Amazon's Kindle Fire and market expansion strategy

Amazon.com: Technology and Market Share

Much of what drives Amazon is technology. As it states in its mission statement, Amazon sees that their "vision is to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online (Amazon.com 2011)." This tradition is taking another step into the future with the advent and development of Kindle. This new "pad" or "tablet" will, if Amazon it's way be the launchpad for a new era in E-commerce. The naysayers have been wrong before and this author is making a safe bet that the Kindle Fire will light up E-commerce much as Bezos has in the past. Other technological innovations such as Amazon's cloud servers and even a space project have been more problematic and will be examined here as well.

Research Questions

In order to understand Amazon and where it is going in the next few years, one must understand how it will use the Kindle Fire technology to successfully meet its objectives and gain a competitive advantage. Based upon this author's research, they have found that it is necessary to look at the company's strategy and how they intend to use it. While Jeff Bezos is running the company with much of his original strategy, he is also modifying his approaches radically and now plans to use his company's market position to change the way online retailing is being conducted. This paradigm shift in business is huge and ranks up in business history with the innovation of the Sears and Roebuck Catalog or Steve Job's introduction of the iPod's impact upon the music industry. The shift is massive, long-term and will change the way business is conducted.

To further plumb the depths, we will look at Amazon's mission statement and objective for this product (as close as there is to being one), examine Amazon's historical competitors such as Barnes and Noble and also see how they can compete in different, changing and multi-faceted markets. What one will find is that Bezo's market strategy for his company is changing rather considerably with the Kindle technology and will open up considerably the ability of Amazon to penetrate a widening array of markets.

While the above situation continues to heat up, we will find that Amazon has used this widening market position to compete ever more widely to dominate and control the market. Customers have condoned this due to brand name loyalty. They trust Amazon to sell them just about anything. As long as this faith continues and the company's reputation continues untarnished as an unrivaled technological competitor, this situation can be sustained.

Recently, however, a series of technologically-based law suits charging patent infringement on Amazon's part are generating concern over their effect upon the viability and trust in the Amazon brand name. One can only recall the anti-trust fights that embroiled Microsoft in the late 1990s and consider the present potential for the company's future. Like Microsoft, Amazon would likely remain a major contender in its field, but with much less market velocity.

Further, recurring technical problems with the web site and with the cloud servers has caused considerable customer irritation and some damage to the company's image. While this will not end the company, it may slow down the meteoric rise of the firm bring pause and a rethinking of strategy on the part of Bezos to reconcentrate efforts upon the core of the company.

Also, while the company has not lost its continuing battle with United States state governments to tax its retail operations in those jurisdictions, the current recession has caused these units to redouble their efforts considerably and this may now bear some fruit. In addition, while the company's future is positive, it is facing increasing competition from traditional competitors such as Barnes and Noble as well as other companies. Previously, the company competed in many commercial channels with little or not competition. While the overall E-commerce is booming, this increasingly cut-throat competition can certainly be counted upon to effect the situation heavily.

Kindle Fire and Related Technology Research Questions

So, why has Amazon placed so much emphasis upon the Kindle technology? Why is it being introduced? Is it new to industry or just new to the organisation? The research in the paper will support the opinion of his author that the Kindle technology amounts to more than just an attempt to take an increased market share from the iPad. Rather, to understand the technology, one must comprehend that it is not simply another product but rather a hi-tech vehicle to move more of Amazon's surplus merchandise and therefore strengthen the company's market share. This will in turn allow the company to be proactively become even bigger and more successful.

Additionally, we must analyze the split browser and cloud technology that the company is using to make the user experience more friendly and seamless. This is being done to keep the technological edge that has for so long been the hallmark of the company, won and retained customer loyalty and has allowed Amazon to command such a large part of the market by staying technologically ahead of its competitors.

Part 2-Research Methodology

Porter's Five Forces

Porter's five forces tool are a simple but powerful and effective tool for the understanding of where power lies in any business situation. This is very useful and effective methodology because it helps one in understanding the current strength of the competitive position. It also aids in the understanding of factors that affect the development of strategy.

