Can Amazon Survive An Economic Downturn? Essay, Research Paper
Can Amazon Survive an Economic Downturn?
Amazon.com is the largest online retailer. Amazon has yet to produce a profit and it has seen its market capitalization drop tremendously over the past year. Without any profits and no cash, Amazon will be doomed for failure. Can Amazon survive an economic downturn by becoming profitable, increasing market share and fighting off competition? Without any profits and cash, Amazon will be doomed for failure.
Started in July 1995, Amazon.com (Amazon) immediately became the largest online retailer. Amazon has a constantly growing database of over 29 million customers in more than 160 countries. The company built a foundation as an online bookstore, but has quickly began selling other items such as CDs, videos, DVDs, etc.
Three Basic Forces?Revenue, Market Share and Defense
The driving forces behind Amazon?s strategic direction are not any different from the driving forces behind most companies. Amazon wants to conduct business indefinitely. Moreover, Amazon wants to increase revenue and market share and fight off competition.
Amazon must become profitable in order to remain in business longterm. Investors want to see results! Investors are really getting tired of valuing internet companies on the basis of potential profits and Amazon definitely is no exception to this. Increasing revenue is extremely important for Amazon now considering the current state of the economy. Amazon can no longer put market share ahead of profits. Amazon?s share price is currently trading around its low of $13. If Amazon?s share price continues to go down, it will be strapped for cash. Over the past year several internet companies have closed their virtual doors for business as their cash flow has dried up. Amazon could be facing the same fate as some of these companies if it doesn?t begin to produce profits.
Competition is heating up as brick and mortar companies begin to do more business over the internet. Amazon must be concerned about these companies because they built their foundations with physical stores unlike Amazon. Amazon doesn?t have the same luxury as brick and mortar stores do in diversifying any loses from doing business on the internet. Furthermore, brick and mortar companies can offer face-to-face interaction that Amazon currently can not match.
In an attempt to diversify and stay ahead of the competition, Amazon has begun offering products other than books such as electronics, kitchen products, books, music, DVDs, videos, camera and photo items, toys, software, computer and video games, tools and hardware, lawn and patio items, and wireless products. Expansion is propelling the company in many directions; it owns stakes in online sellers of prescription drugs, cars, groceries, and more (www.Amazon.com).
While Amazon is concentrating on expanding its business, it might be forgetting about some of the basics. Amazon must pay attention to the price of its products. If product prices are higher than other companies, Amazon will miss the opportunity to capture the customers? purchases. Amazon must focus on providing competitive value to customers. It doesn?t have to be the lowest price retailer, but there better be some incentive for customers to purchase products from them versus other companies. Value is especially important when factoring in the cost of shipping and handling as opposed to going to a store directly to purchase the product. Also, not to mention the potential hassle of having to return products through the mail rather than going to the store directly.
Customer Friendly and Technologically Advanced Website
The layout of Amazon?s web site definitely shows that Amazon has clearly focused objectives. Obviously, this is a company that understands customers are the reason why they are in business. Amazon clearly had the customer in mind when it developed its web site. The web site is extremely customer friendly.
The website is divided into sections that can be accessed via tabs at the top of the default screen. Customers have easy access to search fields and navigation buttons have been placed conveniently at the top of each page. Furthermore, the simplified low-bandwidth graphics allow customers to easily select the type of media they are interested in purchasing. Customers can read product reviews to assist them in making purchases as well as create their own reviews. Amazon?s goal is to provide the best shopping experience possible and it has succeeded.
Amazon has really put its workforce to use by creating in house technology such as affinity lists. Affinity lists automatically display similar items that were purchased by people who bought the item the customer is looking at. In addition to using in house technology, Amazon uses the Secure Netscape Commerce Server for handling online sales. Technology has really served Amazon and its customers well and it will continue to positively impact both parties as long as it is used properly. Amazon must carry through on its promise to provide the best shopping experience for customers. It can accomplish its promise by creating technology that will make it even easier for customers to do business with them.
Data Rules the World
Companies can not have enough data about its customers and Amazon is no exception. If used properly customer data can be an excellent tool in determining the shopping habits of customers. The more a company knows about customers? habits, the easier it is to cross-market additional products and services to them. On the other hand, if the data is not used properly it can cause problems for customers. Customers are inundated with junk mail. The last problem customers want to deal with is having their personal information sold to another company. Amazon must uphold its commitment not to sell its customers? information to other companies. If Amazon doesn?t uphold its commitment, it could see a significant drop in future customers.
Recognizing the growing importance of sharing data, Amazon has acquired and invested in several companies such as Junglee and Planet All. Amazon acquired Junglee for $185 million in stock and Planet All for $93 million in stock. Junglee developed technology allowing databases to be efficiently merged together. Therefore, helping customers locate other internet stores. Planet All created a reminder service enabling users to maintain contact with friends and associates.
If Amazon doesn?t begin to produce revenues it will meet the same fate as several other now defunct internet companies. Thereby, forcing its 29 million customers to do business with other internet companies or go to physical stores. No one knows whether Amazon can survive an economic downturn. Although, it is common knowledge that Amazon has several obstacles it must overcome if it wants to remain in business longterm.
Post, G., & Anderson, D. (2000). Management Information Systems. Boston: Irvin
www.Amazon.com Date retrieved:February 2, 2001
Date retrieved: February 2, 2001
Himelstein, L. (2000, December). Going Back To Dot-coms. Business Week. pp. 90-92.