Amazon's growth as a disruptive e-commerce innovator

Amazon: The Growth of E-Commerce

The growth of Internet-based businesses has been described as \"meteoric\" over the years and it has dwarfed the historical growth patterns of other many other business sectors as e-commerce focused businesses developed their own set of unique value propositions to drive their success and capture market share from the traditionally organized brick-and-motor establishments (Mahadevan, 2000). Amazon represents one of these modern success stories that shares many similarities to other popular stories, such as those told by the histories of companies such as Microsoft and Apple, including the fact that the company was originally started in a garage and only had what could be considered a \"shoe-string\" budget in which they began their company\'s history.

The company\'s founder, Jeff Bezos, used the environment that developed from the infrastructure the internet provided and focused more on the distribution channel as a route to create disruptive innovations. For example, instead of focusing any specific product in particular, Amazon selected books and the publishing industry from a long list of different products that were identified as having potential to take advantage of the new form of a distribution network that Bezos\' had in mind. This analysis will look at the Amazon phenomenon and discuss many of the factors that led to them being the most successful e-commerce innovator by many different accounts.

Amazon\'s History and Value Proposition

The ways in which business can create new ways has become increasingly limited as industries have undergone major evolutions that have represented the course they have taken to become the advanced system of global and interconnected markets today. That is not to say that there are no remaining opportunities, but there are few opportunities remaining to revolutionize transportation to the extent that Henry Ford and the introduction of the Model T. revolutionized the ability for humans to engage in effective transportation systems.

By contrast, the opportunities are comparatively marginal gains in value compared to the major advancements in the course of humanities progress. The cotton gin, the steam engine, and the specialization of labor in factories are represent major technological breakthroughs that vastly improved the quality of life for the average citizen. Although the same level of technological breakthroughs is becoming more uncommon, this is not to say that there have been some major breakthroughs that have occurred in the last couple generations. E-business has been a prime example and is defined as emerging business models, strategies, and tactics that are made possible with the capabilities of the internet and related technologies, which have changed the competitive landscape of virtually every industry (Sharma & Gupta, 2004). Some of the best examples of how transformative models, inherent in more recent examples of recent innovations, have primarily utilized the infrastructure that the development of the internet has provided.

One of the best examples of revolutionary business developments in the last generations can probably be best exemplified by Jeff Bezos\' development of Amazon from a business that started in a garage, to one of the fastest growing and most profitable business in the world. Bezos was not focused on a new and innovative product or service to build value for its customers, rather it focused on the distribution network as a means of building value and taking advantage of the new technologies that were available due to the advancement of web technologies. If fact, the early teams at Amazon did not even have one product in mind when they founded the company. Rather they had a list of different products they thought might work with their strategy and they selected books and the publishing industry as more of an afterthought than a factor that drove their business strategy. It took a lot of internal debates and deliberation before the company finally chose to begin its operations with books as opposed to some other product that they thought might work.

However, after the company did finally decide on being a book retailer that used its distribution strategy to be a low-cost leader, the company took off in record speed. After a mere month of the business launch, the company had already penetrated many markets and was selling to all fifty states and over forty countries based solely on its web presence and the publicity that it was able to generate with its business strategy. The distribution channel that was the key to building value under this model had many advantages over a traditional brick and mortar store type of distribution. For example, Amazon had the ability to have a virtually endless inventory of books without actually having to stock the products like a traditional retailer would.

The inventory problem that many traditional businesses face was overcome by new technologies and if a customer wanted a book that was not in Amazon\'s physical inventory, Amazon could still process the order and have the book drop shipped from another third-party location such as a wholesale partner or even the publisher themselves. Based on the initial success that the company achieved, they then began to add more products to their product mix such as CDs and DVDs. The new products also benefited from the new distribution strategy and more products followed within a short time frame. From this point on Amazon began to develop a significant amount of momentum which allowed them to undergo a long list of acquisitions, which allowed for even greater growth and market penetration. This basic cycle continued until the value of Amazon (248 billion) exceed the value of Walmart (230 billion) and made Amazon the world\'s largest retailer (Hartung, 2015). More about this competitive rivalry in a later section, however in short, during the 2008 economic downturn, Amazon was able to quickly scale its operations to meet the consumer demand under the resulting economic conditions while Walmart, by contrast, was stuck under the weight of a massive infrastructure.

