SWOT Analysis of Amazon

SWOT Analysis of Amazon

Amazon is one of the Big Four tech companies in the United States. It is also one of the largest retailers in the world and a notable developer and provider of different technological and digital services. The company has managed to expand from being an online storefront to a diversified multi-industry tech company. A situational analysis of Amazon using the SWOT Framework provides a thorough understanding of its capabilities and limitations.

Situational Analysis of Amazon: Understanding Its Strengths, Weaknesses, Opportunities, and Threats

1. Strengths

Amazon owns and operates numerous businesses. These include the Amazon.com e-commerce website and Amazon Web Services which provides on-demand cloud computing platforms and services. It also has a video streaming platform that competes with other streaming service providers such as Netflix. The company designs and markets software and hardware. It has a business interest in wireless communication and has a wide range of media, entertainment, and publishing products and services.

The following are the specific strengths of Amazon:

• Established Global Name: The company is a recognized brand. It is one of the dot.com companies of the 1990s that disrupted the traditional retail industry and survived the dot.com bubble while also pioneering and advancing the online retail industry. Its established brand means that it requires minimal expenses for marketing its different products and services. Its size has also enabled it to capitalize on economies of scale to provide it with superior logistics and distribution systems, capable cloud computing and IT capabilities, and access to critical resources.

• Diversified Businesses: Amazon has grown from an online retail store to a diversified multinational tech empire. The company has business interests in media and publication, software and consumer electronics, telecommunications, logistics and transportation, and cloud computing. It also owns and operates physical retail stores. Diversification has allowed it to have multiple income streams while capitalizing further on its business and specific technological capabilities to maximize its earnings potential.

• Large-Scale Operations: The company is headquartered in Seattle. However, it has several offices and facilities across the United States, as well as in Canada and Mexico, Europe and Asia, South America, and Oceania. Some of these offices are dedicated to research and development while others are facilities for supporting its information technology infrastructure, customer service capabilities, and order fulfillment and warehousing requirements.

• Technology and Innovation: Remember that Amazon is a tech company. It is developed and deployed technological solutions to expand its business and optimize its operation. For example, it has developed automation systems to promote efficiency in its fulfillment and warehousing operations. It uses its IT infrastructures to both service business clients and support its own IT requirements. The company employs different teams of engineers and scientists, computer programs and software developers, and IT professionals.

• Easy Access to Capital: Another strength of Amazon is its access to capital. It is a publicly-traded company and can raise capital by issuing and selling stocks. The fact that it is an established company means that it can also issue bonds and secure funding from creditors to further raise the capital needed to improve and expand its businesses, acquire other businesses or their capabilities, or invest in initiatives and relevant pursuits that will add further value to its existing businesses.

• Organization and Leadership: The entire company is organized into several business units and subsidiaries to grant them a degree of independence and needed focus for addressing their different needs. Each has its respective leadership. Note that its AWS subsidiary has its own chief executive and teams of executives. The Zoox autonomous vehicle and mobility-as-a-service company is headed also by a different chief executive. The same is true for the satellite internet company Kuiper Systems and the supermarket chain Whole Foods Market.

2. Weaknesses

Amazon is undeniably an American success story. Its expansion from an online retail store to a diversified organization makes it one of the biggest and most influential companies in the world. However, it has encountered numerous issues and has faced criticisms that range from allegations of unethical business practices to notable limitations in its capabilities as evident from different instances of business and product failures.

The following are the specific weaknesses of Amazon:

• Inability to Service All Customers: The company targets different customers from different markets or industries and market segments. Remember that it is a diversified organization. However, this can also be one of its major sources of problems. It cannot attend to all the concerns and needs of all of its customers due to the scale of its operations and business interests. The company has been accused of price discrimination, poor customer service and delayed assistance, violation of individual privacy rights, and failure to secure and guarantee consumer protection.

• Allegations About Labor Practices: It remains one of the companies that provide competitive compensation in general. The company has been praised for giving substantial raises. It still has faced numerous backlashes due to alleged poor labor practices. It has opposed the efforts of trade unions in several instances. There are also accusations of employee mismanagement that include inaccuracies in evaluation and compensation. Several former and current employees have also raised concerns about the poor working conditions in several of its offices and facilities.

• Failed Businesses and Products: The company has pursued the exploration and creation of new businesses and products. It has a growing list of failed initiatives that translate to billions of dollars of losses. Its founder and former chief executive Jeff Bezos instituted a culture in which failure is accepted. A prime example is its Fire Phone announced in 2014 which received criticisms for using older technologies and an underdeveloped operating system. The free multiplayer game “Crucible” also performed poorly against similar video games. It also pursued a joint venture with JPMorgan and Berkshire Hathaway in 2018 to launch the health-care-focused not-for-profit organization Haven but it never got off the ground and was discontinued in 2021.

• Problems in Entering Other Markets: Another weakness of Amazon is its failure to establish a solid footing in other geographic markets. The company has struggled to compete in China and Southeast Asian countries because of the presence of the Chinese company Alibaba Group and its Singapore-based e-commerce platform Lazada Group, as well as the Singaporean tech conglomerate Sea Limited which owns Shopee Pte. Ltd. The company also competes with Netflix and Walt Disney in the video streaming segment and with Alibaba Cloud and Microsoft Azure in the cloud computing segment.

• Challenges in Optimizing Costs: The company has been incurring losses in several of its businesses due to its specific tactics. It has incurred losses in India because of sales promotion tactics that include free shipment and discounts. The investments in newer initiatives aimed at developing new businesses and products have resulted in billions of dollars of losses that left several investors cautious. It is also a risk of further losses during economic downturns or when the business cycle is in a recessionary phase due to low consumer demand which translates to poor sales.

