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Profissional Documentos
Cultura Documentos
I.
Executive Summary..................................................................................... 2
II.
Synopsis....................................................................................................... 2
III.
Potential Alternatives..................................................................................... 3
IV.
V.
VI.
IS/IT Assessment............................................................................................ 8
VII.
IS Function................................................................................................... 13
VIII.
IS Vision....................................................................................................... 13
IX.
Risk Analysis................................................................................................ 15
X.
XI.
Conclusion................................................................................................... 18
I.
Executive Summary
Amazon.com is an online retailer that began operating as a bookstore 20 years
ago, but has since expanded to become a one stop shop for nearly any product and
some services.
While a couple of
II.
Synopsis
Amazon.com was started in 1995 as an online bookstore.
The companys
have led the company to improve its website and enhance its product offerings,
whether from suppliers or creating their own, as well as integrating with other
companies in order to become more efficient in its day to day operations. Through
the use of its improved website and its customer relationship management, Amazon
has developed a keen understanding of consumer demands which has led the
company to provide information technology services to other companies for a fee.
Amazons core competencies exist in its information infrastructures and the
company has developed a way to use it within its own operations and make it a
successful business segment as well. Therefore, as the following information shows,
Amazons potential areas to improve upon exist in decreasing vulnerabilities to
its existing systems and implementing certain business strategies to carry
out the operational efficiencies established by its information systems.
III.
Potential Alternatives
Clearly, Amazon has many successful initiatives, based on its massive
earnings. Third quarter sales are up 23% to $25.4 billion in the third quarter of
2015, and they anticipate a record holiday season in the coming weeks
(Amazon.com). Even with their overwhelming success, there are alternatives that
Amazon should explore to increase their sales and customer base: tiered Prime
membership, forward integration, and horizontal integration.
Tiered Prime Membership
Amazon Prime is a paid membership that offers two-day shipping on millions
of items, and access to digital movies, books, and music. With a cost of $99 per
year, it results in not only additional revenue, but also in customer loyalty; Prime
customers spend almost three times more than what non-Prime customers spend
(Weise). Although Amazon has not released specific numbers, it is estimated that
45% of their customers subscribe to Amazon Prime based on surveys (Weise). That
One alternative is to
introduce a tiered Prime membership, where there are different pricing options
corresponding to guaranteed delivery times. For those customers unable to justify
the $99 annual fee for two-day shipping, perhaps a $49 price tag for three-day
shipping would meet their needs. Furthermore, for those customers that will pay a
premium for next day shipping, perhaps a $200 annual fee would be successful. Of
course, actual price determinations would have to factor in shipping costs and
specific geographic regions for consideration.
Forward Integration
Increasing efficiency in a companys supply chain is not a new strategy.
Amazon is actually working on a drone-based delivery service named Amazon
Prime Air, which delivers packages through the air in 30 minutes (King).
While
we wait to see if this can become a reality, Amazon should look at other alternatives
for delivery; specifically, they should acquire one or more delivery companies, such
as DHL, UPS, or FedEx. As referenced in their September 2015 quarterly report,
they are highly dependent on shipping companies, and any issues could negatively
impact our operation results and customer experience (Amazon.com). Acquiring
one or more shipping companies will allow Amazon to prioritize their shipments and
have direct control of the reliability and quality of the delivery process.
Horizontal Integration
Another alternative that Amazon should explore is implementing horizontal
integration, where they would acquire competitors in the same industry. In Asia,
Chinas Alibaba and Japans Rakuten are e-commerce leaders. With globalization,
Western companies (such as Amazon) will look to expand their Asian market;
likewise, Asian companies will also look to expand their efforts in the West.
Although Amazon already has an international company (named AmazonGlobal),
there is still market share to be had overseas, especially since the majority of
Alibabas and Rakutens web site traffic is from Asia (86% and 73%, respectively)
(Martin).
IV.
Strengths
or furniture.
Because of their vast product offering, as well as their image and reputation
as a one stop shop, Amazon is a very well-known website and is often the
This
expenses.
Amazon is number one in customer service for nine consecutive years due to
their customer relationships management platform. Personalized treatment
and recommendations generated through the CRM platform has increased
brand loyalty and ease of daily operations due to increased efficiencies in
through their website, Amazon passes these savings onto the consumer.
Amazon also has had steady, strong revenue growth, as evidenced by their
financials.
While free
shipping offers may attract or retain customers, the company is reducing its
profit potential in an industry that is notorious for having low profit margins to
-
begin with.
