gaining competitive advantage. It says that all market principalers have supply chains that are more responsive to customer demand. And effectively managing the information flow thro ughout the supply chain is key to gaining competitive advantage.Porters Five ForcesAs we have seen, competitive advantage can be gained through effective use of information systems at each stage of the internal and the external value chain. The other value existence dimension, as defined by Porter is the Market/Industry drawing card. He has identified five forces affecting the latter, namely, the bargain power of suppliers, the bargaining power of customers, the threat of new entrants, the threat of replenishment products and competitive argument within an industry. E-commerce and the internet provide customers with the ability to search the whole chain for information directly or via intermediaries (Ward and Peppard 2003). The internet provides consumers with near perfect product and price visibility. Customers are free to use any internet portal they choose to search for goods, and can use price comparison portals such as www.kelkoo.com to compare prices between suppliers. Ch anging suppliers will cost the buyer nothing switching costs are low and alternative suppliers are plentiful.Consequently, Amazon are forced to keep their prices down and accept subvert margins. In the context of Porters five forces, the facility for customers in changing suppliers can be classified as high customer bargaining power. Mr Jeff Bezos, the founder of Amazon, saw this threat coming and prepared for it in 2000 he invited other retailers to sell their goods on his website (The Economist). No traditional trafficker had ever done this before to allow others to sell second-hand books on their own door step, was indeed a revolutionary move by Mr Bezos, and numerous heap, even some within the company, thought this would cannibalise Amazons own sales. Yet it ultimately helped to lift overall sales. Amazon says sales of third-party items, from which it takes a commission, have increased from 6% of all items sold in 2000 to 28% in 2005. Over that time, the company says it s own retail revenues were up three-fold (BusinessWeek). Bezos claims that by keeping customers on the Amazon site buying other retailers products, Amazons direct revenues also increased. This is because with the help of some sophisticated technology driven marketing techniques, customers having already chosen something from Amazons partners, are at the same time tempted by Amazons own offerings.Today, hundreds of thousands of retail brands and individual sellers reach new customers by supplement the power of the Amazon.com e-commerce platform. In 2006 Amazon went further with this concept and launched their Fulfilment program, which allows businesses touse Amazons own order fulfilment and post-order customer service infrastructure, and enables Amazon.com customers to receive the benefit of Amazon.com shipping offers when buying from third-party sellers. In this way Amazon, seem to be effectively combating a number of competitive forces, including the threat of substitute products and the threat of new entrants to the market. Due to the low cost for new-entrants to e-Commerce it requires relatively superficial capital investment to set up an e-Business- the threat of competing websites is omni-present for Amazon. Amazons challengers come from two directions.First, other online retailers are growing chop-chop. As flock become more accustomed to shopping on the internet, they are ordinance a greater variety of goods and services from a wider range of websites. From auctioning peoples second-hand goods, eBay now also hosts fixed-priced virtual shops offering new goods for sale. (The Economist). Google, for one, has replaced retail sites such as Amazon as the place where many people start their shopping. And more personalized and genial upstarts such as discussion Corp.s, MySpace and YouTube, which Google has bought, have become the prime places for many people to gather online and eventually shop. Microsofts taking of a 5% stake in Facebook, the online networking website, finally Friday, which now values the two year old networking website at a whopping 15b$ -, could also be perceived as a potential threat to Amazon. People may choose to start their shopping from their social networking sites, rather than from the more traditional retail or portal site. Says advisor Andreas Weigend, Amazons chief scientist until 2004 The world has shifted from e-business to me-business. (Businessweek and The Economist).Secondly, traditional retailers are rapidly moving part of their trading online. This pits Amazon against giant retailers with huge buy power, resembling Americas Wal-Mart and Britains Tesco. These multichannel retailers make a impartiality of their ability to offer both bricks and clicks. Many provide online customers with the option of filling up goods from the shop down the road. This is proving popular with web buyers who want things now or are keen to avoid shipping costs and staying in to accept a delivery. Amazon may be attempting to fight off this threat with their AmazonPrime program, which allows customers unlimited shipping for $79 per year.As we have seen, the relatively low costs of setting up business on the Internet, mean that thethreat of substitute product/ services and the threat of new entrants also become more apparent. Internet technology is based on worldwide standards that any company can use, making it easy for rivals to compete on price alone and for new competitors to enter the market (Laudon and Laudon 2006). Clarke (2001) says that consequently, if we are competing in an industry where all our competitors have access to the same technology, it follows that competitive advantage comes from the use of