Amazon’s Strategic Sustainability

The research article is limited to Amazon Company. Amazon’s significant market share, competitive pricing, diverse product offering, and industry leadership has contributed to the success of the company as a global leader in e-retailing. The firm’s corporate strategy and strategic sustainability is reviewed using secondary sources of literature. In particular, the peer-reviewed publications are sourced from the Tennessee Wesleyan Library; the publication period is limited to 2014-2018. The literature appraisal indicates that aggressive market expansion and innovation define Amazon’s corporate strategy. The company is categorized as an early adopter of innovation because it was among the first companies to invest in e-retailing after its establishment in 1995. The early adoption of innovation has enabled the company to enjoy a greater competitive advantage, industry linkages, and indirect network effects. Amazon’s product and service portfolio include the Kindle, Amazon Web Service, Alexa, Amazon Studio, Amazon Music, Amazon Fresh and delivery, marketplace, and app (co-developed with Apple). However, market expansion has contributed to higher anti-trust, obfuscation and anti-competition practices which are detrimental to industry growth and competition. Despite the shortcomings, Amazon’s innovations have enhanced its strategic sustainability – the company has a considerable market lead over its competitors. However, it is imperative for the company to regulate its diversification strategy.

Introduction

The research paper reviews the corporate strategy and strategic sustainability of Amazon. A case study of the multinational company is warranted given that the firm has successfully developed one of the most innovative, disruptive and sustainable online retail trading platforms in the world (Dal Porto, 2017). Besides, there is sufficient data regarding the company in the public domain and the Tennessee Wesleyan Library. The success of Amazon is significantly linked to technological advancements. For example, the company was established in 1995 by Jeff Bezos - five years after the invention of the World Wide Web (Sucharita, 2016). The entire Amazon corporate strategy and competitiveness is founded on the ingenious use of the internet; e-retailing is not feasible in the absence of the internet. However, the adoption of internet technology and e-retailing does not guarantee positive corporate performance. The observation is premised on the performance of Amazon versus eBay and PizzaHut; the three corporations were established within the same period (1994-1995) (Sucharita, 2016). Moreover, all were initial investors in electronic commerce in the mid-1990s; nonetheless, Amazon has dominated the global e-retail platform.

The success of Amazon over eBay is partly attributed to the fact that the later had confined its operations to the C2C – consumer-to-consumer segment. In contrast, Amazon dominated B2B, B2C, and C2C (Moagăr-Poladian, Dumitrescu, & Tănase, 2017). In the 1990s, Amazon’s business model was limited to online book sales (Aversa, Haefliger, & Reza, 2017). The company later diversified its operations to other products such as the Kindle, Alexa, Amazon Music, Amazon Fresh, and the mobile app.

The Amazon marketplace was established in 2004; the platform primarily targeted third-party vendors who needed a customized online platform to improve their online sales revenues (Bergvall-Kåreborn & Howcroft, 2014). The Amazon Mechanical Turk (MTurk) platform was established in 2005 – the platform aimed to facilitate the outsourcing of IT tasks and to help technology companies to derive better value compared to in-house recruitment (Bergvall-Kåreborn & Howcroft, 2014). Besides, the platform has contributed to the streamlining of Amazon’s human resources capabilities. For example, Amazon has employed the MTurk platform for data processing – a task which is best performed by humans. In 2010, the company established Amazon Studios, which provides content for the entertainment industry. Besides, the platform offers complementary services to Netflix and at a lower cost (Bergvall-Kåreborn & Howcroft, 2014). Price undercutting has enabled Amazon Studios and Twitch to outperform Netflix based on viewership. The diversification process has been guided by data analytics. Beyond technological investments, the company has also invested in the retail food market through the Dash ordering services and Amazon Fresh (Dal Porto, 2017). The company is also undertaking a pilot project to assess the viability of product deliveries using drones.

A majority of the products sold on the company’s platform are sourced from third-party vendors (Chesbrough, 2017) – an example of open innovation and cooperation between competitors in the retail segment. The term coopetition, in this case, refers to performance-driven collaboration among competitors in the same value chain. The main aim of collaboration is to minimize the investments risks and share the expenses of the projects. One of the unique facets of Amazon Company is the employment of artificial intelligence in the Amazon Web Service (AWS). Apart from the AWS, the company has successfully operated the Amazon marketplace and initiated a partnership with Apple.

