Amazon.com, Inc. or Amazon is a technology company based in the United States. It is currently the largest Internet retailer in the world in terms of revenue and market capitalization. Furthermore, it is one of the Big Five technology companies in the U.S. alongside Apple, Facebook, Google, and Microsoft. The company has also evolved beyond its e-commerce structure and into a comprehensive retail and technology conglomerate. Nonetheless, this article explores and discusses the notable elements in the business strategy of Amazon.
Facts About the Business Strategy of Amazon
1. Diversification and Structure: Specific Product Strategies of Amazon Under a Conglomerate Structure
To understand the business strategy of Amazon, it is important to highlight the fact that it is not only an e-commerce company or an Internet retailer but also a physical retailer, publisher of multimedia contents, manufacturer and marketer of merchandises and technological products, and a provider of other online-enabled and cloud computing solutions and services.
Remember that the company started as an online bookstore. As part of its specific product strategy, it later diversified to sell different products to include clothing and apparel, home and office furnishing, consumer electronics, software and video games, and other multimedia contents such as music, videos, and audiobooks.
Amazon has ventured further into different lines of business to expand the variety of goods and services it sells. Beyond its Amazon.com online storefront that allows individuals and small retailers to sell their products via the Internet, the company also owns and/or operates brick and mortar storefronts such as the American supermarket chain Whole Foods Market that specializes in selling organic products, and the partially automated grocery store Amazon Go.
The company also produces and sells multimedia contents through various platforms such as Auidble.com, which is involved in spoken audio entertainment, and Amazon Prime, which is a paid subscription service for providing exclusive perks and privileges, as well as for delivering digital contents such as e-books and streaming music and videos.
Note that Amazon also manufactures and sells its own branded merchandises. These include consumer electronic devices such as the Kindle electronic reader, Amazon Fire Tablet mobile computers, the Fire TV digital media players, the Amazon Echo smart speakers, and the virtual assistant Alexa. It also ventured into television production with the launch of Amazon Studios in 2010.
Among the subsidiaries and range of products or services offered by Amazon, the most remarkable is the Amazon Web Services. This subsidiary is the largest provider of cloud infrastructure in the world. It powers numerous websites and online-enabled companies such as Reddit, Pinterest, and Netflix, among others. Nonetheless, Amazon Web Services generates 30 percent of the entire revenues of Amazon, thus surpassing the Amazon.com online storefront and other subsidiaries.
2. Mergers and Acquisitions: Furthering Business Expansion through Strategic Acquisition
Another aspect of the business strategy of Amazon centers on mergers and acquisitions or M&A. Take note that its acquisition of different firms has been the primary enabler of its diversification strategy. Nonetheless, there are more specific reasons or motivations behind its M&A activities.
Through M&A, the company has diversified and thus, explored new markets and segments. The acquisition of Whole Foods Market in 2017 has enabled the company to enter the traditional American brick-and-mortar retail market and thereby, compete with other retail giants such as Walmart Inc. Furthermore, the acquisition of websites such as Audible.com, IMDB, Twitch, and Goodreads, among others have expanded the market of Amazon beyond online shoppers.
Note that the diversification strategy of Amazon through M&A sits alongside its horizontal integration strategy. By acquiring similar online-enabled businesses, the company has horizontally integrated the greater market of Internet users. It also managed to integrate the different facets of the American retail market when it acquired other retail companies such as the Whole Foods Market, Zappos, and Shopbop, among others. The goal of horizontal integration strategy is to increase the market share. Amazon demonstrated further this goal through the acquisition of Souq.com in its attempt to improve its footprint in the Middle East and thwart the expansion of competitors such as the China-based Alibaba Group and India-based Flipkart Pvt. Ltd.
On the other hand, the goal of vertical integration is to build capacity and resource-sharing capabilities. Amazon has pursued other M&A deals to improve its value chain. For example, the company acquired Kiva Systems that subsequently became Amazon Robotics to have an in-house capability of manufacturing and maintaining its own mobile robotic fulfillment systems. The company also bought Elemental Technologies to integrate its propriety technology into its Amazon Web Services. The acquisition of Israel-based Annapurna Labs marked an attempt by Amazon to develop its own capabilities in manufacturing semiconductors.