A model of pure competition implies that the risk-adjusted rates of return should be constant across all firms and industries. However, in numerous economic studies, it has been found that different industries can continue to sustain different levels of profitability. Part of this difference is explained by industry structure. Michael Porter provided a framework that models an industry as being influenced by five forces. The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates (Hill and Jones 2009 42).

Supplier Power

On the one hand, Amazon has many marked advantages over most of their competitors in the areas of books, audio products and technology due to their command of the market. For this reason, other companies do not price their products until Amazon enters the market and sells them. This is a frequent strategy from big companies. Additionally, Amazon pays suppliers for those products 35 days after that the item has been sold. Despite this, companies are still prepared and to provide their services and products to Amazon. For small firms and publishers, Amazon keeps a mere maximum of five items in stock in order to reduce costs. Product suppliers consider Amazon as a prestigious and an important company. For this reason, they pledge their commitment to Amazon. They find that it is essential to their business and that the prestige of association with the Amazon brand name is clearly essential to their business health (Mba-tutorials.com 2011).

Buyer Power

Amazon's prices are extremely low. Low prices are a principal attraction that Amazon offers to each buyer individually. Also, the number of clients who defect from Amazon products and services to those of the competition is low (ibid). It is this customer retention that gives it so much buying power that is used to good advantage.

Competitive Rivalry

Amazon was one of the first contenders im E-commerce. It gives to Amazon a certain level of advantage and tranquility in their market position. Amazon's innvation has over the years has reached the highest levels of customer satisfaction and can then assure their position in the market for many future years to come (ibid). Competitive rivalry has insured the success of the company in the market.

Threat of Substitution

As mentioned before, Amazon has consistently innovated their services and products over the years and the name of Amazon is well recognised and trusted. Indeed, this good name provides the clout that the preserves the country's relationships of its affiliates. Therefore, Amazon does not face real threats of substitution at least in the short-term (ibid).

Threat of New Entry

The World Wide Web has shown that a simple idea that is well developed can offer extraordinary results. More recent examples such as Facebook.com, Youtube.com and others, offer up evidence that new companies that have developed their web sites well have an advantage. These companies produce incredible final results. Amazon however now has to contend with a constant threat of new entries into the market which may provide cutthroat competition that can knock it out of its command market position (ibid). Recently, this has even included corporations such as Google with its checkout system online shopping and E-books. This will be elaborated more upon in the SWOT threat section of the report.

Part 3 - Results, Analysis, Conclusions and Recommendation

It has since then continued to expand this customer base as its sales revenues has increased yearly. Today, one can find almost anything on Amazon (Bezos 2011).

Bottom line, E-commerce increased 12.6% to $176.2 billion in 2010 while U.S. online retail sales further expected to reach $278.9 billion by year 2015 (Indvik, 2011). Let us take a moment to pause and savor these figures. Essentially, one of the few economic pieces of good news in this recession was that E-commerce grew, not just a little, but phenomenally and will at least increase by about a third in the U.S. alone by 2015 (ibid).

As Indvik pontificates, "Online shopping will continue to cannibalize in-store shopping as consumers become more familiar and begin, in many cases, to prefer the convenience of online shopping (ibid)." Here are the technological details in terms of hardware: Indvik predicts that Internet connectivity will increase be due to devices like smart phones, tablets and game consoles and will drive the growth. Additionally new E-commerce models such as "flash sales" (like Neiman Marcus, Gilt Groupe, Neiman Marcus and/or Mid-Day Dash), digital downloads of media (Netflix, I Tunes) and daily coupon deals (Group on, Living Social) have enjoyed and will continue to accelerate in their rapid universal adoption (ibid).

This may come from the fact that E-commerce growth in 2010 was primarily driven from the existing online shoppers. Luckily, they increased their spending in the traditional categories such as books and media. Additionally, they also began to buy in the less popular sectors such as appliances and furniture. 30% of the growth was attributed to 5.5 million consumers who shopped online for the first time in 2010 (ibid).

