Amazon SWOT Analysis

SWOT is an acronym for strengths, weaknesses, opportunities and threats related to organizations. Amazon, as the e-commerce and cloud computing company worldwide needs to build upon its strengths at the same time reducing negative impact of its weaknesses on the bottom line. Moreover, it is important for the company to take advantage of opportunities and adopt a proactive approach in dealing with threats in the marketplace. The following table illustrates Amazon SWOT analysis:

Strengths

1.      Market leadership in the global scale

2.      Strong ecosystem of products and services

3.      Cost leadership due to efficient cost structure

4.      Customer-centricity

Weaknesses

1.      Business model that can be imitated

2.      Seasonality of the business

3.      Weak competitive position of Amazon’s Fire Phone

4.      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

 

Threats

1.      Patent infringement and other lawsuits against the company

2.      Weakening of industry entry barriers

3.      Threats to online security

4.      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 and cloud computing. The e-commerce giant earned an operating income of USD4.2 billion, USD4.1 billion, and USD12.4 billion for 2016, 2017, and 2018, respectivly. The company’s sales increased 31% in 2017 and 2018, compared to the comparable prior years.[1] As it is illustrated in figure below, Amazon market share in e-commerce segment in the US has been consistently increasing and it is expected to reach 50% by 2021.

Amazon SWOT Analysis

Amazon e-commerce market share in the USA[2]

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.[3] Strong presence in emerging economies is an advantage that can make an immense contribution to long-term growth prospects of the company.

2. Amazon possesses a strong and growing ecosystem of products and services. Specifically, the ecosystem of the tech giant comprises retail, payments, entertainment, hardware, cloud computing and other segments. Amazon products and services within are highly compatible with each other and as such, the usage of one product or service within the ecosystem encourages the usage of other related products and services.

For example, Amazon smart security camera that is compatible with the Echo smart speakers allows users to stream live video from the camera on the Echo Show or through the Alexa smartphone app. Moreover, Amazon smart glass is based on Alexa voice assistant and can be used only if the device is linked to a user’s smartphone.[4] Strong and growing ecosystem is a considerable strength for online retail behemoth to achieve long-term growth.

3. The e-commerce giant 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.”[5] This advantage is gained by the company 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”[6].

4. 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.”[7] 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. The e-commerce and cloud computing company generates its revenues from online sales of own products and third-party seller services, Amazon Web Services, subscription services and advertising revenues. These businesses can be imitated by existing or potential competitors to threat the market share of the tech giant. In other words, it can be argued that the largest internet retailer in the world by revenue mainly benefits from the economies of scale and it does not possess business processes or know-how that are not available for competitors.

2. 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 32%, 34%, and 31% of our annual revenue during the fourth quarter of 2016, 2017 and 2018, respectively.[8] 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 various levels.

Amazon.com Inc. Report 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] Annual Report (2018) Amazon.com Inc.

[2] Statista (2020) Available at: https://www.statista.com/statistics/788109/amazon-retail-market-share-usa/

[3]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

[4] Newman, P. (2017) “Amazon is looking to further expand Alexa ecosystem with two new products” Business Insider, Available at: http://www.businessinsider.com/amazon-alexa-ecosystem-new-products-2017-9

[5] 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

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

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

[8] Annual Report (2018) Amazon.com Inc.