Amazon: opening up an e-commerce age

Amazon boy
‘Amazon boy’ by oi Roppa, all right reserved.

Amazon is one of the largest e-commerce companies today, and also one of the first companies to operate e-commerce business. Amazon’s unique logistics system and the maintenance of the supply chain make it a leader in the field of e-commerce. This essay will take the network development and market strategy as clues to analyze Amazon and the transformative influence on the electronic commerce industry.

The first part of this essay will introduce Amazon’s business type and briefly summarize its current situation. The second section will discuss Amazon’s historical development trajectory and the issues of regulation. The third section of this essay will focus on Amazon’s marketing strategy, and the Internet ecology will be explored in the fourth section in conjunction with a diagram of Amazon’s Internet ecology. In the end, this essay will discuss Amazon’s transformative impact on the e-commerce industry in terms of international trade and customer relations.

What is Amazon?

Amazon is an online e-commerce company founded by Jeff Bezos in 1995. Sadq, Sabir and Saeed (2018) point out that Amazon’s market positioning has gone through three periods. ‘The largest bookstore’ (1995-1997), ‘the largest integrated online retailer’ (1997-2001), ‘the customer-centric enterprise’ (2001- Now), maintaining the customer traffic and loyalty is Amazon’s current primary marketing strategy. Amazon’s major markets are North America, Europe, Australia, Japan and India. After decades of growth, Amazon has expanded into many areas, offering more than 400,000 products to its customers (Khan, 2017). Facing the rapid emergence in the e- commerce industry, Amazon still has more than 63 million high-end customers in the United States. According to Amazon’s 2016 annual report, those high-end customers spend an average of $1,624 per year. Amazon’s ambition to integrate and expand gives it the ability to compete with competitors, and its customer-centric marketing strategy has also led to a higher customer retention rate.

Availability of Amazon around word
                            ‘Availability of Amazon around word’, by Wikimedia commons is licensed under CC BY-SA 4.0.

The historical story and regulation issue behind Amazon

Amazon was born by chance. Jeff Bezos read an Internet statistics report and found that the Internet was growing at 2,300 percent (Khan, 2017). He believed that this was a business opportunity to seize. After searching and comparing, Jeff Bezos identified books as the future best-selling product on the internet. Because there are countless different kinds of books in the world that are impossible to store in a physical bookstore. The extensive collection of book catalogs would also make it difficult for customers to find the books they want. Moreover, D’Agostino (2018) mentions that book publishers are putting their book lists online for easy management as society enters the Internet age. Jeff Bezos used these lists to build an information base for Amazon’s online bookstore, including authors, publishers, and other information consumers might be interested in. Amazon then expanded the market further by acquiring some small online booksellers.

Here is a video about more detailed stories behind Amazon

 

Jeff Bezos’ initial ‘five-year unprofitable’ plan caused the dissatisfaction of shareholders. But he insisted this was inevitable that Amazon would sacrifice part of profits for lower prices if Amazon wants to gain a foothold in the market (Khan, 2017). This business model is beneficial for the development of Amazon’s profitability. Amazon’s products expanded beyond books to include electronics, furniture and other daily supplies, and it built a system for payment, logistics management and warehousing.

Shipments from Amazon
                                                    ‘Shipments from Amazon’, Flickr, licensed under CC BY 2.0
Amazon’s growing market power has led it to have the power of private regulation because it represents authority in the e-commerce market. Amazon, as the regulator of its own market, has a customer satisfaction policy that does not give its suppliers and employees fair treatment. To maintain customer satisfaction, Amazon typically handles complaints not under consumer protection laws. In other words, even some of complaints are not reasonable, Amazon is still more likely to squeezing employees and suppliers to solve the complaints without giving a fair salary (Winn, 2016). Suppliers, employees and customers maintain an unequal relationship for a long time. In response, Winn (2016) notes that the California supply chain transparency act of 2010 required Amazon to disclose the ‘living wages’ of its employees to promote fair online commerce.

Amazon’s business model

The core of Amazon’s marketing strategy is the customer, and such marketing strategy is generated based on ‘design thinking’. O’reilly (2019) defines ‘design thinking’ as the rapid response and finds solutions to the potential problems faced by customers. Through survey data, Amazon found that most customers will only browse the first page of the search page and then decide. As a result, the Amazon Keyword search engine uses a unique algorithm. Although specific algorithms for ranking products have not been published, customer ratings and commodity prices are the most significant factors (Tjernlund et al., 2019). Customer reviews are based on after- sales service and ratings from customers, and only products that are satisfactory in those areas can be listed on the first page of the search results.

Searching page of Amazon
                                                      ‘Searching page of Amazon’, screenshot by Author.