Another weakness is product failures.
some of its key products, such as the Fire Phone, other product launches have
-
what people are looking for in the geographic regions surrounding the stores.
Increase shops in the online market place such as acquiring Etsy to take the
place of the Homemade shop to broaden their potential market.
(Amazon.Com)
Threats
-
Amazon faces a threat from hackers breaching their website security, which
is always a possibility considering the advanced knowledge and abilities of
hackers
and
the
valuable
customer
information
stored
in
Amazons
information system.
Losing sales to smaller retailers who specialize in a particular subset of
goods.
(Amazon.Com)
V.
Further, Amazon is
Amazon
improving or providing new products and services to its customers to which they
may not have access otherwise. In order to fulfill this guiding principle, Amazon
must research consumer demands and its customers preferences, which it can do
through its website analytics. Although Amazon does not provide what it uses to
measure its passion for invention, its research and development expenditures could
be one way to track it.
Commitment to Operational Excellence
Amazons third guiding principle is its commitment to operational excellence
which is easily observed by its acquisitions over the years, such as that of Kiva
Systems, which is now known Amazon Robotics.
Amazons commitment to
Again, while
Amazon does not provide what it uses to measure its commitment to operational
excellence, it can be tracked by order fulfillment time, number of days to get an
order to the customer, or certain costs such as those related to overhead.
Long-term Thinking
Amazons principle of long-term thinking is measured by the value the
company creates for its shareholders over the long term.
According to the
companys 1997 Letter to Shareholders, which CEO Jeff Bezos attaches to the most
acquires competitors within its industry, whereas vertical integration requires the
company to buy either its suppliers (also known as backward integration) or its
distributors (as known as forward integration).
As noted above, Amazon has already begun vertical integration when it
purchased Kiva Systems.
develop a robotics line for Amazons needs with Kiva Systems, Amazon decided to
services and to improve its operational efficiency because Amazon was able to
obtain all of Kiva Systems core competencies during the acquisition that would
have taken Amazon years to develop as it tried to design and build a robotics
system to improve its operations in Amazon warehouses. Going forward, Amazon
could consider a forward integration strategy whereby the company acquires one of
its distributors.
While Amazon has attempted this with its use of drones, the
VI.
IS/IT Assessment
The Information Systems and Information Technology Assessment will look at
Infrastructure
Amazon Web Services, also known as AWS, is a subsidiary of Amazon.com
that provides cloud services.
companies and themselves, they have built eleven world-wide regions, each with
multiple data centers. This not only provides services to where they are needed
geographically, but also serves as a redundancy in case there is a system failure or
overload (Figure 1).
Network Capacity
Amazons network capacity continues to grow at an exponential rate.
According to James Hamilton, Vice President and Distinguished Engineer of Amazon
Web Services: Every day, AWS adds enough new server capacity to support all of
Amazons global infrastructure when it was a $7B annual revenue enterprise
(Hamilton).
center sites around the world, including Ireland, Virginia, and Oregon (Miller). With
over one million active AWS customers, Amazon has five times the cloud capacity in
use than fourteen of the other top providers combined (Hamilton).
Legacy Systems
With their legacy Oracle databases, Amazon struggled with maintaining
reliable backups as the quantity and sizes of the databases continued to grow. With
their legacy tape backup system, managing tape hardware, data center space, and
licensing fees for the tape software represented significant capital expenditures.
Operating expenses were also significant, with resources assigned to managing
challenges, Amazon replaced their legacy backup system in favor of their cloud
storage solution, Amazon Simple Storage Service (also known as Amazon S3). With
Amazon S3, they reduced complexity and capital expenditures, improved backup
and restore performance, eliminated the need for purchase and storage of backup
tapes, and freed up valuable human resources (Amazon.com).
Architectural Innovation
With architectural innovation, companies reconfigure their systems for their
specific needs. To support their data centers, Amazon customized their own servers
and software to accommodate their unique needs related to their expanding growth
and global environment. This rapid pace of innovation continues to expand, with
over 400 new services or features introduced in 2014 (Hamilton). The innovations
developed over the years include: modular infrastructure, AWS custom servers and
storage, and Amazon Databases.
Modular Infrastructure
Modular infrastructure provides an effective way to scale and deploy servers
on a massive scale.
modular data center design, named a Perdix container (Miller). Similar in size to a
shipping container, each one houses servers, power distribution, and HVAC (Figure
2).
are also customized for their world-wide data centers to meet their strict
performance and failover needs.