The largest economy (the United States) was not the only one to have great growth in E-commerce. This growth curve is also translating into the Eurozone and internationally. In 2010, internet retailing is boosting far ahead of all other retailing methods and is coming out of the

2008 recession very strong and buoyed by shifting consumer attitudes. The flag ship of this growth according to Euromonitor was Amazon and the heart of this was its Kindle family and its cloud service, as well as its other media products (New Global Report 2011).

Amazon was one of the first companies to turn a profit on the Internet. The heart of this was technology. Jeff Bezos always bet on the marriage of the latest, most user-friendly technology married to a "user-centric" focus in all other areas, including customer service. His forte has been knowing the customers better than they know themselves with state of the art user tracking technology With this knowledge, he keeps guiding his company where is customers want to go, betting that the customer is always right (Amazon.com, Inc. 2011).

Products

As mentioned above, the Kindle family is the spear point of this strategy. However, even Amazon's detractors may have a hard time putting Kindle down as a killer competitor. As a tablet similar to the iPad, Kindle should not threaten the icon, even at $199. Its true use is likely as a digital catalog and promotional tool for the sale of Amazon products. In this way, it could be revolutionary. Due to its size and commanding market position alone, Amazon can leverage its position as a retail giant and propel the entire market in a technological direction. Ten years ago, Apple introduced the iPod and started selling music. The record industry was in a very dire situation. There was no strategy about what to do over lost money over pirated music. Then, Steve Jobs introduced the iPod. In effect, due to leveraging that the company provided due to its position as the industry's leader, it forced record labels to sell songs at the never-before low price of 99 cents. This a price point which drove the sales of the iPod. It would then be reasonable to expect that a similar occurrence can be expected in the area of books, movies, applications and a bevy of other products due to Kindle (Carr 2011).

While there are not official numbers for the amount of Kindle tablets of all types that will be sold, speculation is rife that the numbers will be spectacular. Sarah Rotman Epps who is a senior analyst at Forrester Research speculates that Amazon will be able to launch three to five million tablets in the fourth quarter of 2011. Since she got it right on the price of the Kindle Fire at being under $300, then it is certainly more than just a mathematical possibility that she is correct as well on the overall number of Kindle family members that would be sold to the general public. It basically dwarfs all comers except for iPad with which it will compete evenly. Earlier in 2011, Apple shipped some 4.69 million iPad 2s in the second fiscal quarter of the year after the launch of the product. Another 9.25 million were sold during the third fiscal quarter of 2011 (King 2011).

The Amazon products are not just being featured on the company's website. Social media is also a growing phenomenon in the company's arsenal to advertise its products. Certainly, with its command of technology in general, it is really no surprise that the company would also understand how to make use of the new social media tools. Indeed, Amazon has gone out of its way in order to make its product pages user-friendly for its online shoppers to share on Twitter and other social sites. In essence, Amazon knows how to populate the crowed for flash sales on the website. For instance, this translates into helping shoppers overcome the number character limitation of the typical tweet. In the example in the McGee article, the shopper is attempting to tweet to the people on his social network regarding the HBO series "True Blood." The URL for the product page of the Blu-ray DVD set is 117 characters long. This would leave the customer only 23 remaining characters for a referral message. Not to worry, the customer can copy and paste the Amazon Standard Identification Number (ASIN) following a shortened version of the retailer's URL. Then they use that to link tweeters to the "True Blood" DVD box set. The Amazon-abbreviated URL for this product would be amzn.com/B001FB4W16. This leaves the customer 121 characters, nearly 100 more, to chat about the favorite movie. Obviously, mastery of tweet technology involves sophisticated affiliate and social media relations (McGee 2009).

However, besides technology and building customer bases with products to sell, building relationships with affiliates is an Amazon specialty. Social media plus emails and SMS translates into flash sales which of course translates into income and market share for Amazon.