In 2016, the company generated about $136 billion in revenues (Aversa et al., 2017) – making it the most profitable e-retailing platform in the world. Scardilli (2018) notes that in 2017, about 300,000 third-party vendors from different nations were trading on the Amazon marketplace; about half of the vendors on the platform recorded sales above $100,000 each (Scardilli, 2018). The above-listed facts illustrate the success of the company’s innovation-driven corporate strategy. Thus, Amazon is a case study of innovation and the ingenuity of corporate America. The specific elements which define Amazon’s corporate strategy are analyzed in the literature review section.

Research Questions and Hypotheses

Main Question

1. Does Amazon’s corporate strategy enhance strategic sustainability?

Sub Questions

1. What are the unique facets of Amazon’s corporate strategy?

2. What defines Amazon’s strategic sustainability?

Objectives

1. To analyze the elements which constitute Amazon’s corporate strategy

2. To review Amazon’s strategic sustainability

Hypotheses

1. Amazon’s corporate strategy has mediated the company’s global dominance in electronic retailing.

2. The sustainability of the company will be dependent on the adaptability of the corporate strategy to the changing demographics, industry competition and evolving consumer demands.

Review of Literature

Amazon’s Corporate Strategy

Rossman & Euchner (2018) note that Amazon’s business strategy is defined by 14 unique leadership principles namely obsession with the consumer, invention and simplification, ownership, belief in the company’s leadership, curiosity, recruitment of the best talent, high standards of action, trust, thinking big, frugality, diving deep, disagreement and commitment, and delivery in line with expectations. The leadership qualities listed above are externalized through diversification, coopetition, and open innovation – each facet is reviewed in the following subsections.

In addition to unique leadership attributes, Amazon App and marketplace have gained popularity and consumer trust as one-stop shops for consumer products ranging from electronics to cosmetics (Chesbrough, 2017). The company has ingeniously exploited the benefits afforded by different vendors and supply chains to create a unique customer experience through the third-party merchant web stores hosted by the AWS. In general, hosting different suppliers creates a virtuous cycle – consumers are inclined to make repeat purchases on the platform (Chesbrough, 2017). The higher sales attract new third-party vendors with diverse product portfolios, which enriches the consumers’ experience. Apart from retaining customers, the company has co-opted competing firms (such as Netflix) into its cloud servers (Chesbrough, 2017). The core aim of the approach is to reduce the maintenance costs for the cloud infrastructure through better economies of scale. Therefore, Amazon’s corporate strategy is defined by open innovation, unique leadership, and consumer orientation.

Amazon Effect

Amazon’s dominance in the B2C segment is guided by market data; Moagăr-Poladian et al. (2017) note that the segment is valued at 1.6 percent of the global GDP. Diversification and provision of multiple products in the B2C segment has resulted in the emergence of the “Amazon effect” – an industry-wide panic among competitors (Gold & Chaudhuri, 2017). The growth of the Amazon effect has been partly mediated by inorganic growth and ingenious use of consumer data (Agnihotri, 2014; Barker & Chiu, 2018). The firm’s success illustrates that inorganic growth had the potential to yield sustainable competitive advantage (Asef et al., 2017). However, the “Amazon effect” has not extended to Asia (India in specific), due to higher pressure from the government over FDI investments and concerns regarding the cheap products sold by the company (Gold & Chaudhuri, 2017). The long-term viability of the Amazon effect cannot be ascertained given that the company is not profitable – a critical requirement in the event of an economic crisis (Kuljanin et al., 2017). Therefore, the firm should remodel its pricing strategy.

Open Innovation, Coopetition, and Diversification

The open innovation policy and coopetition are the hallmarks of Amazon’s corporate strategy. However, the strategy is not unique to Amazon. Brunswicker & Chesbrough (2018) reported that up to 80 percent of the large corporations in the US have implemented open innovation strategies. The open innovation approach is in line with the emerging trends in the technology industry (Chesbrough, 2017). For example, IBM had initially developed a closed platform to mitigate the impact of external competition. However, the entry of Microsoft and Intel necessitated the company to adopt an open platform to enhance market viability (Chesbrough, 2017). Therefore, open innovation has the potential to contribute to higher strategic sustainability.