3. Localization and Internationalization: Maintaining a Global Presence as a Critical Business Strategy of Amazon
Expanding and maintaining a global presence is also a critical consideration in the business strategy of Amazon. Note that its Amazon.com online storefront is competing against other Internet retailers in different regions of the world such as the Chinese tech giant Alibaba Group which also owns the Southeast Asia e-commerce company Lazada Group, the India-based Flipkart and Infibeam, and of course, the American multinational Internet company eBay Inc., among others.
Amazon has developed and implemented numerous strategies that revolve around localization and internationalization. It also has localized its Amazon.com storefront through the purchase and registration of top-level domain names, thus allowing it to maintain country-specific and language-specific versions of the websites in different countries such as China, Japan, and Singapore, as well as the United Kingdom, Spain, the Netherlands, Mexico, and Brazil, among others.
Note that the company also acquired the Internet retailer Souq.com in 2017 to establish its presence in the Middle East. There have been attempts to enter the Southeast Asian market, but it has failed to compete against Alibaba Group and other local e-commerce companies. However, to compensate for its lack of presence in other regional markets, the company offers international shipping of selected products to specific countries outside its scope of operation.
With regard to the Amazon Web Services subsidiary, the cloud computing services have a global market scope due to its online-enabled operations. To ensure widespread coverage and lessen downtime risks or outages, Amazon has set up operations in key regions around the world to include North America, South America, the EMEA region that includes Europe and the Middle East, and Asia and the Pacific.
4. Value Chain: Owning, Integrating, and Controlling the Different Facets of the Value Chain of Amazon
Amazon has observed horizontal integration as evident from the fact that it owns and operates a considerable portion of its value chain. For example, the company has its own fulfillment and warehousing centers across North America, Europe, the Middle East, and Asia and the Pacific. These centers are responsible for unpacking and inspecting incoming products; placing products in storage and recording their location; picking products from their computer recorded locations to make up an individual shipment; sorting and packing orders; and shipping the products to the customers.
Remember that Amazon has its capacity to manufacture and maintain its own mobile robotic fulfillment systems under its Amazon Robotics subsidiary. It also has its software development centers, most of which are under its A2Z Development subsidiary, as well as customer service centers.
The company also owns Amazon Maritime Inc. that enables it to manage its shipments from China to the United States. Under its Beijing Century Joyo Courier Services, the company is also building its trucking airfreight or freight forwarding capacities. Nonetheless, what these capabilities and subsidiaries mean is that the company has integrated and controlled critical processes in the operation of its Amazon.com storefront.
Amazon also has an extensive information technology infrastructure that powers not only its Amazon Web Services but also its Internet retail subsidiaries and other online-enabled services such as Audible.com, Goodreads, ComiXology, and Twitch, among others.
It is also important to reiterate the fact that the company also manufactures several merchandises or products to include the Kindle line of electronic book readers and the Fire line of tablet computers and digital media players under its Amazon Lab126 subsidiary, in addition to publishing and/or creating books, audiobooks, and other multimedia contents under its various subsidiaries. Of course, Amazon actively builds and maintains relationships with other merchandisers and third-party manufacturers or resellers such as Sears Canada, Bebe Stores, Marks & Spencer, Mothercare, and Lacoste, as well as Nike Inc. and DC Comics.
5. Research and Development: Using Technology to Gain a Competitive Advantage and Develop New Products and
Research and development or R&D is also central to the business strategy of Amazon. Remember that this company is not just an Internet retailer but also a manufacturer of numerous products, including consumer electronic devices, as well a provider of online-enabled and cloud computing services. The goal of its R&D activities is to develop new products or services, gain a competitive advantage and improve its operations through the use of relevant technologies, and keep up with the pace of technological developments.
The introduction of Alexa marks the entry of Amazon in the artificial intelligence and machine learning business, thus competing against other tech giants such as Apple Inc., Google LLC, and Microsoft Corporation, as well as demonstrating adherence to current trends in the market. Note that Alexa is a virtual assistant used for controlling smart devices and for implementing a home automation system.
In its attempt to promote the energy efficiency of its numerous facilities and centers, the company is also developing clean energy technologies such as wind and solar power through solar panels. Independence from the power grid would help the company drive down costs associated with energy consumption, while also fulfilling its corporate social responsibility.
Amazon is also continuously investing on the development of consumer electronic products through its hardware and software capabilities, as well as on the development and use of automation and other technological applications that would help its operations. Note that the Kindle and Fire devices compete with devices from Android manufacturers and Apple while the applications of information systems, software, and robotics help in optimizing different facets of its value chain and operations.