Amazon

Identify the market structures in which three core businesses of the company your
group was allocated operate.
1. Online Retail
2. Internet Services - AWS (i.e Media (Amazon Prime)).
3. Kindle Ecosystem
(Noren, 2013)
Barriers to Entry
Due to the nature of Amazons business, and the online industry, there is a constant threat of new entrants because of the relatively
low cost to enter the market (i.e. no physical stores). Currently, existing physical stores such are Target and Walmart are joining the
online retail industry, who already have massive economics of scale and brand recognition, therefore posing a huge threat through
strong competition from Amazon. Amazon deter new entrants to the industry though:
1. Substantial Economies of Scale: Amazon work with over 10,000 vendors and has 75% repeat purchases. Hence they have
a market capitalisation ahead of their most nearest competitors.
2. First Mover Advantage (FMA): Amazon have the necessary brand awareness and credibility as a strong reliable presence in
the market.
3. Massive Product Variety (Product Differentiation): Amazon provides any type of product thats available; meaning there is a
strong suppliers base relationship. Amazon has established relationships with publishers, producers, movie studies and music
producers - hard to form and replicate (Entrepreneurial Insights, 2014).
The Kindle has gained a huge lead (FMA), through being the first brand that jumps to mind when people think of an eReader.
Kindle is the number #1 book App from the iPhone, the kindle store has the lowest book prices and has more new books than
any other store (ireaderreview, 2010).

Amazon: $67,855,000,000
Apple: $18,300,000,000
Staples: $10,400,000,000
Wal-Mart: $7,700,000,000
QVC: $4,800,000,000
(Banjo (wsj), 2014)

Amazon Web Services (AWS) accounted for

37% of the $9 billion infrastructure as a
service market in 2013. According to
Evercore, The IaaS market is growing by
45%, but AWS has a growth rate or 60%.
Additionally, AWS have five times more in
computational capacity than its 14 next IaaS
competitors combined (Business Insider,
2014).
*AWS include their Prime loyalty program
and cloud-computing business (Anderson,
2015).

(csmoniotor, 2015)

(IDC, 2015)
= APPLE
= SAMSUNG
= LENOVO
= ASUS
= AMAZON.COM
= OTHER

Amazons profit margin

Amazon focuses on market share rather than profit margins

Low operating margin because of Amazons investment in marketing, content and technology to drive
volume sales growth and keep competition at bay
CEO Jeff Bezo has a long term strategy - Revenue is increasing, profit will come later.

Does Amazon spend much on advertising?

-

Among the top ad spenders in the tech industry

Large total sum spent; 4.322 billion US dollars in 2014
4.9% of the Net Sales Revenue (i.e, their Marketing to Sales Ratio) is spent on marketing
this is a relatively low rate (which means that the marketing effort is effective)
- As a comparison, eBays Marketing to Sales ratio is 20.1 and Etsys of 20.3.

Do they compete with price & output?

-

Alibaba spends 14.5 billion packages a year vs 5 billion from Amazon.

Alibaba made $420 billion sales in 2014 vs $74.4 billion of Amazon.
Amazon worth $207 billion vs $212 billion Alibaba (June 2015).
Amazon has relatively small profit margin (0.8% in 2013).

Do they merge or acquire other companies?

Throughout its 16-year history, Amazon.com under CEO Jeff
Bezos has tended to snap up startups and small companies
(Engleman, 2010).

Acquisition: A corporate action in which a

company buys most, if not all, of the target
company's ownership stakes in order to
assume control of the target firm.
(Investopedia, 2015)
Merger: Voluntary amalgamation of two firms
on roughly equal terms into one new legal
entity. (Business Dictionary, 2015

Amazon Growth Strategy

1. Aggressive - Investing everything that the company earns right
back into it (a focus on sales growth rather than profitability
(Mourdoukoutas. 2014)).
2. Stock price increased by 234% in the past 5 years.
3. Company Valuation = $120 Billion
4. Wide brand portfolio to drive global growth (Euromonitor
International, 2015).
(Richter, 2013)
Invests in in-house initiatives such as Kindle Electronic Books,
however the retailers drive to be a player in other sectors (staying
competitive) such as media, may lead towards acquisitions
(Engleman, 2010); and has done, hence the acquisitions of mediabased brands, Audible, LoveFilm, Twitch and IMBd (Euromonitor
International, 2015).
On the other hand, Amazon is increasingly using different brands to
sell specialist products, i.e. Vine, Zappos and diapers (Euromonitor
International, 2015).

(Business Insider, 2009 & 2014)

(Business Insider,2009)

Can a link be established from structure through conduct to performance in the case
you examined?

Discuss the issue of reverse causation between structure, conduct and performance

- New infrastructure economies of scale

- Internet collect data & discover market trends
- Cloud based services
- Less competition and less inventory new market and cost
structure

Source: Lipczynski, Wilson & Goddard, 2013

Relate the dynamic nature of internet companies to the Austrian school and the
Schumpeterian view of entrepreneurship.
The Austrian School claims that monopoly profits is important for competition.
It motivates entrepreneurs to innovate which might lead to monopoly
Schumpeter says that competition is driven by innovation.
If successful, monopoly status and profits until competitors do the same.
Only temporary, that is why R&D spending is important.
Amazon has played a key role in developing new technological innovations.
Amazons R&D Spending
is $9.1 billion

Source: wikinvest

References
Analysis, S. (2015). Amazon.com Inc. (AMZN) | Profitability. [online] Stock Analysis on Net. Available at: https://www.stock-analysison.net/NASDAQ/Company/Amazoncom-Inc/Ratios/Profitability [Accessed 23 Oct. 2015].
Clifford, C. (2015). By the Numbers: Amazon vs. Alibaba (Infographic). [online] Entrepreneur. Available at: http://www.entrepreneur.com/article/248345 [Accessed 23
Oct. 2015]
Forbes.com, (2015). Forbes Welcome. [online] Available at: http://www.forbes.com/sites/walterloeb/2014/04/11/10-reasons-why-alibaba-is-a-worldwide-leader-in-ecommerce/ [Accessed 23 Oct. 2015].
Lipczynski, J., Wilson, J., & Goddard, J. (2013). Industrial organization. Harlow, England: Pearson.
Matthews, C., & Matthews, C. (2015). Will Amazon Take Over the World?. TIME.com. Retrieved 21 October 2015, from
http://business.time.com/2012/07/16/will-amazon-take-over-the-world/
Team, T. (2015). Forbes Welcome. [online] Forbes.com. Available at: http://www.forbes.com/sites/greatspeculations/2014/12/11/heres-why-amazons-profitability-isso-low-part-1-of-2/ [Accessed 23 Oct. 2015].
Wikinvest.com,. (2015). Research and Development for Amazon.com (AMZN) - Wikinvest. Retrieved 22 October 2015, from
http://www.wikinvest.com/stock/Amazon.com_(AMZN)/Data/Research_and_Development
.Youderian, A. (2014). Alibaba vs. Amazon: An In-Depth Comparison of Two eCommerce Giants. [online] The eCommerceFuel Blog. Available at:
http://www.ecommercefuel.com/alibaba-vs-amazon/ [Accessed 23 Oct. 2015].

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