Open innovation has assumed the form of corporate alliances and communities (Brunswicker & Chesbrough, 2018). In other cases, the corporations have shared knowledge regarding internal innovation without the anticipation of any financial rewards. Therefore, the nature of modern open innovation is fluid – each corporation develops an approach which suits the local requirements. For example, the partnership between Amazon and Apple had resulted in the development of the Amazon shipping application (compatible with both Android and iOS). The language of the application is customized to match the local dialect in different nations. The platform also enables the users to trade using regional currencies. Nonetheless, Euchner (2018) notes that the sharing of market information with potential partners should be selective to avoid overexposure to competition.

In addition to the success of the Amazon-Apple open innovation approach, coopetition between Amazon and Best Buy has facilitated the integration of Amazon’s applications such as Fire TV into the television sets traded by the company (Scardilli, 2018). According to Henry (2017), Alexa features proprietary technology which is ranked as the best in the market. The primary objective of integrating the two is to enable end users to watch programs on Netflix and other service providers thus reinforcing Amazon’s revenue streams. In addition, Amazon’s Prime Video studios create free online content which is embedded into the electronics sold via the Amazon marketplace (Scardilli, 2018). Other innovations in entertainment include the Amazon Music unlimited – a music streaming platform (Henry, 2017). Based on the success of the Amazon-Apple app and collaboration with Best Buy, it is evident that shared innovation has the potential to improve corporate revenues while at the same time minimizing risk exposure.

The innovation-centric corporate strategy has also enabled the company to address the shortcomings of previous innovations. For example, the Amazon Mechanical Turk (AMT) was developed to resolve the limitations of artificial intelligence by harnessing the power availed by IT microwork (Bergvall-Kåreborn & Howcroft, 2014). The AMT facilitates the creation of a virtual marketplace for data processing. On the other hand, Amazon Fresh has enabled the company to venture into the fresh produce segment through a $13 billion buy-out of Whole Foods (Dal Porto, 2017). The AMT, Amazon Fresh, AWS, Amazon marketplace, and app indicate that the firm has diversified its operations. The diversification process has reduced the level of risk exposure while at the same time providing multiple sources of revenue.

Even though it is not possible to quantify the benefits afforded by the open innovation approach, Brunswicker & Chesbrough (2018) noted that sharing proprietary corporate information motivated other companies to reciprocate. Therefore, there are indirect, compensatory mechanisms for the knowledge flows. The compensation yields either monetary or non-monetary benefits or both. A corporate survey undertaken by Brunswicker & Chesbrough (2018) confirmed that about 30 percent of the companies with open innovation approaches enjoyed both pecuniary and non-pecuniary benefits attributed to the knowledge flows. Thus, in general, open innovation and coopetition enabled Amazon to sustain its global dominance. The researcher hypothesized that the strategies had helped Amazon to outperform other e-retailers such as eBay (Sucharita, 2016) – a company which was established relatively the same period.

Amazon Kindle

The development and launch of the Amazon Kindle represented perhaps one of the most radical aspects of the diversification approach adopted by the company (Lee, Jin, Rhee, & Yang, 2016). A year after the release of the Kindle, the platform accounted for 25 percent of the e-book sales (Haucap & Heimeshoff, 2014). The device augments the sale of online books, an aspect which was initially limited to the marketplace. The robust sales have been partly moderated by the establishment of a self-publishing platform (Kenney & Zysman, 2016). The platforms eliminate traditional intermediaries such as publishing corporations – authors can publish their manuscripts. Thus, Amazon’s digital platform enables the company to assume dual roles as the publisher and seller of the online books. The success of the Kindle illustrates the benefits afforded by product diversification and the integration of Amazon’s products into computing devices.

