Amazon’s Business Model
Dr. Linda Hargis
July 19, 2011
1. Discuss the pros and cons of Amazon’s growth and diversification of business and specialization, and make recommendations about what Amazon could have done differently.
Amazon’s empire was found in 1994 by Jeff Bezos. Its main core as an e-retailer was book sales, which later lead them to diversify into selling more goods online including DVDs, CDs, mp3 downloads, computer software, video games, electronics, food, apparels, toys, and furniture. The diversification strategy that Amazon decided to use actually benefited them in a good way. Even with the success in diversification, they ...view middle of the document...
For example, the sudden growth in social buying sites, like Groupon, has forced the company to scramble. As a result, Amazon has invested in a rival, Livingsocial.com. It’s inevitable that there will be other threats to confront, especially as Amazon moves into digital goods.
Managing Growth- So far, Amazon has done a good job dealing with the complications of adding new businesses and entering foreign markets, but this can be a tough juggling act. After all, Amazon has been ramping up its acquisitions and investments. No doubt, such things can easily turn into big problems when there is too much to manage at one time.
Sales Tax- A key advantage for Amazon is that it doesn’t collect sales tax. That allows for lower prices, which is important since the company’s margins are already at rock-bottom levels. However, with the growing budget deficits in many states, there is a good chance there will be more focus on deriving revenue from e-commerce transactions. One way to do this is to impose charges on online affiliates, which are partner sites for Amazon. Already, there is pending legislation in California, Hawaii, New Mexico, Minnesota and Vermont. Interestingly enough, last year Texas presented a $269 million tax bill to Amazon.com.
Diversification within Amazon have lead the way to other ventures, and given the competition more stakes in what was destined to be their key to success. Despite being the largest online retailer with annual sales in excess of $10 billion, Amazon has not shown the consistent profit growth that investors have expected (Rainer and Turban, 2008). Amazon should have stuck to their original plan to stay with selling books, and electric goods, so that their business would not be stretched in so many different directions. Even though diversification and specialization is important within any business, sometimes it is not always a smart move to over diversify in a company.
2. Determine the impact if Amazon.com had split up and become a family of brands (for example, “Amazon” for books, “Supertoys” for toys, etc.), each with a different public face but all run by the same parent company.
If Amazon had decided to split up and become a family of brands, I don’t think the company would be as successful as it is. Even though Amazon is faced with challenges, imagine the challenges that they would be faced with running under numerous names. First thing advertising and marketing would be more costly to the company so that they can build a name for each company. Employees would be overworked with so many different areas to have to cover. Amazon will then be faced with higher more employees. The customers would lose out on convenience of going to one website for all their...