Amazon.com †a case study Essay

viragos MissionOur vision is to be farmings most guest centric c wholeer-up to take a leak a place where people stern come to find and chance anything they cleverness want to buy online.virago.coms quest to go bad earths most node centric company is largely dictated by its phthisis of engineering science. In fact, its continuous innovations ar all driven by huge investments in selective information agreements (Laudon and Laudon 2005). reading systems not solitary(prenominal) support their mission, but in fact drive their business strategy. In this p imitater , viragos employment of information at apiece stage of door salveers mensurate mountain range get show up be considered. Their innovative and forward looking go for of information systems to generate competitive reinforcement will be analysed in the context of Porters five forces and we will besides establish on a look at how they subscribe formed virago thrust formed strategic alliances to cruci fy certain competitive forces.Future plans to sustain competitive edge will be examined virago not unaccompanied last out to employment engine room to improve their customer centric operations, but ar nowadays in fact opening up this applied science and providing technical and logistics solutions to other houses.The observe twineThe concept of jimmy Chain Anaylsis is described at aloofness by Michael Porter (1985). He notes that every firm is a exhibition of activities that  atomic issuance 18 performed to design, produce, trade, assume and support its products or go. He identifies specific, critical-leverage points where a firm can use information engineering science most effectively to promote its competitive position (Laudon and Laudon , 2005). In his cheer chain model, chief(a) Activities such as inbound logistics, operations, outbound logistics, sales and marketing and assist, ar seen as basic activities that add a margin of apprise to a firms produ cts and service. Since viragos inception in 1995, they have used information technology to manage each stage of the treasure chain. Inbound logistics including receiving, storing, inventory control are managed by sophisticated technology such Transportation Optimization and instruction Systems (TOMS). They, use a bent-grass of applications for accepting and validating customer effectuates, 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 to begin with their payments to suppliers come due ( siemens1 2007). amazons marketing strategy is designed to increase customer traffic to their websites, drive awareness of products and go, promote duplicate purchases, develop incremental product and service r scourue opportunities, and strengthen and poke out the Amazon.com brand name. (Amazon Annual Report 2007). Technology, again, is the conduit for their marketing strategy.Amazon were the first to deliver personalized Web pages and work. For instance, their technology keeps track of user preferences for books and CD purchases etc, and can recommend titles purchased by other customers.Their advertising consists primarily of online advertising, including through their Associates computer 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, portal advertising, email c angstrom unitaigns, and other initiatives.Customer service is another key area where technology adds value to Amazons take awayer. From the outset, in line with their customer-centred mission, Amazon  well-tried to provide overlord customer service through email and hollo customer support, online tracking and channelizeping information, and the ability to pay for purchases with a hi t click of the mouse using credit card and personal information provided during a previous purchase. This was called 1-click express shop, and was considered so attractive that Barnes and Noble, Amazons direct competitor in the online book sell markets attempted to ape it with its Express 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 correct business processes can or cannot, be patented. (http//www.oreilly.com/news/patent_archive.html)The Extended Value Chain in e-BusinessIn their book, strategical Planning for breeding Systems, Ward, J and Peppard, J (2002), discuss how the value chain information diminish is now being challenged by e-Business They refer to Rayport, J.F and Sviokla (1995), who have identified two of the essence(p) new areas in this information f emit, namely promotional information f depressed and news program gathering information flow. These two areas seems to be paramount in Amazons value chain management..According to Ward and Peppard, the implications of the promotional flow of information which informs customers come along down the chain of the products and services operational have to be understood. David Chaffey (2007) speaks of Amazons automated email measuring rod and optimization system. As users of Amazon will know, once weve bought something on Amazon, we are regularly sent emails with information on books or product recommendations. In order for this promotional system not to descend into what integrity 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 study to improve customer experience nullifys sending an e-mail campaign that has low clickthrough or high unsubscribe rate includes inbox management (avoid sending multiple emails/week) has developing library of automated email programs covering new releases 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 bring to an end that E-business offers huge potential 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 forecast future demands. intentness Value Chain Supply Chain attentionThe Value Chain of the business unit is only one part of a larger set of value-adding activities in an industry the Industry Value Chain (Ward & Peppard 2003). A firms value chain is linked to the value chains of its suppliers, distributors and customers, and each of these players can add, or indeed take away from advantage which has been earned alo ng the way. (Laudon & Laudon 2006).Amazon has one of the most-sophisticated emerge chain systems in the homo. Proprietary applications trade nearly every aspect of its supply chain warehouse management, point management, inbound and outbound shipping, demand forecasts, inventory planning, and more. (Information Week) Amazons supply 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 distribution centre or centres 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. in effect(p) supply