Amazon SWOT Analysis

SWOT is an acronym for strengths, weaknesses, opportunities and threats related to organizations. The following table illustrates Amazon SWOT analysis:

Strengths

1.      Market leadership in the global scale

2.      Experience in extensive utilization of the first mover advantage

3.      Efficient and charismatic leadership by founder Jeff Bezos

4.      Cost leadership due to efficient cost structure

5.      Efficient customer relationship management

Weaknesses

1.      Seasonality of the business

2.      Low profit margins

3.      Lack of focus on specific product or service categories

4.      Weak competitive position of Amazon’s Fire Phone

5.      Damage to the brand image due to tax avoidance scandal in the UK

Opportunities

1.      Diversification of e-commerce business segment

2.      Increasing focus on own brand products and services

3.      Increasing physical presence of the brand

4.      Developing more local sites in international markets

5.      Engagement in strategic collaborations with companies in e-commerce and affiliated industries

Threats

1.      Loss of profitability due to low profit margin

2.      Patent infringement and other lawsuits against the company

3.      Weakening of industry entry barriers

4.      Threats to online security

5.      Loss of market share after Jeff Bezos

Amazon SWOT analysis

 

Strengths in Amazon SWOT Analysis

1. Amazon is an undisputed market leader in online retail segment. In the US, the e-commerce giant earned USD 37 billion in Q4, 2017 alone, a 42% increase compared to a previous year.[1] Sales made by Amazon in 2017 accounted to 44% of all e-commerce sales in US, or about 4% of total sales made in the country.[2] Total sales increased 27% and 31% in 2016 and 2017, compared to the comparable prior year periods.[3]

Amazon has an increasingly solid presence in many emerging economies as well. The company has entered China more than a decade ago and the markets of Brazil and India were entered in 2012 and 2013 respectively.[4] Strong presence in emerging economies is an advantage that can make an immense contribution to long-term growth prospects of the company.

As it is illustrated in figure below, the numbers of Amazon Prime subscribers have been consistently increasing in the US to reach 95 million in Q2 2018. Moreover, there are more than 100 million paying Amazon Prime Members worldwide.[5]

Amazon SWOT Analysis

Number of Amazon Prime members in the US[6]

2. Amazon has benefited from the first mover advantage in several segments. For example, Amazon Kindle has been dubbed revolutionary by many reviewers[7], and Amazon Web Services (AWS) offer more than 516 features and services and the majority of these are of an innovative nature. Warehouse automation can be mentioned as another sphere where the e-commerce giant has a first mover advantage with positive implications on the bottom line.

Moreover, with an air cargo network, thousands of 53 foot trailers and leasing 20 Boeing 767s, the largest internet retailer in the world is also expected to build a first mover advantage in logistics as well.[8] Amazon’s experience and competency in terms of developing and marketing innovative products and services is a considerable strength that can be further capitalized with positive implications on the long-term growth prospects of the business.

3. Jeff Bezos, Amazon founder and CEO has proved to be a driving force behind the rapid and sustainable growth of the business via application of his visionary and charismatic leadership style. Bezos has also ranked #1 in 2014 list of The Best Performing CEOs in the World according to Harvard Business Review[9] and he is admired internationally partially due to his creative approach towards solving a wide range of business issues.

The list of Bezos leadership strengths include, but not limited to obsession with customers, not competitors, taking risks for market leadership, making employees thinking like owners and building cost-conscious corporate culture.[10] It is important to note that Jeff Bezos ideas for the business are far from being exhausted; therefore, he can be assessed as a valuable asset to the business.

4. The company efficiently utilizes its lean cost structure as one of its main sources of competitive advantage. “Amazon can operate on razor-thin margins and still make money on the transaction. Physical retailers can’t do that and if they drop prices online they risk cannibalizing their own sales and driving margin down while having all the same overhead costs.”[11] This advantage is gained by Amazon thanks to an extensive exploitation of the economies of scale. Accordingly, Amazon has been justly described as “a brutal competitor for brick and mortar merchants due to their large and growing cost advantages and a maniacal commitment to having the lowest prices anywhere”[12].

5. Efficient customer relationship management practices also belong to the list of strengths possessed by the online retailer. “Amazon has a reputation for providing customers with everything that they need, all in one place. What has since become known as ‘the Amazon Effect’, the company have successfully managed relations with millions of customers without ever meeting them face-to-face.”[13] Amazon’s customer relationship management practices effectively integrate customer data collection and the usage of the data for service personalization. Moreover, Amazon’s returns process is dealt with entirely online via a customer’s account.