Investment in Technology

Amazon’s market dominance cannot be realized in the absence of robust investments in technology. Aversa et al. (2017) note that the company initially invested in technology and web infrastructure to power the numerous transactions in its online retailing platform. However, the advanced technological capabilities in cloud computing accrued over the years enabled the company to provide support services to telecommunication companies such as Vodafone and Siemens. Additionally, GoDaddy and Comcast Cable have recently shifted their operations to the platform (Scardilli, 2018). The adoption of the AWS by leading corporations is an indication that it was the leading cloud storage platform globally. Therefore, the motivation to satisfy internal technological requirements contributed to the development of new products and business models (Aversa et al., 2017). The Amazon’s cloud services illustrate the merits of technological spillover.

The benefits afforded by technological investments illustrate that in-house development of capabilities is a sustainable approach over the long term compared to outsourcing or depending on third parties services. For example, revenues from the Amazon Web Service platform were about $12 billion in 2016 (Aversa et al., 2017). In addition to AWS, Amazon has also invested in handset manufacturing to reinforce online sales and leverage its inimitable capabilities in big data. A review of the company’s investment in handset technology indicates that some of its products were not in tandem with consumer expectations. For example, the company was forced to discontinue its flagship smartphone brand (Fire Phone) due to low sales (Aversa et al., 2017). A graphical illustration of the synergistic benefits afforded by Amazon’s different business models is depicted in Figure 1 – a customized version of the initial model portfolio developed by Aversa et al. (2017). The figure illustrates that user data derived from the marketplace, AWS, app, and Alexa contributes to future technology developments. The cumulative effect is greater brand visibility, market share, product quality, and return on equity.

Figure 1 Amazon’s business models, resources, capabilities and performance. Adapted from Aversa et al. (2017)

Diffusion of Innovation Theory

The diffusion of innovation theory groups adopters of innovation into “innovator, early adopters, early majority, late majority and the laggards” as illustrated in Figure 2 (Lee et al., 2016). Based on the above classification, it is evident that Amazon is an early adopter of technology because it was among the first companies to invest in e-retailing. Nonetheless, the company did not invent the internet, e-retailing platform nor the cloud storage. The internet had enabled the company to develop disruptive technologies and products (Kindle, AWS, and marketplace) which have changed consumer experiences (Reynolds, 2018). Therefore, even though the early adoption of innovation had its risks due to the multiple unknown factors (initially there were concerns that internet technology could fail), it is evident that the risks were worthwhile.

Figure 2 Innovation adoption curve (Lee et al., 2016)

Data Analytics

As noted in the preceding sections, the firm’s corporate strategy is defined by innovation. The adoption of innovation originated from the online book sales – the initial business model adopted by the company in the 1990s. Data analytics provided the company with an empirical basis for market expansion – the firm had collated sufficient data regarding consumer preferences. The employment of data analytics was linked to customer obsession – an essential leadership quality at Amazon (Rossman & Euchner, 2018). Data analytics enabled the company to understand its consumers. The data was subsequently used in targeted marketing and the diversification to other market segments. The positive impact of big data on the operations of Amazon illustrates the impact of big data on corporate performance and management decision making.

The researcher hypothesized that the employment of big data reduces the risks and managerial errors associated with new investments because each decision is guided by reliable market intelligence, user data derived from its artificial intelligence platforms (Aversa et al., 2017). Nonetheless, the poor performance of the Fire phone attested to the fact that market information derived from data analytics is not 100 percent accurate.

Jeff Bezos Leadership

Jeff Bezos leadership approach has been critical to the sustainability of Amazon’s operations since its inception in 1994. The company initially began its operations in a garage – an indication of frugality and judicious use of limited resources. According to Rossman & Euchner (2018), Bezos has been one of the principal proponents of the 14 leadership qualities listed in the preceding sections. Moreover, the CEO has over the years strived to build a company culture which will outlast his lifetime through ingenuity and entrepreneurial foresight. Similar observations were made by Taneja & Maney (2018); the researchers claimed that Bezos is conscientiously futuristic. Presently, the CEO believes that the company has not yet scaled the future, it is still in “Day 1” (Taneja & Maney, 2018). The philosophy enables the company to innovate, accept failures and remain true to its long-term vision.

