Do you want to know Amazon’s strength, weaknesses, threats & competitive strategies? If YES, here is a detailed Amazon SWOT analysis plus competitors analysis.
The whole idea of this SWOT analysis is to try to show you what made Amazon Inc. one of the most successful companies in the world and how over the years their competitive advantages have positioned them to become the dominant player in the retail industry globally or better still various industries such as Internet (Amazon Web Services, Amazon Video), Retail (Amazon Marketplace, Amazon Prime, Whole Foods) and Consumer Electronics (Kindle, Fire tablet, Fire TV, Echo and Ring).
Table of Content
Amazon, Inc., is an American multinational conglomerate technology company based in Seattle, with 750,000 employees. It focuses on e-commerce, cloud computing, digital streaming, and artificial intelligence. It is considered one of the Big Four tech companies, along with Google, Apple, and Microsoft. It has been referred to as “one of the most influential economic and cultural forces in the world.”
Amazon is known for its disruption of well-established industries through technological innovation and mass scale. It is the world’s largest online marketplace, AI assistant provider, and cloud computing platform as measured by revenue and market capitalization. Amazon is the largest Internet company by revenue in the world. It is the second largest private employer in the united states and one of the world’s most valuable companies.
Amazon was founded by Jeff Bezos in Bellevue, Washington, in July 1994. The company initially started as an online marketplace for books but later expanded to sell electronics, software, video games, apparel, furniture, food, toys, and jewelry. In 2015, Amazon surpassed Walmart as the most valuable retailer in the United States by market capitalization.
Amazon manufactures and sells electronic devices, including Kindle, Fire tablet, Fire TV, Echo, Ring, Twitch, Whole Foods Market, and IMDb, and other devices, and the company develops and produces media content. They seek to offer their customers low prices, fast and free delivery, easy-to-use functionality, and timely customer service.
In addition, the company offers Amazon Prime, a membership program that includes unlimited free shipping on over 100 million items, access to unlimited streaming of tens of thousands of movies and TV episodes, including Amazon Original content, and other benefits. Amazon also has a publishing arm, Amazon Publishing, a film and television studio, Amazon Studios, and a cloud computing subsidiary, Amazon Web Services.
Although Amazon seems to be one of the leaders in ecommerce cum retail industry, but they have major competitors who are equally doing pretty well in the industry and of course controlling a segment of the market.
These major competitors are Alibaba Group, Apple Inc., eBay, Inc., Facebook Inc., Alphabet (Google Inc.) Inc., International Business Machines Corporation, Microsoft Corporation, Netflix Inc., The Walt Disney Company, Wal-Mart Stores, Inc. and many other internet, retail, consumer electronics and video entertainment companies.
SWOT Analysis for Amazon Inc.
- Economies of Scale
Amazon is no doubt amongst the retail cum ecommerce companies that enjoys huge economies of scale. Amazon has successfully setup low cost structure, the largest merchandise selection and a huge number of third – party sellers.
Amazon is the largest online retailer in the world. In 2019, the company earned US$141.247 billion from online sales of its own merchandise and an additional US$53.762 billion from the commissions of the third – party sellers’ sales in its online stores.
In total, the company’s online retail operations brought in a massive US$195.009 billion in revenues – more than the next few largest online retailers earned combined. Amazon’s extraordinary online growth has allowed the company to become the 2nd largest retailer in the world, only behind Wal-Mart, when compared to other brick and mortar companies.
- Fast and Reliable Website/Ecommerce Platform
To run an e-commerce website with millions of visitors each day the company had to invest heavily in its server infrastructure. These investments and the resulting server capacity have helped AWS to grow. In return, AWS provides two important elements for its sites:
Speed. Page load speed is crucial for Amazon. Every 100ms of delay costs the company tens or hundreds of millions due to the lost customers. AWS helps to speed up the website’s load time, so that Amazon is able to serve each customer as quickly as possible. Subscription services also benefit from this. The content and especially, the video content are served very fast to the subscribers, increasing their satisfaction with the service.
Capacity. During the peak times of Cyber Monday (the Monday after the Thanksgiving holiday in the U.S), Black Friday (the Friday after the Thanksgiving holiday), and in the several weeks leading up to Christmas, Amazon receives an overwhelming number of visitors to its sites. AWS’s huge capacity, which is not needed during the rest of the year, is employed during these peak times to help Amazon cope with the increased number of visitors.
- Low Running Cost and Huge Returns
Another notable strength that Amazon can boast of is low running cost and huge returns. By mainly selling online, Amazon doesn’t incur huge costs related to running physical retail outlets. Online marketplaces also potentially allow for selling more units without any increase in marginal costs.