Why Kindle Fire is Being Introduced

The above analysis is echoed by Euromonitor International which assessed this latest movement as Carr did in the above article. Although there are strong sales that are projected for Kindle Fire, it is not seen to be able to knock the iPad out of its market position. However, the Euromonitor paper goes into much greater detail with regard to why this is the case. For instance, though many other companies such as Samsung, Acer and Motorola have entered the market, they do not command the lead. The competition was so fierce that Hewlett-Packard Development Co LP (HP) eventually gave up. HP said in August 2011 that it planned to discontinue the WebOS development and TouchPad tablets in spite of having invested U.S.$1.2 billion acquiring Palm Inc. As well as its WebOS operating system in 2010. Apple's iPad sales accounted for 84% of tablets sold in year 2010, giving it a commanding lead in the market and a huge advantage over all contenders (Kindle Fire Lights Up 2011).

However, as Euromonitor points out, the venture into the tablet market has a much different spin than Steve Jobs intended a decade ago with the iPhone. This is why the $300 cheaper price will not be a threat to iPad. The Kindle pad is meant as a strategy by Amazon to increase its revenue on its content sales and to procure a larger piece of Internet retailing sales outside of the circle of traditional PC users. Kindle Fire has a few differentiators to distinguish itself from iPad and other tablets in the market, namely with regard to price, connectivity, content and the user interface.

To point up what this author feels is the biggest difference between the iPad and the Kindle Fire Tablet is that it has revamped its Android interface on which Kindle Fire was developed. Additionally, the company has revolutionised the Internet retailing market with quick checkout and recommendations features. Easing the use of the application will be a cornerstone of Kindle Fire's interface. Customers can then be expected to buy more products and services due to ease and a seamless user experience (ibid).

The Kindle technology has already revolutionised the sale of books in E-commerce. While the Kindle Fire is the most celebrated of the technologies, it is not alone. Amazon has announced the introduction of three others to the all-new Kindle family that are smaller and lighter than the new Kindle Fire. This new class of Kindle brings the deep integration of content that has helped it to re-invent movies, reading, music, TV shows, books, magazines, applications, games and more in terms of other merchandise relationships.. These other pads will cost even less than the $199 Kindle Fire with what Jeff Bezos is calling "the magical two-digit price point for Kindle" as the new Kindle and Kindle Touch are only $79 and $99. Also, the Kindle Touch 3G is another product that is being introduced. The new line E-reader comes free with the 3G, as well as having no monthly fees or annual contracts - and costs only $149. According to Bezos, the Kindle Fire brings together all of the technology that Amazon has been working on at Amazon for more than 15 years into the single, a fully-integrated family of products that will service customers (Amazon to introduce 2011).

When one considers that this is compatible with the Google Android technology that is based upon a dependable Linux software, one can understand the appeal to consumers. This is due to dependability, ease of use and the low price of the pad. Certainly, we should not marvel that customers then would also be drawn to buying the low cost items sold in a flash sale on the tablet.

On the other side of the divide however, there are educated opinions that claim that iPad is in trouble from the Kindle Fire and that the launch of the new tablet will dwarf iPad 1 launched or iPad 2 launched in early 2011. While Amazon has been notoriously secret about its numbers of units of Kindle Fire on order, as of October 3, 2011, it was leaked that preorders were running at 2000 per hour or 50,000 per day. As of the October 3rd report, 250,000 had been preordered. Of course, John Brownlee in his article points out that a preorder does not equal a sale. Not only has the Kindle Fire not broken any sales records yet, it is still possible that consumers could cancel their orders all at once, or that demand could level off (Brownlee 2011).

What this author homes in on is the point that Euromonitor almost missed, that is, the Android connection. Indeed, as widely used as the Android smart phone is likely to become, this could be the next consumer appliance to move Kindle software to. For now, for the application to be best used, it needs a tablet size for ease of use. However, one must wonder at how long Amazon can ignore the cell phone as a marketing tool in conjunction with the flash sale. Indeed, as we shall see further on, this is exactly where they are going and it may be precisely in this sector of the market where they give the iPad some competition that it was not expecting. The details of all of this will become clearer after the Kindle family of tablets is released.

