Amazon's e-business model and market expansion strategy

Amazon's growth pattern has been simple. The company has grown in two main ways since its inception. The company has added more products to its lineup over the years and it has expanded internationally as well. The company has grown rapidly as the result of these additions to its lineup and organic growth within its core books business. The pros of this approach are that it allows the company to maintain a strict focus on what it does best, to control its costs and it allows Amazon to retain an innovator status. The company also experiences lower costs as the result of having no bricks and mortar presence. The cons of this approach however are that it is entirely dependent on the Internet and this limits its total growth potential.

There is little that Amazon should have done differently. The company started in 1994 and is now the largest online retailer in the world. It is hard to argue that the company did something wrong when it is number one. However, there are more things that Amazon could sell. It could become a software vendor, for instance. In addition, Amazon could sell other products that would allow it to increase its revenues. One thought is that Amazon could have developed a bricks and mortar presence, but that would have been a disastrous idea. The Internet has put pressure on such stores, and while there are still book stores in that format, Amazon has hurt that business significantly. For it to get into that market would put it in a declining business, and this is not recommended.

2. Over the years, Amazon has purchased a number of other online retailers and folded them into the Amazon banner. If Amazon had kept them as independent brands, the total company would be less today. There are two key assets that drive Amazon's business. The first is the company's brand. The Amazon brand is well-known and this is what drives traffic to the 'store'. The old axiom "location, location, location" applies on the Internet as well and Amazon's address is one of the first that springs to mind for any consumer. A family of smaller brands would not be able to effectively leverage the power of the Amazon name, so keeping them independent would have reduced the company's sales.

The second thing that drives profit at Amazon is the distribution system. This is something that these smaller brands could have taken advantage of, even if they had been kept independent. So on this trait, there would not have been much difference between the system Amazon used and keeping the brands independent. Back office and other tasks could still have been spread around the entire company allowing for economies of scale on the cost side.

However, the fact that Amazon would not gain economies of scale on the marketing side is the reason why this strategy would not have been a good idea. The Amazon name has tremendous power in the online marketing sphere, largely in part because of its size, its pedigree and the large number of goods that it carries. To take two of these three away would negate the value of having all the products under a singular brand.

3. It would be possible for Barnes & Noble and Borders to expand their markets the way Amazon has, especially with respect to their online websites. At their stores, this would essentially be impossible, because this would require it to build bigger stores. However, online they could expand their product offerings and only make changes to their warehousing system. Thus, it is entirely possible, in theory, for these companies to eventually match the product breadth that Amazon has.

The one main impediment to this occurring is that the market share is already accounted for. It would be much more difficult for these companies to expand into other product lines now that the space is taken up by Amazon, Wal-Mart and other large online retailers. Amazon started in 1994 when the World Wide Web was first getting started. Therefore, it has succeeded in part because it has enjoyed first mover advantages. Seventeen years later, it is a challenge for other firms to enter the market and achieve anywhere near the size that Amazon has, or its breadth. Given that Amazon expanded in part by purchasing other companies, Borders or Barnes & Noble would probably benefit from taking the same approach. This would mean they had to find takeover targets -- there were more of these a few years ago when Amazon was doing its shopping.

4. To expand Amazon into bricks and mortar is possible, but a lousy idea. The company has existing warehouse space, but would need to adapt some of this space, as the support needs of a bricks and mortar store are different from those of an online retailer. In addition, Amazon would need to learn about trucking, cross-docking, supply chain management and other skills that are different now than they would be for bricks and mortar. Amazon uses couriers to ship right now, and knows little about trucking, for example.

Further to this, Amazon would need to develop a whole slate of new competencies to compete in bricks and mortar. The company would need to learn about physical merchandising. It excels in online merchandising but this is completely different from managing physical inventory. In addition, Amazon would need to learn how to deal with customers in person -- this is different than doing so in the online environment. Much of the success of Amazon is because of the company's recommendations, reviews and other features that add value to the online shopping experience. Amazon would have to find ways to drive sales without these features if it opened bricks and mortar stores.