Amazon constantly invests in both additional fulfillment centers and to existing centers to enable a reduction in order fulfillment times and shipping costs. These time and cost savings result in lower prices that are passed on to consumers.
According to ScrapeHero, Amazon sells around 120 million of various products in its Amazon.com Marketplace. In comparison, Walmart offers only 43 million SKU’s in its online shop, or just 36 percent of the number of products that Amazon offers. This vast difference in range is the reason why online customers are more likely to visit Amazon.com rather than Walmart’s e-shop.
- Reliable and Productive Business model (Third Party Sellers Model)
Amazon’s business model includes accommodating third party sellers who are able to offer their own merchandise on Amazon’s sites and whose products therefore compete against Amazon’s. At the beginning, third party sellers were mainly attracted to the Amazon Marketplace because of the high traffic to its stores.
Now the main drivers are such programs as ‘Fulfilled by Amazon’ and Prime. Third party sellers often offer products that are not available through Amazon’s retail division. In 2018, third party sellers accounted for 58 percent of all the products sold through the company’s online stores.
Amazon’s third party sales grossed US$160 billion in 2018, while eBay’s merchants sales only grossed US$95 billion in the same period. Low prices, huge product range and the vast number of third – party sellers are all key factors in improving the Amazon customer experience and in driving more traffic to their sites. Few companies can compete with Amazon in any of these areas.
- Poor Labor Relations/Opposition to Trade Unions
Amazon has opposed efforts by trade unions to organize in both the United States and the united kingdom. In 2001, 850 employees in Seattle were laid off by Amazon.com after a unionization drive. The Washington Alliance of Technological Workers (WashTech) accused the company of violating union laws, and claimed Amazon managers subjected them to intimidation and heavy propaganda.
Amazon denied any link between the unionization effort and layoffs. Also in 2001, Amazon.co.uk hired a US management consultancy organization, The Burke Group, to assist in defeating a campaign by the Graphical, Paper and Media Union (GPMU, now part of Unite the Union) to achieve recognition in the Milton Keynes distribution depot.
It was alleged that the company victimized or sacked four union members during the 2001 recognition drive and held a series of captive meetings with employees.
In Early 2022, an Amazon internal documents were leaked, it said that Amazon has been using an interactive heat map to monitor its 510 locations across the U.S. and assign each store a unionization risk score based on such criteria as employee loyalty, turnover rate and racial diversity. Data collected in the heat map suggest that stores with low racial and ethnic diversity, especially those located in poor communities, are more likely to unionize.
- Poor Stock Control Management
Perhaps because of their business model of allowing third – party and the fact that Amazon is too big to have full control of products that are sold under its ecommerce platforms hence it is easier to find people selling counterfeit items.
On October 16, 2016, Apple filed a trademark infringement case against Mobile Star LLC for selling counterfeit Apple products to Amazon. In the suit, Apple provided evidence that Amazon was selling these counterfeit Apple products and advertising them as genuine.
Through purchasing, Apple found that it was able to identify counterfeit products with a success rate of 90 percent. Amazon was sourcing and selling items without properly determining if they are genuine. Mobile Star LLC settled with Apple for an undisclosed amount on April 27, 2017.
- Poor Working Conditions
Former employees, current employees, the media, and politicians have criticized Amazon for poor working conditions at the company. In 2011, it was publicized that workers had to carry out tasks in 100 °F (38 °C) heat at the Breinigsville, Pennsylvania warehouse.
As a result of these inhumane conditions, employees became extremely uncomfortable and suffered from dehydration and collapse. Loading-bay doors were not opened to allow in fresh air because of concerns over theft. Amazon’s initial response was to pay for an ambulance to sit outside on call to cart away overheated employees. The company eventually installed air conditioning at the warehouse.
The SUD (trade unions) brought a court case against Amazon for unsafe working conditions. This resulted in a French district court (Nanterre) ruling on April 15, 2022 ordering the company to limit its deliveries to food and essential medical or hygienic products or pay a €1 million per day fine. Amazon said it would appeal, and on the following day shut its six French warehouses until at least April 21, 2022 for evaluation of the situation.
- Leveraging on Feedback
Amazon takes advantage of feedback to open up new opportunities to continue to win customers. Amazon allows users to submit reviews to the web page of each product. Reviewers must rate the product on a rating scale from one to five stars. Amazon provides a badging option for reviewers which indicate the real name of the reviewer (based on confirmation of a credit card account) or which indicate that the reviewer is one of the top reviewers by popularity.