In addition, Amazon manages two sales modes, the third party selling model and the first party selling model. The third party selling model is that retail sells products directly to the consumer through Amazon (Tjernlund et al., 2019). The first party selling model is that Amazon buys the retailer’s product first and then hits shelves (Tjernlund et al., 2019). The simultaneous operation of these two sales methods has greatly enriched the diversity of the brands. Consumers cannot only find brands they are familiar with on Amazon, but they also do not need to go to multiple websites and linked their credit cards to purchase items. These two sales methods also save retailers the expense of marketing their brands and advertising their products to consumers (D’Agostino, 2018). Relying on Amazon’s reputation, customers will be attracted easily.

Another core aspect of Amazon’s business model is not targeting short-term returns (Ives, Cossick, & Adams, 2019). Khan (2017) explains that Amazon’s pricing of e-books is below cost, and this pricing model has created a low-profit margin and stable customer base. As a consequence, Amazon’s profits are among the top in the e-commerce industry. To maintain low pricing management, Amazon has put efforts to minimize operating costs. In the case of first party selling model, Amazon will wholesale products after customers submit orders. This way of operation makes sure that inventory does not pile up and reducing the cost of warehousing (Thierry, 2009). Amazon has also invested in delivery companies to get a cheaper express fee, such as FedEx and UPS, which offer lower prices for Amazon’s delivery services.

Amazon’s internet ecology

As Moore (1993) explains the concept of the Internet business ecosystem, Internet companies and other players in the ecosystem, such as agents and suppliers, formed the competitive coexistence relations and moved towards innovation development. Amazon’s suppliers are retailers, and Amazon’s customers are buyers. The Federal Treat Commission, the CMA (Competition and Markets Authority), and US House Judiciary Committee take the role of regulating Amazon. For example, Amazon participated in the hearing about the antitrust investigation of the US House Judiciary Committee on July 29, 2020. For the payment service, Amazon is partnering with Payment Service providers such as BIGCOMMERCE, SHOPIFY and ZUORA.

Amazon’s direct competitors are large retail chains like Walmart and Target. While Amazon has improved the physical store by expanding its online offerings, Walmart has also built an e-commerce system. Their increasingly competitive is because of the similar services they offer to customers. Facing direct competition, Amazon adopts the preventive approach. In other words, Amazon takeover rivals by acquisitions before they develop. For instance, Amazon brought Wholefoods in 2017 to prepare for its food industry development in the future (D’Agostino, 2018).

A physical Amazon store
                                            ‘A physical Amazon store’, by TheWorkingBirches, all right reserved.

eBay is an e-commerce company, although its business model is very different from Amazon’s, the overlap of customer groups makes eBay an indirect competitor to Amazon (Reinartz, Wiegand, & Imschloss, 2019). Amazon’s integration of business has played a vital role in competing with indirect competitors by turning competitors into customers. As mentioned above, Amazon actively cooperated with delivery companies, and developed its own logistics system Fba to provide delivery services. For platforms like eBay that do not provide delivery services, sellers need to cooperate with the logistics system by themselves, Amazon’s FBA is one of the top choices that many sellers will choose (Khan, 2017).

Below is a map of Amazon’s ecology

The transformative innovation brought by Amazon

Amazon has played a transformative role in facilitating international trade. Ives, Cossick and Adams (2019) conclude that E-commerce platforms like Amazon can expand internationally easier than other companies because they do not need physical stores or factories. The development of international trade promotes the development of the social economy. Amazon started business in India in 2013. India has a massive number of small businesses, these small suppliers are limited development, but they distribute all over India (Wadhwa, Vashisht & Kaur, 2017). The emergence of Amazon gave them opportunities to transform and sell products online. Digital platforms are inexpensive to operate, and Amazon’s role as a bridge between suppliers and customers makes the process of trading easier. OECD (2019) identified that Amazon had 1.25 billion employees in India in 2016 since it entered the Indian market and created plentiful jobs. There is a significant increase in the number of employees who joined the workforce and worked with Amazon. Furthermore, Amazon’s international trade development in India has effectively stimulated local Internet industry development and entrepreneurship, with India’s e-commerce market booming from $35 million to $15 billion between 2014 and 2016 (Wadhwa, Vashisht, & Kaur, 2017).

Here is a video about India’s rapid growth and the largest Amazon campus in India

On the other hand, from a social point of view. Amazon has also brought a transformative impact on consumer relations, because the digital platform can better meet consumers’ needs. As noted by Reinartz, Wiegand and Imschloss (2019), before the advent of e-commerce platforms, traditional stores had a great deal of power in guiding consumer preferences, as customers’ choices were limited to store shelves. When using Amazon, consumers can compare products from all around the world through the keyword search function, not only saving the time cost of physical shopping but also giving customers more freedom to make purchasing decisions. Besides, e-commerce platforms like Amazon have built closer customer relationships. The reviewing and rating from the customers can be direct feedback to the seller and provide an objective reference for future customers. Customers use digital platforms like Amazon to exchange advice on products, just as John (2016) mentions that customers can join together on electronic platforms to facilitate better business relationships.