Amazon Databases
Relational databases, such as Oracle, SQL Server, and DB2 are expensive and
difficult to administer.
databases, DynamoDB and Aurora, to address the cost, administration, and scaling
issues. With their numerous data centers, the databases are replicated, providing
near instant fail-over if needed.
Green Computing
Green computing is the environmentally responsible and eco-friendly use of
computers and their resources (Techopedia). One measure of green computing is
Power Usage Effectiveness, also known as PUE, which is a ratio of the total data
center facility energy to the IT equipment energy (the green grid).
Using this
These costs contribute to Amazons substantial debt, and are of potential concern
for investors (Trainer).
VII. IS Function
Amazons information systems have been created to withstand a daily influx
of data whether it is about products, purchases, or customer information. At the
heart of the company, Amazons information systems collect customer information
such as purchases, birthdays, and anniversaries, which help Amazon create
relationships with its customers. For instance, when data is collected on customer
purchases, Amazon can cater its product offering to its buyers and even suggest
purchase recommendations to shoppers.
VIII. IS Vision
Amazons vision statement is we seek to be Earths most customer-centric
company for four primary customer sets:
content creators (Amazon.com). Their technology vision is key for delivering value
to their customers. Here are some examples of how Amazon is forward thinking in
their vision: drone delivery, Amazon store, and Internet of things.
Drone Delivery
Although it seemed to start out as a public relations gimmick, delivering
packages via drones is still part of their vision (Figure 4).
Having received
permission from the Federal Aviation Administration (FAA) for experimental test
flights, Amazon is thinking above and beyond traditional delivery. Named Amazon
Prime Air, their recent patent application describes an option called bring it to me,
where a package would be delivered to the customer based upon the GPS location
of their mobile device within thirty minutes. Keep in mind that the location of the
customer can change over the course of the delivery, and can be on land or on sea
(Marsh). Truly thinking out of the box on delivery options, this is an example of
radical technology innovation.
Amazon Store
Although there have been false reports over the years of Amazon stores
opening up (the most recent one in Manhattan), they have finally opened an actual
physical store on the campus of Purdue University in West Lafayette, Indiana
(Smith).
Primarily a pickup and drop-off location, students can place orders via
Amazon Student, and receive their orders within one day. Similarly, Amazon has
also opened its first physical book store, named Amazon Books. Located in Seattle,
the store will highlight books based on customer ratings and popularity.
Furthermore, customers will be able to test drive technology products, including the
Kindle, Echo, Fire TV, and Fire Tablet (Alba). Although the stores appear to follow in
the footsteps of Apple and Barnes and Noble, they may indeed result in future
growth of their customer base, attracting customers who prefer shopping in brick
and mortar stores instead of via the internet.
Internet of Things
In this era of the internet of things, more and more devices become
network-connected every day. Amazons vision is aligned with this, and is evident in
their products (Higginbotham): dash buttons, Amazon Echo, and Home Services.
Dash Buttons
Amazons Dash Buttons provide an easy way for customers to order specific
products via an internet-connected button (Figure 5).
button can be configured to order one of 17 brands, including Bounty, Tide, Gillette,
Cottonelle, and Glad. They are also working with companies to build re-ordering
buttons into their hardware, such as Brother (for ink and toner), Brita (for water
filters), and Whirlpool (for laundry supplies).
Amazon Echo
The Echo is Amazons answer to Apples Siri virtual assistant, but for the
home.
Using voice commands, it can provide information, play music, read the
news, check sports scores and weather, and turn off the lights. This product will
continue to evolve as more connected devices are available for the home.
Home Services
In another example of how Amazon is trying to become more vertically
integrated, they have introduced Home Services, which provides professional
installation for devices and other handyman services. Currently only available in
select geographical areas, it is part of Amazons vision for complete customer care,
IX.
Risk Analysis
Amazons success is highly reliant on its information technology and
related systems.
risks less tech-savvy companies may not face, including the effects of: system
interruption and lack of redundancy, data loss or other security breaches, and
suboptimal fulfillment and data center operations (Form 10-K).
System Interruption and Lack of Redundancy
Even though Amazon has great information systems, there is an inherent risk
that the websites and/or related services will experience delays or interruptions that
could slow or halt Amazons operations which will prevent the company from
efficiently fulfilling orders or providing services to others, consequently resulting in
lost sales and attractiveness/reputation of the brand (Form 10-K). This risk can be
minimized, however, as long as Amazon continues to add software and hardware,
effectively [upgrades its] systems and network infrastructure and other measures
to improve efficiency within its systems (Form 10-K).