chain management, has been identified in a survey by The Economist, as being an essential contribution to gaining competitive advantage. It says that all market leaders have supply chains that are more antiphonary to customer demand. And effect ively managing the information flow throughout 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 creation dimension, as defined by Porter is the Market/Industry Attractiveness. He has identified five forces affecting the latter, namely, the bargaining power of suppliers, the bargaining power of customers, the holy terror of new entrants, the threat of substitute products and competitive rivalry within an industry. E-commerce and the net profit 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 take up to search for goods, and can use price comparison portals such as www.kel koo.com to compare prices between suppliers. changing 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 lower margins. In the context of Porters five forces, the facility for customers in changing suppliers can be classified advertisement 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 treat their goods on his website (The Economist). No traditional seller had ever done this before to throw in the towel others to sell second-hand books on their own door step, was indeed a ultra move by Mr Bezos, and many a(prenominal) people, even some within the company, persuasion this would cannibalise Amazons own sales. Yet it eventually helped to call forth 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 era, the company says its own retail revenues were up three-fold (BusinessWeek). Bezos claims that by keeping customers on the Amazon site buy 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 puddle new customers by leveraging 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 to use 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 effective ly 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 little 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 rapidly. As people become more accustomed to shopping on the internet, they are ordering 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 practical(prenominal) 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 tender upstarts such as News 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, last Friday, which now values the two stratum 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 consultant 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 purchasing power, like Americas Wal-Mart and Britains Tesco. These multichannel retailers make a virtue of their ability to offer both bricks and clicks. some(prenominal) provide online customers with the option of picking up goods from the shop down the road. This is proving usual with web buyers who want things immediately 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, means that the threat of substitute product/ services and the threat of new entrants also become more apparent. Internet technology is based on universal standards that any company can use, make it easy for rivals to compete on price alone and for new competitors to present the market (Laudon and Laudon 2006). Clarke (2001) says that consequently, if we are competing in an industry where all our competitors have entrance 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 always being better at this than its competition. Amazon would appear to be d oing a fairly good job in keeping up for instance with the technology enables personalization of the customer but as Jeff Bezos reiterated in the reprinting of his 1997 letter to shareholders for the Amazon 2006 Annual Report, Its all about the long-term.Sustainability of Competitive Advantage The Future for AmazonIn the long-term, Amazon are aiming to re-invent themselves. An article in the Economist claims the e-commerce giant wants to be more than just a retailer. Having established the internet as someplace to buy things, Amazon is again spending heavily on victimization in anticipation of consumers wanting 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 common 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 risks 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 divers(a) 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 mutually 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 function (AWS) is another example of a strategic move to maintain advantage. With AWS, Amazon say they are building a new business rivet on a new customer set software developers. They shortly offer ten different web services and have build a community of over 240,000 registered developers. In order to cope with the Christmas rush, Amazon has far more computing 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 extra return on Amazons $2 billion investment in technology (The Economist).ConclusionIn this paper, a number of ways 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 lean 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 to use Amazons e-commerce platform in 2008, www.bloomberg.com) and the constant 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 core 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 shell take advantage of continued advances in technology. Amazon have made massive investments in technology $186 million in the last quarter alone (The Economist), and with 2007 3rd quarter sales up 41% and a quadrupling of profit, it looks like these technology investments may finally be paying offReferencesAmazon.com Click to download, The Economist, Aug 17th 200 6Amzn Investor Relationshttp//phx.corporate-ir.net/phoenix.zhtml?p=irol-ir groundwork&c=97664 Accessed 28th October 2007Borders to Introduce New Internet station 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 Case Study 9.1 Learning From Amazons Culture of Metrics www.davidchaffey.com Accessed on 13th October 2007. Friend current, The Economist, Friday 26th October 2007 From scratch Amazon keeps supply chain close to home, forecasth 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 5th 2006Porter, Michael E. (1985) Competitive advantage creating and sustaining superior performance pg 33 The Free Press Laudon, J and Laudon K (2006), Management Information Systems Managing the Digital Firm (10th Edition) Prentice Hall R. Preston McAfee (2005) Competitive Solutions The strategians 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 breaker point 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.