Amazon’s organizational culture is defined by three core elements namely patience, inventiveness, and customer orientation (Dutta, 2018). The three elements are embedded into all daily operations and management decisions. The above qualities define the company’s corporate history. For example, the initial business plan was limited to book sales which were not preferred by D. E. Shaw Management – Bezos former employer (Dutta, 2018). Seattle was the preferred destination for the company because it had a high concentration of technology workers and robust distribution centers (Dutta, 2018). In the first three years of operation, Jeff Bezos limited the company’s operations to online book sales (Rossman & Euchner, 2018); it was only after the company had secured sufficient market share in online book sales that it began to diversify its operations. Besides, diversification and acquisition facilitated the inorganic growth of the company.

According to a former company insider (John Rossman), Jeff Bezos has placed greater emphasis on consumer obsession compared to resilience and inventiveness (Rossman & Euchner, 2018). All employees in the company are guided by the sole aim of understanding their consumer’s needs to the extent that the consumer focus is transformed into an obsession. Rossman & Euchner (2018) notes that the above approach is justified considering that it is only through an in-depth understanding of the consumer needs that the company would enhance its operational excellence by creating products which satisfy the consumer needs (Rossman & Euchner, 2018). Moreover, the approach minimized the risk of launching products which do not address consumer needs.

Based on the above approach, it is evident that Amazon’s leadership style has reduced false starts in investment. However, Bezos focus on consumer requirements and anticipated needs has substantial financial implications for the company given that most of the investments are capital intensive. Rossman & Euchner (2018) notes that on certain occasions, the company was obliged to purchase commodities from retailers when the products were out of stock in the marketplace.

The success of Jeff Bezos leadership is evident from the market capitalization and share of global consumers in the e-retail platform. Presently, Amazon is ranked as one of the leading technology behind Alphabet and Apple based on revenues (Dutta, 2018). In 2017, the company recorded $767 billion in sales - a significant improvement compared to the modest revenues reported by the company in the 1990s. Besides, it has been ranked by Fast Company as the world’s leader in innovation (Dutta, 2018). The success metrics are a validation of the leadership approach adopted by Amazon’s CEO.

Unethical Practices, Employee Welfare and Anti-Competition

An issue of concern is the absence of ethical practice in the company’s 14 leadership policies. The low emphasis on ethics had contributed to the emergence of anti-trust and anti-competition policies (Kirkwood, 2014) and virtualization of labor via Amazon Mechanical Turk (MTurk). The company had no legal responsibility for the MTurk employees who are classified as “contractors” (Liu, Keeling, & Papamichail, 2015; Cunningham-Parmeter, 2016). The lack of job security is a risk factor for high employee turnover (Ramalho Luz, Luiz de Paula, & de Oliveira, 2018). Westerman (2016; Crăciun, 2015), recommend that technology companies should factor in employee welfare despite the demand for automation, quality, and data-driven management The proposition is informed by the fact that employees in Amazon and other technology companies are expected to behave as “robots” (Nelson, 2017). The above factors highlight the decline in moral ethics in the human resources sector. Moreover, Amazon’s HR policy is in line with the bureaucratic management theory, which encourages impersonality and strict oversight (Kwok, 2014). Such an approach is not in tandem with the 21st-century workplace dynamics.

On the other hand, Amazon’s price undercutting has resulted in declining sales in the physical bookstores (Gilbert, 2015). Such strategies have diminished consumer freedom and choice due to the monopolization of e-book sales. Van Loo (2015) argues that the regulation of Amazon is necessary to safeguard consumer and industry interests. Nonetheless, Amazon’s pricing strategy is in line with the dynamic pricing model in which market dynamics are the absolute determinants (Jovin, McMurtrey, & Griffin, 2018). Therefore, regulation of the firm’s pricing approach could pose new challenges.

Research Findings

The primary objective of the research findings sections is to review market performance, business and managerial theories, and strategic sustainability of the company.

Market Expansion

The diversification approach facilitated geographical expansion to other countries. In 2016, Sucharita (2016) reported that Amazon was planning to invest approximately $2 billion in India via the everything online store and Amazon A to Z. However, the viability of the approach is an issue of concern given that Flipkart dominated the Indian market. Moreover, Amazon’s global competitor Alibaba was planning to enter the market through a $4 billion partnership with Snap-Deal (Sucharita, 2016). However, it was postulated that Amazon’s and Alibaba’s market entry would not pose significant risks because each firm was operating in a different market segment. Amazon’s operations were primarily limited to business-to-consumer (B2C) while Alibaba’s platform was dominated by business-to-business transactions (B2B) (Moagăr-Poladian et al., 2017). Nonetheless, the success of the market entry to India will help to define the viability of the expansion strategy in Asian markets.