It has not only been Amazon\'s unique distribution innovation that helped create its platform for success in the early stages, the leadership under Jeff Bezos also played an important role. The case describes Bezos as (Lashinsky, Burke, & Mangalindan, 2012):

\"He\'s a pro-customer, tightfisted risk-taker who is conditioning Wall Street to embrace his erratic earnings...(he) has always done things his own way, whether he\'s ignoring Wall Street\'s pleas for consistent earnings growth or requiring his top people to construct artfully written missives or launching seemingly disparate businesses... (he) Bezos is the ultimate disrupter: He has upended the book industry and displaced electronics merchants...\"We innovate by starting with the customer and working backwards,\" he says. \"That becomes the touchstone for how we invent.\'\"

It is clear that leaders such as Bezos start with the customers begin with the customers\' needs and wants and then work backwards to create value. Integrating customer-focused people, processes and information systems to form a symbiotic relationship will help to create an effective e-business strategy for e-business success and in order to develop e-strategy for being flexible, organizations must focus on three interrelated components -- people, process, and technology (Mahadevan, 2000). The strategy framework that individuals such as Bezos has developed has certainly help organizations to become more responsive and adaptive to its overall business environment, which has worked to create the flexibility and resiliency (Lashinsky, Burke, & Mangalindan, 2012).

Amazon\'s Book Strategy

Amazon\'s use of distribution channels was definitely one of the factors responsible for its initial success as well as the framework in which its expansions took root. Distribution channels can often create unique situations where there are also vertical or horizontal opportunities to be had. Amazon has undergone a move to integrate backwards relative to its strategy of maximizing its historical distribution strategy. For example, Amazon began to position itself in the center of all aspects of the distribution channel at multiple positions that are in the publishing industry. For specifically, Amazon can now act as a publisher and publish an author\'s book, at which point it can introduce this book into the infrastructure that it has already developed. Not only does this offer a more comprehensive service to its target markets, but it also allows them to access the traditional distribution channels that are not under Amazon\'s control. It is now possible (or could be possible) that you could see an Amazon published book that is available on a shelf at Barnes and Noble or even independent bookstores. This strategy offered Amazon a chance to gain control over other parts of the publishing industry and is one more example of them using the distribution channel to further innovate relative to their product mix.

Despite the potential advantages that such a move could have for Amazon, the strategy to further innovate in the distribution channel and vertically expand backwards has not come without controversy and a huge amount of negative publicity. Barnes and Noble, the largest traditional bookstore chain, decided early on to not to stock Amazon\'s products that were produced in this manner in the hope of discouraging any future authors from signing publication contracts with Amazon so that the limited distribution opportunities might cause them to rethink whatever advantages Amazon might offer.

Other Amazon strategies have been even more bold in terms of their ambitions. For example, probably the most Amazon brazen move took place during the holiday shopping season of 2011, when Amazon launched a Price Check app discount that encouraged consumers to browse in brick-and-mortar stores, then open the app, check prices on Amazon -- and get an extra 5% discount for playing along and buying the item at Amazon (Tuttle, 2014). This publicity stunt was either brilliant or counterproductive based on the perspective being used. Some felt that aggressive competitive strategies such as these made Amazon show its worst side, believe that it was too competitive and potentially monopolistic, and called for all-out boycott of the company. Others believed that this move was the next logical step for Amazon and saw it as another innovative use of their market position and continued dedication to further innovate in this industry and create the most value possible. Whatever you may feel about Amazon\'s motivation, it is hard to deny that the company has pushed the boundaries of the industry into new realms.

Amazon and the Traditional Retailers

Walmart and Amazon represent two of the greatest contenders that are battling to control the retail model of the future. Each company represents the biggest competitor in their areas of expertise and will shape the future of the retail industry for the entire global market. Walmart is one of the more established American iconic companies that has also used its success to diversify its holdings to compete on the global level. Walmart could be the king of the low-cost strategy in the history of business and has used this dedication to acquire its market share within a consistent grow trajectory that has been evident since the company was founded.

Walmart\'s size and strategy has resulted in a present day massive organization supported by a logistics infrastructure that allows the organization to achieve vast quantities of scale and unprecedented amounts of efficiency relative to its supply chain. Amazon, by comparison, has used its logistics network and distribution strategy to challenge the efficiencies that Walmart has created in the retail environment and has used this advantage to continually grow its market share through its online operations and expertise in e-commerce. Technology has definitely been the key to Amazon\'s ability to grow its strategic objectives.

Walmart also used technology as one of its core competencies but has used it in a way that is consistent with its original low-cost leader\'s strategy. For example, Walmart utilizes everything from the latest advances in enterprise resource planning (ERP) systems to radio frequency identification (RFID) product labels to manage to allow its inventory to flow through the supply chain effortlessly to roughly its 8,500 departmental and warehouse stores in 15 countries which has led to its position of being the world\'s most formidable low cost leaders in the retail industry (Ken, N.d.). However, technological innovations, such as the use of drones for delivery, coupled with other technological trends as well as the rapid advancements in virtual reality, could potentially propel Amazon\'s platform even faster than ever before imagined (Pogue, 2016). Although the retail industry\'s future is far from certain, the battle between these two industry giants will likely decide the fate of the industry\'s future.