MANAGERIAL REPORT : AMAZON
OLIVIAHE
AMAZON1.docx
1
Managerial Report for Case Problem “Amazon.com lnc.”
Executive Summary
Today, Amazon is no longer the “online book-selling store” people used to be familiar with, but a very diversified company with an open platform. It not only has a third-party vendor platform that can attract numerous customers but also has achieved a good result in the logistics, film, and television industry. Moreover, Amazon is one of the first group of enterprises to enter the cloud service. Amazon’s leader Jeff Bezos proposed Amazon’s exclusive flywheel business model, which totally demonstrates his business insights and philosophy. Amazon ranks among the world’s top companies through its strengths in customer experience, logistics, cloud services, etc. Also, Amazon has been devoted to the technological area such as artificial intelligence and cloud services. Even faced with intense competition from the leading technology companies like Microsoft, IBM, and Google, Amazon has achieved excellent performance. This report will analyze Amazon’s flywheel model and its core competency, also introduce the competition between Amazon and Microsoft in cloud services and the future development direction of Amazon.
The Business Model of Amazon
Amazon has three core businesses. The first one is Amazon Prime, it is a paid membership system. When customer become a member of Amazon Prime, they can purchase any products on Amazon.com and enjoy free and fast delivery. The second one is the third-party seller platform, Individual merchants can create an online store on Amazon to sell their products. The third one is the AWS (Amazon Web Service). It’s a cloud service and offers a broad set of global cloud-based products including compute, storage or databases and so on. These services help organizations move faster, lower IT costs and scale (Cloud Products, Amazon Official Website). Whether a startup or a large enterprise, they can build their company’s IT system on Amazon’s cloud service system. It’s cheaper and more stable than building your own system.
These three core business looks unprofitable at first, but in fact, they are like a small saw tooth on a huge gear. The Prime and low price product can let the customer keep purchasing on Amazon, while the cloud and logistic service keep the supplier to work with Amazon. More suppliers will attract more customers, vice versa, the more the customers purchase, the more supplier is inseparable with Amazon. These have enabled Amazon to gain more with costs fixed (like logistics and warehouse) and provide customers with a lower price and turns the huge flywheel. Turning the stationary flywheel up must spend a lot of efforts at the beginning. However, in fact, every effort will not be wasted, and the flywheel will turn faster and faster. When a high speed is reached, no more effort is required and the flywheel can maintain its original state of motion.
Amazon’s Core Competency
Amazon’s success relies on robust operations, strict management, and efficient capital operations. It has the following competitiveness:
Customer experience. Amazon has always put the customers first, Jeff Bezos requires the customer experience to include the lowest price, the fastest delivery, and completely reliable service. Bezos also tries to increase the service level of external merchants selling on Amazon.com to the same level as Amazon by allowing customers to evaluate their experiences with sellers. They have also implemented many internal controls to monitor seller behavior to ensure customer benefits. For example, merchants must use the Amazon website’s email service to communicate with customers so that Amazon can monitor the conversation. Amazon strictly controls the quality of goods and services of other third-party sellers to ensure that customers are satisfied with every purchase in Amazon.
Logistics. Amazon has been actively expanding its warehouses and distribution centers since 2011. Until 2018, Amazon has built 258 operational facilities in the United States and another 486 distributed all around the world (Buchman, 2018). In 2006, Amazon launched an event called “Fulfillment by Amazon.” Amazon’s logistics distribution service can transfer the seller’s inventory to its own storage center, and then distribute goods to the consumers. Amazon can have greater control over the customer’s shopping experience through “FBA”, which helps Amazon become more consistent and reliable to customers. This service can help attract more sellers to Amazon, meaning that more consumers can buy the products they want at the ideal price. This has also brought Amazon huge profits, and become one of its core competitiveness.
Web service. AWS has more computing power in its cloud than its competitors. AWS has many features, such as computing, storage, and databases. At the same time, AWS also has a range of networks, mobile application services, information communication, and business productivity tools as well as the Internet of Things platforms, game development products, and desktop and application streaming services. In addition to the broad products and service platform, AWS also has the largest market for third-party cloud products and services.
Competitors
Microsoft. The rise of cloud computing has changed the fate of Microsoft. Under the leadership of the new CEO Nadella, the company invested heavily in building data centers and other infrastructure to run applications and store data for corporate customers. Microsoft currently consists three major businesses, namely “Productivity & Business Processes, Intelligent Cloud, More Personal Computing Segments.” Among them, an intelligent cloud includes server, cloud services, and enterprise services. Microsoft’s smart cloud business generated revenue of $8.6 billion in the previous quarter with an overall increase of 24% (Evans, 2018). Microsoft want to impress their customer by their cloud service, just like windows use to be. In the future cloud service market, Microsoft will directly challenge Amazon's leading position.
Where to Next
Artificial intelligence. Amazon has a broad and deep layout in the field of artificial intelligence, and has achieved a leading edge in terms of revenue scale, user data, and infrastructure coverage. They not only provide technologies such as cloud service for the users but also smart products. Amazon has launched an intelligent control device, Echo, which also includes a voice assistant called Alexa. This product helps Amazon to stand at the forefront of the artificial intelligence industry. At the same time, Amazon is using the cloud as a supercomputer to create more powerful artificial intelligence. Through Amazon’s strategy, companies can directly link to the “soft power” of artificial intelligence, parameterize their needs, train remotely-advanced processors, and access results through cloud services while paying for usage time and calculations ability. Amazon, Google, Microsoft will lead to the development of artificial intelligence technology. As large companies, they have more resources to collect data and have more data to use.
Reference
Evans, B. (2018). #1 Microsoft Beats Amazon In 12-Month Cloud Revenue, $26.7 Billion To $23.4 Billion; IBM Third. Forbes, October 29. Retrieved from: https://www.forbes.com/sites/bobevans1/2018/10/29/1-microsoft-beats-amazon-in-12-month-cloud-revenue-26-7-billion-to-23-4-billion-ibm-third/#4867cf92bf14
Cloud Products. Amazon Official Website. Retrieved from: https://aws.amazon.com/products/?nc1=h_ls
