Case Study

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Since its founding in 1995, the Amazon Company has served consumers all over the world through its online and retail services (Liyakasa, 2012). The founders' goal was to create a virtual shopping destination for online shoppers and book lovers. So far, has brought the world's biggest bookstore closer to customers all over the world. During 1995, Amazon was using website systems to improve its security and had a database that could run on the digital alpha servers, the Amazon web services hence so far become an international platform for retailers when selling their products online (Liyakasa, 2012).

In 2004, the first Amazon web service that was launched was simpler to use since it uses the simple queuing services. Later on, the Amazon EC2 was developed under the leading developer Chris Brown in Cape Town South Africa (Julie, 2012). By June 2007, about 180000 developers have subscribed for Amazon web services. In 2010 November, all the retail web services at moved to retail shopping services. The graph below shows how the company has been financially performing in the last four months of 2016 and the one-month of 2017.

Fig 1: Financial chart showing amazon performance during the year 2016 and 2017

The revenue growth of the company has decelerated each year since 2010, sitting at 7.8% margin in 2017. Several factors might have contributed to this poor performance trend much it is typically difficult to sustain a rapid growth. Growth deceleration has been due to the intensifying pricing competition in retail industry. The electronic commerce contributes less that 7% of the total revenue in the market.

During April 2010, the Amazon web services faced an outage in some parts of the United States. During October 2010, Amazon web services again suffered another outage, which caused websites to remain unavailable for the United States customers especially those from the northeastern region (Haselton, 2012).

Through a number of shortcomings and outrages, Amazon has gone through a series of transformations that requires the establishment of new strategies and making several reforms to reach the apex, which it has so far acquired recently as the leading company in making online retail sales.

Describe any sources of risk or uncertainty in its operations. Do the financial reports indicate risky or uncertain activities or changes to the economic environment that ultimately appear to have affected the company’s financial outcomes? Be specific.

Amazon is facing several risks associated with its stock investments. Some of the risks include profit potential uncertainty, speculative evaluation and share price volatility, increasing competition and revenue growth uncertainty. The financial statements show that the Company has delivered a higher revenue growth since 1997. Hence, investors have become more optimistic about its future performance. Because of such growth, investors have also started to overlook the willingness of the commonly to generate a sustained net profit margin. In case these expectations are not fulfilled, the Amazon stock is at risk of depreciating since the market already assumes that the company’s future performance is likely to be stronger. Thus, speculation becomes risky since it makes Amazon stock to be high price volatile thus exposing the company investor’s to the challenge of future market fluctuations.

According to the financial statements, the company is operating at a narrow profit margin and has not maintained its net profits for the last five years. In fact, the year 2012 and 2014, the financial statement shows that company incurred net losses. The highest net profit margin was recorded in 2009 and it was off 3.7% magnitude.

Are there any government regulations that have affected this company’s operations domestically or abroad?

A number of regulations, which include the housing and sanitation regulations, the machine safety regulations, employment wages and benefit regulations, antidiscrimination policies, the whistle Brower protections act of the federal government and the environmental protection and control act of the United States, has domestically regulated the operations of the company. In the Amazon code, the company follows the environmental protection and control act by establishing the code for effective management and disposal of hazardous substances. Under this code, the suppliers must effectively manage the storage, handling, and movement of chemicals or any other harmful substance that threatens the environment.

Describe the inputs that are used in this company’s production function and identify any challenges to securing these inputs.

So far, Amazon has established one of the most powerful data center infrastructures that support storage services and virtual operating systems. Amazon rents the cloud-computing platform and storage service to developers who need to store and host their applications on the Amazon sites. Amazon uses the cloud computing services offering the following services; Simple DB, simple queue services, cloud front services, The simple storage service S3, elastic map reduce and the elastic compute cloud (EC2) (Qi-Zhang, Cheng, and Boutaba, 2010). The process of securing such inputs required the expansion and growth of investments in research and development, which necessitated high operating expenses.

Determine if the company has introduced new products in existing markets or created new markets over time. What is the impact on its finances?

In addition to providing the most effective information technology systems that provide search for customer activities when looking for the right products, Amazon provides a wider range of products. Since its inception, new categories of products such as the clothing’s have been added to the websites and currently, the company offers its products by itself (Johnson, Scholes & Whittington, 2008).

During the first three months of 2016, Amazon web service experienced a stock increase of about 42% resulting from the increased earning of which the service made a contribution of about 56% to the profits of the company (Roberts, 2016). This represented a 50% increase in the revenues compared to the past year's income, and it was predicted that the Amazon web service would accumulate about 13 billion US dollars in 2017 as revenue (Miller, 2016).

Determine if the price of its products increased or declined over time and analyze the reasons for price fluctuations. Study the demand elasticity for its products and discuss the availability of close substitutes for its products. How does that affect pricing decisions?

The prices of the Amazon's products have declined over the last five years. Amazon has the largest access to a network of distributors and suppliers. External contractors handle the distribution and shipping of products and this implies that the Amazon's overhead costs are extremely lowered hence it gives a company an advantage of the reduction in overhead costs over other traditional retailers. The company is hence able to sell its products at relatively lower and more affordable price. The fluctuations in prices have been due to competitive pricing to ensure that the gross margins have remained within the same regain of modest values. Additionally, the price volatility incurred of recent is because of the speculative valuation of Amazon's shares. Share prices are related to the wider equity market and may fluctuate at a higher magnitude that the market.

Analyze the company’s profitability. Identify the economy or industry influences on its costs, operations, and profitability.