3. Opportunities

Amazon has achieved remarkable growth beginning with the launch of its AWS subsidiary in 2002 and further beginning the expansion of its businesses into different markets and industries in 2007. The fact that it has diversified its business shows that there are a lot of opportunities available for it to explore and capitalize further. It can capitalize further on its technological capabilities and strong leadership experience to maximize its earnings potential by taking advantage of the emerging trends in the different markets it serves.

The following are the specific opportunities for Amazon:

• Expansion to Different Markets: The company can still expand to markets in Southeast Asia and other geographic markets given the proper timing and feasible strategy. Note that it has been reexploring its e-commerce foothold in Southeast Asia to compete against established online retailers. Its different businesses and products are still out of reach in other regions. Examples include its broadband internet satellite service and its cloud computing service. Further developments in the digital information age alongside developments in relevant technologies and innovation give the company an opportunity to make itself more relevant and influential.

• Vertical Integration Strategy: Another opportunity for Amazon is the further development and implementation of its vertical integration strategy to improve its operational efficiency and lessen its dependence on suppliers and other third-party businesses. The diversified businesses and product offerings of the company translate to overlaps in certain areas. Identifying these overlaps can also result in the identification of critical areas that can be optimized to promote efficiencies in operation and costs. Note that backward vertical integration can reduce or eliminate the bargaining power of its suppliers and risks associated with supply chain disruptions.

• Expansion of Physical Stores: The company can also expand its brick-and-mortar operations and compete with big-box retailers such as Walmart and Target. It already has access to goods to sell in these physical stores and has relevant warehousing facilities for the management of its inventories. Pursuing further this direction can also make Amazon a real estate developer similar to McDonald’s Corporation. Note that even Walmart owns the Walmart Realty division as part of its real estate pursuits. The company can use its lands and real properties both as physical stores and operational facilities.

• Pursuing Partnerships and Acquisitions: It can also partner with other businesses to add further value to its existing businesses and product offerings. Partnerships can be a key strategic direction to enter unexplored markets and emerging geographic markets. The same is true for acquisitions. It is also important to note that it can build further its capabilities such as technological assets, human resources or talent pool, and market reach through the acquisition of relevant businesses that can help improve its existing businesses or explore new business ventures.

• Specific Focus on Emerging Trends: There are different trends that are shaping and disrupting the modern landscape. Examples include the emergence of the metaverse and Web 3.0 applications, the growing popularity of electric vehicles and autonomous driving technologies, more specific applications of artificial intelligence and machine learning, developments in smart devices and the Internet of Things, and newer innovations in digital communications, among others. Remember that Amazon is a tech company with existing research and development capabilities.

4. Threats

Amazon is a complex company due to its sheer size and the expansiveness of its business interest. The company has become too big and influential to the point that it has also become more exposed to risks and other threats. The intensity of competition across the different markets it serves and industries where it operates has also increased the bargaining power of the consumers and the bargaining power of its suppliers.

The following are the specific threats to Amazon:

• Exposure to Macroeconomic Factors: Another major threat to Amazon is its exposure to macroeconomic factors or situations that affect the overall economy. Note that ita stock price often moves in accordance with the condition of the economy. Sentiments across the community of investors are negative most of the time during an economic slowdown because it translates to poor sales and low revenues. The company lost USD 1 trillion in market valuation on 11 November 2022 and has become the first company to shed such market value in history amidst a looming recession in the United States and ongoing inflation surges transpiring nationally and across the world.

• Global Supply Chain Issues and Risks: Its e-commerce business and the development of some of its products and services are dependent on the global supply chain. Disruptions in international trade, such as in the case of the COVID-19 pandemic, affect the quantity and quality of products its sellers sell on its online retail platform. The company also depends on international trade to secure supplies needed to expand and maintain its tech assets and develop products. Disruptions in the global supply chain will result in disruptions in its operations and ongoing initiatives.

• Vulnerabilities Due To Cyberattacks: Remember that the company also depends on its tech assets to run and maintain its e-commerce platform, its cloud computing services, and the delivery of its contents. The same tech assets also keep its entire operation up and running. This dependence on technology increases its tendency to lose millions to billions of dollars in the event of a cyberattack. Breaches in its network can result in data risks that can affect its proprietary data and information, as well as the private data and information of its customers and business partners.

• Government Regulations and Policies: The company has figured in numerous legal and even political issues in the United States and elsewhere in the world. It has been accused of failing to file and remit appropriate federal taxes to the U.S. government and the governments of the United Kingdom, China, South Korea, Germany, and France, among others. The changing regulatory environments of the digital information age and the business landscape in different jurisdictions would also require the company to adjust its business models and business practices for compliance.

• Intensity of the Competitive Rivalry: Competition remains a major threat to Amazon. It competes with the Alibaba Group in the Chinese and Southeast Asian markets. The company also competes within the United States due to the presence of other e-commerce platforms such as eBay and even the disrupting business models of mobility-as-a-service providers such as Uber Technologies. Bigger retailers such as Walmart and Target have also ventured into e-commerce. The company also has numerous competitors in numerous markets and industries. For example, it competes with Tesla for its autonomous driving business and SpaceX for its broadband satellite internet service.

Risks Concerning Access to Capital: The company is also exposed to the financial markets. What this means is that its ability to raise and access capital depends on the performance of relevant financial markets. Remember that it lost USD 1 trillion in November 2022 due to the growing concerns over a recession and as investors move to safer alternatives to stock investing. The dependence on the financial markets endangers its capabilities to pursue business expansion and other value-adding initiatives.

Posted in Articles, Business and Economics and tagged , , , , .