Data Loss or Other Security Breaches
Because Amazons services are web-based and the fact that [it] processes,
stores, and transmits large amounts of data such as personal data for CRM
purposes, there is a possibility of data loss or other breaches, such as a hacking
attempt, that could expose Amazon to substantial losses due to lost revenues or
litigation, among others (Form 10-K). Amazon minimizes its exposure to this risk,
however, by using additional third party technology and systems for a variety of
reasons, includingencryption and authenticationcontent delivery[and] back
office support, and other functions (Form 10-K). Amazon further minimizes this
risk through the development of systems and processes that are designed to
protect customer information and prevent data loss and other security breaches
(Form 10-K).
Suboptimal Fulfillment and Data Center Operations
Lastly, as Amazons customer base grows, the company will continue to add
fulfillment, warehouse, and data center capability or add new businesses with
different requirements which will cause its fulfillment and data center networks
[to] become increasingly complex and operating them becomes more challenging
(Form 10-K). If Amazon is unable to add and handle these system changes, the
company may be unable to adequately staff [its] fulfillment and customer service
centers or operate at optimal levels (Form 10-K). However, with proper planning
and use of research and development expenditures to create complex, yet
manageable systems will help Amazon to minimize this risk (Form 10-K).
X.
Competitive
rivalry for Amazon is high because of the number of competitors it has and the low
switching costs incurred by users, as well as a high potential growth rate for
competitors and medium to high costs to exit the industry.
Power of Suppliers - Low
The bargaining power of suppliers is likely to be high when there are few
suppliers of a particular good or service or when the switching costs for the
company, in this case Amazon, are high, among other reasons.
The power of
Amazons suppliers is quite low since Amazon relies upon a vast pool of suppliers for
its goods.
The
bargaining power of buyers is moderately high for Amazon for a few reasons: (1) low
switching costs for consumers, (2) little to no differentiation of products sold
through Amazon (such as a textbook), and (3) the availability of the same or similar
service (like Netflix or eBay).
Threat of Substitutes Moderately High
The threat of substitutes exists if competitors within the industry sell similar
goods that achieve the same intended goal of the existing good or service.
Whether or not the threat of substitutes is high for Amazon depends on factors such
as switching costs, price of substitutes, and brand loyalty, etc.
The threat of
substitutes for Amazon is moderately high. This force leans toward high since the
goods sold through the marketplace lack differentiation and can be purchased
elsewhere, as discussed directly above. However, the threat of substitutes is only
moderately high because there are few other companies who offer all of the same
services in one place as Amazon. For example, while eBay offers a marketplace to
connect buyers and sellers, it does not offer the same selection as Amazon, nor
does its offer music and movie streaming, textbook rentals, etc.
Threat of New Entrants - Low
The fifth force of Porters Five Forces is the threat of new entrants. The threat
of new entrants is typically high when competitors can easily enter into the firms
market.
The
threat of new entrants into Amazons industry is low since there are high barriers to
entry, including start-up costs and government regulations, and a very low
possibility that new entrants would be able to achieve the same economies of scale
rapidly enough to compete with Amazon.
IT Competitive Advantage
As we have discovered from our analysis of Amazons structure, its strengths,
weaknesses, opportunities, and threats, as well as Porters Five Forces, Amazons
competitive advantage relies on its technology.
competitive advantage is something that, in this case, Amazon does better than any
of its industry competitors. Technology is Amazons competitive advantage since its
systems coordinate its everyday operations, such as processing order requests to
XI.
Conclusion
Amazon is an incredibly innovative, large, and powerful company in an
industry slighted for high growth in the future with little reliance on or influence
from its suppliers and a low threat of new entrants. After identifying some of its
strengths, weaknesses, opportunities, and threats, as well as some risks and the
factors critical to its success, Amazon will be able to surpass industry growth rates if
it takes advantage of the its incredible IS and IT structures and the opportunities
and potential alternatives to it, such as expanding its Marketplace shop offerings or
partaking in mergers and/or acquisitions to enable the company to integrate its
operations, whether vertically, horizontally, or both. Amazon is able to effectively
have its hands in everything by providing a variety of goods and services, ranging
from its cloud technologies to tangible products, like books to movie streaming, and
will continue to grow as it maintains and develops more of its technological core
competencies.
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