Customers may comment or vote on the reviews, indicating whether they found a review helpful to them. If a review is given enough “helpful” hits, it appears on the front page of the product. In 2010, Amazon was reported as being the largest single source of Internet consumer reviews.
When publishers asked Bezos why Amazon would publish negative reviews, he defended the practice by claiming that Amazon.com was “taking a different approach … we want to make every book available—the good, the bad and the ugly … to let truth loose”.
There have been cases of positive reviews being written and posted by public relations companies on behalf of their clients and instances of writers using pseudonyms to leave negative reviews of their rivals’ works.
- Multi-level Sales Strategy
Amazon employs a multi-level e-commerce strategy. Amazon started by focusing on business-to-consumer relationships between itself and its customers and business-to-business relationships between itself and its suppliers and then moved to facilitate customer-to-customer with the Amazon marketplace which acts as an intermediary to facilitate transactions.
The company lets anyone sell nearly anything using its platform. In addition to an affiliate program that lets anyone post Amazon links and earn a commission on click-through sales, there is now a program which lets those affiliates build entire websites based on Amazon’s platform.
Some other large e-commerce sellers use Amazon to sell their products in addition to selling them through their own websites. The sales are processed through Amazon.com and end up at individual sellers for processing and order fulfillment and Amazon leases space for these retailers. Small sellers of used and new goods go to Amazon Marketplace to offer goods at a fixed price.
Amazon also employs the use of drop shippers or meta sellers. These are members or entities that advertise goods on Amazon who order these goods direct from other competing websites but usually from other Amazon members. These meta sellers may have millions of products listed, have large transaction numbers and are grouped alongside other less prolific members giving them credibility as just someone who has been in business for a long time.
Markup is anywhere from 50 percent to 100 percent and sometimes more, these sellers maintain that items are in stock when the opposite is true. As Amazon increases their dominance in the marketplace these drop shippers have become more and more commonplace in recent years.
- Disposable Income Level Will Increase
Another great opportunity for Amazon Inc. is the fact that disposable income level will increase and the economy is expected to grow by 4 percent next year which will put more money in the hands of people and they can consider buying products and services from Amazon.
The national unemployment rate declined significantly over the past five years. These economy factors, coupled with rising disposable income, will sure result in a rise in demand for Apple’s products across people with different purchasing powers.
- Intense Competition
If there is any major threat that Amazon Inc. is facing presently, it has to be from their major competitors; indeed, intense competition is a threat to the company.
These major competitors are Alibaba Group, Apple Inc., eBay, Inc., Facebook Inc., Alphabet (Google Inc.) Inc., International Business Machines Corporation, Microsoft Corporation, Netflix Inc., The Walt Disney Company, Wal-Mart Stores, Inc. and many other internet, retail, consumer electronics and video entertainment companies. Amazon also had to face fierce competition in some foreign markets.
- Global Economic Crisis
Economy crisis is a major threat that all industries and companies face and Amazon Inc. is not immune from it. As at today, because of the effect of the corona virus pandemic (COVID -19), the economy of all the countries is on the downturn.
Jobs are less and people are working at the least minimum wages. When there is economy crisis, purchasing power usually decline a great deal which ultimately will affect the sales and income generated from retail outlets.
Government policies can adversely affect any industry including the retail and ecommerce industry and they may have a very bad impact. For instance, government can come up with a policy that will compel all US based companies not to source their raw materials from some countries and that all products sold in the US must be manufactured from scratch from the United States.
With this type of legislation, Amazon Inc. can be affected because the company relies on some products that are manufactured outside of the United States of America. As a matter of fact, such interventions can result in the reduction or total elimination of some key products from their shelves within the United States.
- Bad Publicity
Since its founding, the company has attracted criticism and controversy for its actions, including: supplying law enforcement with facial recognition surveillance tools; forming cloud computing partnerships with the CIA; leading customers away from bookshops; adversely impacting the environment,
Placing a low priority on warehouse conditions for workers; actively opposing unionization efforts; remotely deleting content purchased by Amazon Kindle users; taking public subsidies; seeking to patent its 1-Click technology; engaging in anti-competitive actions and price discrimination; and reclassifying LGBT books as adult content.
Criticism has also concerned various decisions over whether to censor or publish content such as the WikiLeaks website, works containing libel and material facilitating dogfight, cockfight, or pedophile activities. In December 2011, Amazon faced a backlash from small businesses for running a one-day deal to promote its new Price Check app.
No company is perfect and Amazon Inc. does not claim to be perfect hence they worked hard to be able to position their business to maximize their strength, leverage on the opportunities that are available to them, mitigate the risks they are exposed to and they are equipped to confront their threats.