information, as opposed to technology, and sustainability of advantage lies in an organisation ceaselessly being better at this than its competition. Amazon would appear to be doing a fairly good job in keeping up for instance with the technology enables personalization of the c ustomer but as Jeff Bezos reiterated in the reprinting of his 1997 garner to shareholders for the Amazon 2006 Annual Report, Its all about the long-term.Sustainability of competitory Advantage The Future for AmazonIn the long-term, Amazon are aiming to re-invent themselves. An member in the Economist claims the e-commerce giant wants to be more than just a retailer. Having established the internet as somewhere to buy things, Amazon is again spending heavily on development in anticipation of consumers scatty to download music, video and books instead of having them delivered in the post. In September, the company introduced the Amazon MP3 digital music store to sell tracks without the anti-piracy technology known as digital rights management, or DMR. The music companies EMI and Universal are participating in Amazons store, making the service a significant competitor to Apples iTunes service. Unless the Amazon, the pioneer of online retailing can provide downloadable media it ri sks being disintermediated2 just as only a decade ago high-street bookshops, music and video stores were disintermediated by Amazon itself. Amazon, in fact have a history of strategic alliances with various firms Borders and SmugMug, to mention just a few.A strategic alliance is a partnership of two of more corporations or business units to achieve strategically significant objectives that are in return beneficial, Wheelan and Hunger (2005). These alliances have allowed Amazon to use their established technological lead in the e-Commerce platform to generate revenues as well as their other strategic objectives. Amazon Web Services (AWS) is another example of astrategic move to maintain advantage. With AWS, Amazon say they are construction a new business focused on a new customer set software developers. They currently offer ten unlike web services and have built a community of over 240,000 registered developers. In order to cope with the Christmas rush, Amazon has far more compu te capacity than it needs for most of the year. As much as 90% of it is idle at times. Renting out pieces of that network to other businesses, such as SmugMug, an online photo site that uses the S33 service, is a way to get unneeded return on Amazons $2 billion investment in technology (The Economist).ConclusionIn this paper, a number of ship canal in which Amazon add value to their internal and external value chain have been identified. We have looked at how they optimize their utilisation of information in forging closer relations with their customers operate a tip off supply-chain management strategy and fight off numerous threats posed by competing in the e-Business environment with strategies such as offering new services to smaller retailers, digital downloads, and opening up their technologies to developers. However in a fast moving global economy, no future is certain. Amazon are conscious of the threats posed by failed alliances (Borders will pull out of their agreement t o use Amazons e-commerce platform in 2008, www.bloomberg.com) and the invariable threat posed by Google, even Facebook and other technology driven Web2.0 companies. Jeff Bezos will be hoping to overcome these threats by, as he says, by opening up the guts of his organisation to developers (BusinessWeek). Information systems are at the nerve centre of Amazons business, and going forward, as Jeff Bezos said in his 2007 SEC filing, their biggest challenge will be to continue to build and deploy innovative and efficient software that will best take advantage of act advances in technology. Amazon have made massive investments in technology $186 million in the last quarter alone (The Economist), and with 2007 tertiary quarter sales up 41% and a quadrupling of profit, it looks like these technology investments may finally be paying offReferencesAmazon.com photograph to download, The Economist, Aug 17th 2006Amzn Investor Relationshttp//phx.corporate-ir.net/phoenix.zhtml?p=irol-irhom e&c=97664 Accessed twenty-eighth October 2007Borders to come before New Internet Site in Early 2008 (Update3) www.bloomberg.com Accessed on 28th October 2007Clarke, Stephen (2001) Information Systems Strategic Management an integrated approach, Routledge, LondonDavid Chaffey Amazon shimmy Study 9.1 Learning From Amazons Culture of Metrics www.davidchaffey.com Accessed on 13th October 2007. Friend Accepted, The Economist, Friday 26th October 2007 From scratch Amazon keeps supply chain close to home, Beth Bacheldor, InformationWeek, March 5, 2004Jeff Bezos Risky Bet Business Week, Cover story, November 13, 2006 www.businessweek.comJeff Bezos Risky Bet www.businessweek.com November 13, 2006. Accessed 27th October 2007Lifting the bonnet The Economist Oct fifth 2006Porter, Michael E. (1985) Competitive advantage creating and sustaining superior performance pg 33 The Free nip Laudon, J and Laudon K (2006), Management Information Systems Managing the Digital Firm (10th Edition) apprent ice Hall R. Preston McAfee (2005) Competitive Solutions The Strategists Toolkit, Princeton University PressRayport, J.F and Sviokla (1995) Exploiting the virtual value chain, Harvard Business Review, November December, 1995 SEC (2007) United States Securities And Exchange Commission submission Form 10-K from Amazon. For the quarterly period ended September 30, 2007 Ward, J and Peppard, J (2002) Strategic Planning for Information Systems, 3rd Edition John Wiley & Sons, Bedfordshire.Wheelen, T and Hunger J, (2004) Strategic Management and Business Policy, 9th Edition, Pearson/Prentice Hall, New Jersey.