Considering the widespread market panic over Amazon’s planned international expansion; it is deduced that the company will encounter minimal competition in Europe and Oceania (Gold & Chaudhuri, 2017). However, industry experts have recommended that large firms (including Amazon) should employ discretion in market expansions (Aversa et al., 2017); it is necessary to undertake an objective assessment of the potential of each diversification strategy and its contribution to the corporate strategy.

A review of the individual contributions made by each platform operated by Amazon indicates that the different models are synchronized. For example, the Apple-Amazon app, Amazon Prime, Amazon Music, marketplace, AWS, and AMT provide the parent company with access to vital consumer information, which is used to enhance brand visibility and ultimately drive sales via the e-commerce platform (Aversa et al., 2017). The approach affirms why Amazon had consistently recorded positive returns on investment for its shareholders. Therefore, even though the services provided by Amazon transcended financial, IT, business, communication and entertainment industries, the corporate strategies and business models for all products were interlinked to safeguard the revenue streams and create “reinforcing advantages” (Aversa et al., 2017). In general, all products and services under the Amazon brand were complementary.

The Amazon Effect, Anti-Trust and Market Dominance

The phenomenal market performance of the company had contributed to the emergence of the “Amazon effect” – which refers to the general panic among investors regarding the financial implications of Amazon’s investment strategy. For example, Gold & Chaudhuri (2017) notes that small retailers have been plunged into a crisis while some have filed for bankruptcy in anticipation of a market takeover by Amazon. The Amazon effect has extended from North America to Europe. In 2017, the Stoxx Europe 600 Index and S&P Retail depreciated by 4 and 10 percent, respectively (Gold & Chaudhuri, 2017). However, following the review of the sustained market expansion by Amazon, the following question emerged: how long will Amazon sustain its market expansion and success? The above concern is informed by the performance of other multinationals such as Nokia and Lehman Brothers whose market expansion strategy resulted in the loss of competitiveness and ultimate downfall.

Recently, it has been reported that Amazon has not been able to adequately satisfy the needs of the consumer following aggressive market expansion. For example, Amazon India was not able to outperform its competitors during the Diwali festival (Khanna & Sampat, 2015). Therefore, Amazon was facing significant competition from Flipkart and other e-retailers. Reynolds (2018) notes that consumer lobbyists were concerned of the impact of the Amazon Empire; some have claimed that the vastness of Amazon and other tech companies impedes employee welfare and the growth of antitrust due to the development of an anticompetitive economy.

Reynolds (2018) notes that Amazon is the least profitable company in absolute terms compared to other tech multinationals such as Apple. According to the information depicted in Figure 3, the volume of shares traded in 2015 was low compared to the 1990s and early 2000s; there is a substantial mismatch between diversification and share volumes. The phenomenon can be attributed to the low pricing strategy which has resulted in low profits. For example, books sold via its marketplace were priced at $9.99 on average (Kirkwood, 2014), which is $2 below the market price.

Despite its low return on investment, the company has recorded positive growth in the share price as indicated in Figure 3. According to the graph, Amazon’s share price has performed much better compared to the S&P 500 since 2003 (Dutta, 2018). The above trends represent a paradox in corporate America – investors are willing to invest in the stock over time even though the company has not recorded substantial returns on investment. On certain occasions, it has been reported that Amazon’s share prices increased after the company reported losses in its annual report.

Figure 3 Amazon’s share price performance from 1997 to 2016 (Dutta, 2018)

Anticompetitive Market Practices

Obfuscation is one of the adverse outcomes of Amazon’s market expansion. Van Loo (2015) claims that the incorporation of diverse products into the marketplace has made it difficult for the consumer to compare unit prices – a single product search yields thousands of similar products with different price ranges. According to Van Loo (2015), Amazon has intentionally employed obfuscation techniques to safeguard market sales and to ensure that third-party vendors did not gain an undue advantage through price adjustments. Even though the approach had safeguarded the interests of the vendors in the platform, it had denied consumers their shopping privilege