SWOT Analysis of Amazon 2018
Amazon is the leading e-commerce brand of the world and a leading cloud player too which was incorporated in Washington first in the year 1994 and then in Delaware in 1996. Its website was launched first in 1995. The brand has seen a lot of growth since its inception. Introduction of prime has helped the brand find faster growth by growing the number of prime members. E-commerce industry has grown intensely competitive and Amazon invests a large sum in research and development for providing its customers with a superior experience. 2017 was a great year in terms of financial performance and membership growth for Amazon. The brand sold tens of millions of Echo devices, and Echo Dot and Fire TV Stick with Alexa. The popularity of Amazon as a shopping destination for music and fashion lovers has also grown. This is a swot analysis of Amazon highlighting its strengths, weaknesses, opportunities and threats.
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– E-Commerce leader –
Amazon is the leading commerce brand globally and also a major cloud player. Rising cloud business and the success of prime are driving the brand’s fast growth. Its prime memberships globally have exceeded the 100 million mark. In 2017, it shipped more than 5 Billion items globally through the prime service. It is just the number of Amazon customers that has kept increasing, but its product range and the variety of products available on its e-commerce platform too.
– Significant cloud player –
Amazon is also a leading player in the cloud industry. Amazon Web Services is a leading provider of cloud based services. the brand has brought a wide range of cloud based services aimed at maximising the efficiency of its clients.
– Customer base & loyalty –
Amazon’s one major strength is its large base of loyal customers. Too drive customer loyalty apart from focusing on convenience and customer experience the brand has used prime memberships which is driving the addition of new as well as retention of old customers. Other factors that have kept driving customer loyalty at Amazon include a superior customer experience (this is an area that Amazon takes seriously and continues to drive the bar higher), customer service, quality of merchandise as well focus on innovation (high investment in R&D).
– Global presence –
Amazon is a global e-commerce platform that has sellers and buyers from around the globe. Apart from sellers from all the states of US, sellers from 130 countries are listed on its platform selling their products to a global audience.
– Large range of products :-
The range of products Amazon sells is very large. Hundreds of millions of unique products are available on its e-commerce platform. Amazon is a favourite destination of shoppers from around the globe in several categories including fashion, music and electronics. The range of products in these categories available on its website has also continued to expand. The number of third party sellers on its website has also continued to grow faster.
– Strong financials :-
The financial position of the brand is also a key strength. It achieved fast sales growth in the recent years. while its operating margins are weak, the brand still achieves high level sales leading to high profits which more than makes up for the thin operating margins. Compared to 2016, Amazon sales found a growth of more than 40 Billion dollars in 2017. Net sales of the brand touched 177.9 Billion dollars rising from 136 Billion last year. During the same period, its net income grew from 2.4 Billion dollars to 3 Billion dollars.
– Focus on innovation :-
Amazon’s strong focus on innovation over the years has resulted in a better experience for the consumers. the brand invests in several areas so as to continuously improve the customer experience. AI is a key area in this regard and apart from that investment in other modern technologies has also helped Amazon retain its competitive advantage. Amazon is trying to bring its e-commerce experience to the next level. In the cloud business too, it is making huge investments in innovation. The total sum that Amazon invested in research and development in 2017 equalled 22.6 Billions which was around 6.5 billions higher than its R&D costs in 2016. Amazon has continued to raise its investment in R&D every year. It is the technology brand with the highest R&D expenditure.
Weak operating margins :-
Amazon’s Operating margins have remained weak traditionally. The last two quarters saw a small rise but before that its operating margins stayed below 3% since the middle of 2016. In last quarter of 2017, its operating margins grew to 3.5% and then in the first quarter of 2018 to 3.8%. Compare it with the 45% operating margins of Facebook and there is a wide difference.
Product failures :-
All the products made by Amazon have not been a huge success like Kindle or Alexa. Some of its products have also failed in the past. Technological development is happening at a fast rate and amid the huge competition sometimes all your products are not successful as you expect.
Amazon is both a cloud player and an e-commerce brand. It can further diversify its brand to find faster growth. Diversifying into new and related technological areas can help it achieve after growth.
Forward integration :-
Amazon can also achieve faster growth through forward integration. developing its own logistics and distribution network as well as opening its physical stores like its fulfilment centers can help the brand achieve faster growth. This will also bring it closer to its customers.
Acquiring new businesses :-
Acquiring new businesses too offers new opportunities of faster growth. Amazon acquired Whole Foods market recently and one other company named Ring that operates in Home Security. Amazon can expand into newer areas that can help it grow its market size and sales faster.
Releasing new products :-
Increasing the range of products made by Amazon can also help it improve its profit margins and revenue. Alexa has been a success but still there is intense competition from the likes of Google. However, releasing new products also requires an accurate understanding of consumers’ preferences. Otherwise, product failures too may result in losses.
Heavy competition :-
Amazon is facing heavier competition in both retail as well as cloud business. the competition is growing intense day by day and there are several e-commerce brands as well as cloud businesses competing with Amazon. Bay, Flipkart, Alibaba as well as IBM, Oracle and Microsoft are also among its major competitors. Apart from them there is strong competition from the physical retail brands. The threat from the physical retail brands has intensified with the entry of Costco and Walmart into E-retail.
Regulatory threats :-
Growing legal and regulatory pressures are also erecting barriers and causing troubles for the big technology brands including Amazon. Especially, it is the European Union where the environment has kept changing fast and where top technology brands have faced the biggest challenges including large fines. In 2017, Amazon was hit by a fine of 250 million Euros in back taxes.
Stronger dollar :-
The strengthening of dollar is affecting Amazon’s profits internationally. Fluctuation in the foreign currency exchange rates have had potential negative impact on profits of the large technology brands like Amazon.
Dependence on American markets :-
America is still the core market of Amazon and accounts for the largest proportion of its sales. Its net sales in North America were close to double that of its net sales globally. Its 2017 Net sales in North America were 106 Billion dollars while global sales amounted to 54.3 Billion dollars. To reduce its dependence on the American markets, Amazon must focus on deeper penetration internationally as well as marketing.
Amazon is a leading e-commerce and cloud brand that is operational globally. However, the main market which accounts for largest proportion of its earnings. Around 2/3rd of Amazon’s earnings in 2017 came from the North American markets. The e-commerce market is intensely competitive and Amazon’s operating margins are low. Increased sales of Alexa enabled devices and higher prime memberships have driven the growth of Amazon’s revenue in the recent years. Apart from the high competition, there are other challenges before Amazon too like a stronger dollar as well as currency fluctuations. To find faster growth Amazon can try acquiring new businesses as well as diversification and release of new products.