Reviewing page of Amazon’
                                                ‘Reviewing page of Amazon’, screenshot by Author.

Summary

Overall, Amazon is a company that has grown from an online bookstore to one of the largest e-commerce platforms in the world. Amazon’s core concept of business model is customer, it leads to a low-profit margin but maintains a stable customer base. Amazon has played a transformative role in the internet industry. It promotes international trade, brought benign development to the enterprise, and improves consumer relations. Now consumers have more freedom on purchase decision- making.

Reference List

D’Agostino, J. (2018). Amazon, E-commerce and the new world. Oregon, America: Oregon University Press.

Feiner, L. (2020, July 28). Bezos, Zuckerberg, Cook and Pichai prepare for their big day before congress – here’s what to watch out for. Consumer. News and Business Channel. Retrieved from https://www.cnbc.com/2020/07/28/tech-antitrust-hearing- preview.html

Ives, B., Cossick, K., & Adams, D. (2019). Amazon GO: Disrupting retail? Journal of Information Technology Teaching Cases, 9(1), 2-11.
Doi: 10.1177/2043886918819092

John, N. A. (2018). Sharing Economies. In The age of sharing. Retrieved from: https://ebookcentral-proquest-com.ezproxy1.library.usyd.edu.au

Khan, ML. (2017). Amazon’s antitrust paradox. The Yale Law Journal, 126(3), 564- 907.

Moore, J.F. (1993). Predators and Prey: A New Ecology of Competition. Harvard Business Review, 71(3), 75–86.

Organization for Economic Cooperation and Development. (2019). An Introduction to Online Platforms and Their Role in the Digital Transformation. Paris, France: Author.

O’reilly, C. (2019). The Three Stages of Disruptive Innovation: Idea Generation, Incubation, and Scaling. California Management Review, 61(3), 49–71. Doi:10.1177/0008125619841878

Reinartz, W., Wiegand, N., & Imschloss, M. (2019). The impact of digital transformation on the retailing value chain. International Journal of Research in Marketing, 36(3), 350-366. Doi: 10.1016/j.iresmar.2018.12.002

Sadq, Z., Sabir, H., & Saeed, V. (2018). Analyzing the Amazon success strategies. Journal of Process Management – New Technologies, International, 6(4), 65-69. Doi: 10.5937/jouproman6-19264

Thierry, I. (2009). Amazon’s evolving ecosystem: A cyber-bookstore and Application Service Provider. Canadian Journal of Administrative Science / Revue Canadienne des sciences de l Administration, 332(26), 332-343. Doi: 10.1002/cjas.119

Tjernlund, W., Thompson, R., Sutton, R., Rayner, S., Sieve, K., Malz, T., Calderón, E., Carson, L., & Robinson, C. (2019). Amazon Market Strategy. Minneapolis, MN: International Goat Association.

Winn, J. (2016). The Secession of the Successful: The Rise of Amazon as Private Global Consumer Protection Regulator. Arizona State Law Journal, 58(193), 194- 212.

Wadhwa, B., Vashisht, A., & Kaur, D. (2017). Business model of Amazon India – a case study. International Journal of Advanced Research, 5(8), 1426-1433. Doi:10.21474/IJAR01/5200

Multimedia Reference List

Bloomberg Technology. (2019, August 21). Why Amazon Is Building Its Largest Campus in India

Retrieved from: https://www.youtube.com/watch?v=Db0Wew9iW2Y

Jack Chapple. (2018, September 2). The story of Amazon.com: how a Bookstore Conquered the Internet

Retrieved from: https://www.youtube.com/watch?v=_snoVZwQGVs

Roppa, O. (2010). Amazon boy [photo]. Retrieved from: https://flic.kr/p/7s8ZHG

Retrieved from: https://www.youtube.com/watch?v=_snoVZwQGVs
Flickr. (2010). Shipments from Amazon [photo].
Retrieved from: https://www.flickr.com/photos/8212496@N06/4245550588

TheWorkingBirches. (2018). A physical Amazon Store [photo].
Retrieved from: https://www.flickr.com/photos/thewokingbirches/42342541361/

Wikimedia commons. (2019). Availability of Amazon around word [photo]. Retrieved from: https://commons.wikimedia.org/wiki/File:Availability

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About Vicky Chen 4 Articles
Hi, my name is Vicky and I major in digital culture and gender studies! I love sweets and violin :)