 

Weaknesses in Amazon SWOT Analysis

1. Amazon revenues and scope of operations are highly seasonal with direct implications on a wide range of business practices and processes, especially HR practices. Sales and revenues tend to peak in Q4 annually and the company experiences an urgent need for extra workforce during the same period of time. The company generated 33%, 32%, and 34% of its annual revenue during the fourth quarter of 2015, 2016, and 2017.[14] Dramatic fluctuations of the need for the workforce over the course of the year is a significant weakness as it increases the costs of employee training and development along with other disadvantages in several levels.

2. Amazon has an incredibly thin profit margin in order to sustain its cost leadership strategy, as well as, its promise of free delivery. For example, for Q1, 2018 Amazon’s operating profit margin was only 3,8%, at the same time when another e-commerce company, Facebook had a profit margin of 45%.[15]

Low profit margin makes the business vulnerable to external shocks and crises and other changes in the marketplace. In other words, due to low profit margin with negative implications on the level of liquidity and cash reserves, Amazon may find it difficult to go through the phases of low demand for its products and services caused by changes in the external environment…

Amazon Inc. Report 2018 contains a full version of Amazon SWOT Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as PESTEL, Porter’s Five Forces, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Amazon. Moreover, the report contains analyses of Amazon leadership, organizational structure, business strategy and organizational culture. The report also comprises discussions of Amazon marketing strategy, ecosystem and addresses issues of corporate social responsibility.

[1] Coren, M.J. & Hao, K. (2018) “Amazon is struggling to duplicate its US success overseas” Quartz, Available at: https://qz.com/1196193/amazon-amzn-is-struggling-to-duplicate-its-us-success-overseas/

[2] Tomas, L. (2018) “Amazon grabbed 4 percent of all US retail sales in 2017, new study says” CNBC, Available at: https://www.cnbc.com/2018/01/03/amazon-grabbed-4-percent-of-all-us-retail-sales-in-2017-new-study.html

[3] Annual Report (2017) Amazon.com Inc.

[4]Singh, S. (2013) “Can Amazon, world’s largest online retailer, crack an emerging market?” The Economic Times, Available at: http://articles.economictimes.indiatimes.com/2013-09-26/news/42426794_1_amazon-india-south-india-retailer

[5] Spangler, T. (2018) “Amazon Has More Than 100 Million Prime Subscribers, Jeff Bezos Discloses” Variety, Available at: https://variety.com/2018/digital/news/amazon-prime-100-million-subscribers-jeff-bezos-1202757832/

[6] Statista (2018) Available at: https://www.statista.com/statistics/546894/number-of-amazon-prime-paying-members/

[7]Elgan, M. (2010) “Opinion: Why Amazon’s Kindle is Revolutionary” MacWorld, Available at: http://www.macworld.com/article/1061186/kindle.html

[8] Banker, S. (2016) “Is Amazon Building a First Mover Advantage in Logistics?” Logistics Viewpoints, Available at: https://logisticsviewpoints.com/2016/06/06/does-amazon-have-a-first-mover-advantage-in-logistics/

[9]Ignatis, A. (2014) The Best Performing CEOs in the World, Harvard Business Review, Available at: https://hbr.org/2014/11/the-best-performing-ceos-in-the-world

[10] Mullaney, T. (2017) “5 key business lessons from Amazon’s Jeff Bezos” CNBC, Available at: http://www.cnbc.com/2016/05/13/5-key-business-lessons-from-amazons-jeff-bezos.html

[11] Kline, D.B. (2015) “Amazon’s Sustainable Competitive Advantage” The Motley Fool, Available at: https://www.fool.com/investing/general/2015/05/18/amazons-sustainable-competitive-advantage.aspx

[12] Jordan, J. (2013) “How to compete with Amazon” Fortune, Available at: http://fortune.com/2013/10/24/how-to-compete-with-amazon/

[13] Amazon CRM Case Study (2017) Expert CRM Software, Available at: http://crmsystems.expertmarket.co.uk/Amazon-CRM-Case-Study

[14] Annual Report (2017) Amazon.com Inc.

[15] Ovide, S. (2018) “Amazon’s dinky 3.8% operating profit margin pales in front of Facebook’s 45 %, but investors love Bezos” The Economic Times, Available at: https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/amazons-dinky-3-8-operating-profit-margin-pales-in-front-of-facebooks-45-but-investors-love-bezos/articleshow/63935230.cms