Strategic Analysis of Amazon.com Essay Example | Topics and Well Written Essays - 1250 words

Strategic Analysis of Amazon.com - Essay Example Amazon.com is an on-line retail company established in 1994 by Jeff Bezos and based in Seattle, Washington, U.S.A. The company, ranked 273 last year amongst Fortune 500 companies in America, began as a seller of books through the Internet but has grown into what is essentially a technology and logistics business enterprise, selling services such as Web hosting and supply chain management, and brand new and used products purchased from distributors, manufacturers, and publishers. The company operates seven retail Web sites, two search and navigation sites, and a movie database site (Amazon.com, 2006a). As of December 13, 2006 the company had annual revenues of $9.7 billion, EBITDA of $567 million, net income of $292 million, and some 12,000 employees worldwide. Table 1 shows a summary of how NASDAQ-listed Amazon.com compares with its competitors in the Internet Software and Services such as e-Bay and Barnes and Noble (Yahoo.com, 2006). Amongst the various manners of conducting a strategic analysis, this paper will focus on popular techniques such as SWOT (Ansoff, 1965; Chandler, 1962), PESTEL (Andrews, 1987), and Porter’s Five Forces model and Generic Strategies (Porter, 1980 and 1985). SWOT-PESTEL For this first part, we combine the SWOT-PESTEL approach. The SWOT analysis is so-called because of the acronym of four factors required for assessing the organisation’s internal (Strengths and Weaknesses) and external (Opportunities and Threats) environments. The PESTEL analysis considers six environmental factors that affect the enterprise and its business: Political, Economic, Social, Technological, Environmental, and Legal. The strengths of Amazon.com are its customer-centred focus, the quality of its technology infrastructure, supply chain management experience, its brand name, and its huge database of global customers. Amongst its major weaknesses are product innovation (it sells for others), technology infrastructure utilisation, and a sagging stock price (down 22.3% in the last year) that opens it to takeover risk from other Internet (e-Bay and Google) or software (Microsoft) giants. The more important opportunities are the growth of on-line shopping and the need to innovate products and services to continue growing sales to generating higher margins and profits. These would address the threat from an increasing number of competitors that are eating into the business activity (on-line shopping) it used to dominate. The following PESTEL factors affect the industry and Amazon.com: Political: American legislation on taxation of on-line transactions threatens to reduce usage and margins. Economic: Slowdown in consumer spending in countries with high Internet penetration would drag down profits and margins. Retail giants (Wal-Mart and Tesco) would compete with Internet service providers. Social: Potential backlash from Internet users and competing brick-and-mortar retail shops that discover the anti-social effects of on-line transactions. Technological: Web 2.0 Internet technology is deemed to have a different set of users and protocols that may attract new upstart dotcoms as competitors. The fast obsolescence of the company's technology needs to be utilised and depreciated quickly. Security concerns of on-line transactions remain. Environmental: Server farms are ugly and consume huge amounts of energy. Legal: The risk of identity theft opens Internet companies to