In April 2015, the Amazon web services were reported to be the leading profitable venture for Amazon Company with approximately 1.57 billion US dollars in the first their months of 2015 (Roberts, 2016). According to the founder of Bezos, the Amazon web services are described as the fast growing business. In addition, financial analysts describe the Amazon web services being a surprisingly more profitable business than just a forecast. According to the October 2015 Q3 report, the Amazon web service operated an income of 512 million US dollars and this constituted the 25% operating margin (Roberts, 2016).

In February 2017, the Amazon web service experience another outage especially in the s3 in the data centers in northern Virginia, the majority of the company websites hosted at the services. This implies that most of the services that were operating on the company S3 services were stuck.

The general merchandise industry influences the operations, costs, and profitability of the It is a highly competitive industry with a number of competing companies such as Target Corporation, Costco Wholesale Corporation, and Wal-Mart Stores, Inc., in addition to retail stores such as Bed Bath & Beyond, Inc., taples, Inc. Home Depot, Inc. and Best Buy Co., Inc. This economic structure of well-regarded electronic commerce sites currently threatens the supremacy of Amazon in the retail industry.

Describe the competitive environment in which the firm operates the distribution of market power and the strategic behavior of the firm and its competitors. Apply your knowledge of the theory of this company’s market structure. How does the company make pricing and production decisions? Do the theoretical models support your observation? So far, Amazon has been facing an external threat from the new companies that are entering the e-commerce business. Several firms have tried to enter the e-commerce industry, particularly in the technology-driven industry. Amazon as the leading company has the strategy focused on the innovations in customers services (Andrew, 2009). The current strategy is dedicated to improving the convenience of the shopping experience online (Nicolet, 2012). The company heavily invests in the best technology to keep on the track of success in the electronic commerce industry. Amazon described the four types of competitors in 2004.

The company competitors are grouped into indirect competitors, online e-commerce companies, the brick and motor retailers. Because of the technology shift in the interests of Amazon, the company has so far become the largest online shop for most of the retailers in the in the technology-driven industry (Nicoleta, 2012). It has become easier for many companies to enter an electronic commerce business of the reduced cost that has made so many companies to establish their own retail online shops. In addition, Amazon competitors such as the e-bay have also acquired the biggest online share and tried to increase their market share in the online business (Andrew, 2009).

Some companies such as the Wal-Mart are nowadays using the internet as the most effective channel for distributing their products. Amazon core business activity currently stands in the shadow of direct competitors that has tried to follow the company business model dealing in the same product line (Johnson, Scholes & Whittington, 2008).

After Amazon, the second largest retail company in the e-commerce industry is the Otto Group. The expansion strategies of the Otto Group have been one of the threatening competitors to the and these two companies compete against themselves in the United States.

Currently, e-bay is now the leading competitor of the Amazon much as its business model differs from that of Amazon and their products currently overlap in addition to having different customer bases. So far the advantage which e-bay has over Amazon is that its business models make it behave like a broker for sellers and buyers hence it does not stock goods. The business model of Amazon, however, has a plus in providing customer support, lower prices, usability, and the most efficient payment methods. E-bay however, has a range of products and provides the most secure distribution channel for small businesses and individuals.

In addition, Amazon faces a small competition from direct competitors such as Google and Apple. These companies operate alongside Amazon as an important part of providing web and media services. In addition, they can shape the Amazon web service by offering the most competitive and innovative ways of building customer experience (Johnson, Scholes & Whittington, 2008).

Describe any non-price competitive strategies that the company might be engaged in. Provide specific examples.

Amazon has made technical innovations for purposes of satisfying the needs of its customers (Jenkinson, 2005). To support this strategy, the company decided to develop its own software technology and its main competitive advantage in the e-commerce industry has made it implement the most efficient customer relationship management through tracking customer-purchasing behaviors that enable them to recommend the similar products that a customer would like to purchase.

Evaluate if the company made any mistakes in its decisions over time, and recommend any changes or improvements for future operations. Refer to the financial reports when making specific observations or recommendations.

Amazon made a right decision to participate in the cloud computing market. It has generated about 7 to 8% of its total revenue recently. Its participation in cloud computing market was a strategic diversification and a potential category for future growth. To maximize its gains in the cloud infrastructure as service, the company can generate a competitive differentiation through aggressive pricing since there are many large firms that have established themselves in the same business. The company must raise the total revenue to 20% increment if it is to outcompete some of its largest competitors.


Andreea Nicoleta, (2012). E-Commerce across the United States of America:

Johnson G, Scholes, K., & Whittington, R. (2008). Exploring Corporate Strategy. Prentice Hall - Financial Times, Pearson Education Limited, ISBN: 978-0-273-71192-6, Italy,

Jenkinson, A. (2005); "Amazon: Bounding Customers with Integrated Service" Centre for Integrated Marketing, University of Luton.

Liyakasa, K. (2012). More Consumers Turn to Amazon for Product Research. Customer Relationship.Inc

Todd Haselton, (2012). Amazon Reports $17.4B in Revenue, Sales up 35% but Misses Street Estimates, BGR. Retrieved from

Qi Zhang, Lu Cheng, Raouf Boutaba, (2010). Cloud computing: state-of-the-art and research challenges, Journal of Internet Services and Applications, Vol. 1, No. 1. pp. 7-18.

Rich Miller, (2016). "Estimate: Amazon Cloud Backed by 450,000 Servers". Data Center Knowledge.

Daniel Roberts, (2016); Here's why Amazon stock is up 42% in just 3 months. Yahoo Finance.

Dolbeck, Andrew, (2009). ProQuest Database - Valuation of the e-Commerce and Internet Services Industry, Weekly Corporate Growth Report 1531, March 9, 2009), available from docview/211688302? Accountid=15533

November 23, 2022


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