What is a flash sale? A flash sale is simply a sale that is announced to consumers over their PDAs or cell phones via SMS or email. This type of time sensitive sale is the latest business innovation in the American E-commerce sector and is touted by both buyers and sellers as the easiest method to off-source excess stock. The system provides a great venue for both retailers and consumers since the retailers can build brand loyalty while simultaneously selling surplus merchandise in a short amount of time (Word 2011). Obviously, more people have cell phones than iPads. For this reason, Amazon launched MyHabit in May, 2011. This is a members-only shopping platform that offers up to 60% off such items as designer apparel and accessories for men, women, and children. Following a familiar model, this site features daily sales events. These daily sales start at 12pm U.S. Eastern Standard Time and last for 72 hours. These brings them into competition with experienced flash sales companies such as Gilt and HauteLook. Despite the experienced competition, MyHabit is capitalizing on Amazon's signature advanced technology in order to surpass the competition (Alcala 2011).

Potentially, this author would see an even bigger potential for the Kindle. Certainly, we have even more potential due to the shear number of products that the pad has to move. In other words, we might need to look back to print media to judge what kind of market impact it might have. It could be the 21st century version of the Sears and Roebuck catalog and far beyond, which truly would be revolutionary. Again, let us remember that Jeff Bezo's real motivation has to do with the development of the Kindle pad is to move Amazon's diverse product line. Unlike many other companies, Amazon has not suffered from brand name confusion. Due to its technological sophistication, customers can easily move through the Amazon website and find what they need. Also, Amazon's customer tracking software makes it possible to help guide the customer to what they are looking for, reducing confusion, frustration and user bounce from the website. The basic issue is one of trust in the brand name not to let them down.

So, in terms of historical perspective, is Amazon the new Sears and Roebuck company of the Internet? Armed with Kindle and cloud software systems, this may not seem to be the case. However, when one considers the potential of tablets, one can hardly avoid comparing the two if not in functionality type, then certainly in terms of paradigmatic shift. The debut of the Sears and Roebuck catalog (ironically a century prior to Jeff Bezo's building of Amazon) launched the Sears retail empire that brought department store merchandise cheaply to every corner of the United States with Postal Service. Like Bezos, Richard Sears was a master at slogans and catchy phrases. He graced the cover of his 1894 catalog by declaring it the "Book of Bargains: A Money Saver for Everyone." Like Bezos, Sears also knew the ultimate importance of keeping his customers first priority. Certainly, his motto that "We Can't Afford to Lose a Customer" echoes a century later with Bezos. Like present online retailers, Sears proudly printed true testimonials from his myriads of satisfied customers. In turn, he made every possible effort to assure his loyal readers that Sears had the very lowest prices and values. His catalog expanded from just a core of watches and jewelry. The variety of merchandise offerings expanded yearly and boggled the mind as he added sewing machines, musical instruments. sporting equipment, saddles, guns, horse-drawn buggies, men's and children's clothes, bicycles, baby carriages and even eventually automobiles manufactured by Sears. The sky was the limit and the Sears catalog was the ultimate out of store shopping experience until the catalog was discontinued in 1994 (Searsarchives.com 2011).

This author is not alone in their opinion in comparing Sears and Roebuck Company with Amazon. Scholars such as Mordechai Ben Ari of the Weizmann Institute of Technology in Israel maintain this comparison as well (Ben-Ari 2006). Certainly, the comparison is relative, but it does give us a chance to get an access point and begin to handle the magnitude of what Amazon represents presently. In addition, it helps us understand where the company plans to go in the future with Kindle and the effects this will have on the retail market in particular and society in general. Certainly, understanding the personality of Jeff Bezos, one would not expect any less.

An October 11, 2011 article by James Kendrick on Zdnet.com points to this. Indeed, when one looks at the matter in the light that Mr. Kendrick has shed, one wonders if it will be Google rather than Amazon that may make the next paradigm shift in online retail sales. If Kendrick can be believed, Google has sold so many Android Smartphones that competition with Amazon has had and will have little impact upon its bottomline. Certainly, he is correct when he surmises that things will only be completely clear when Kindle Fire and its new siblings are launched, although he does seem to be optimistic that things can be worked out if the Android Kindle tablets are competing for different sectors of the market rather than engaging in going after each other's throats (Kendrick 2011).

The Linux-based Silk browser software is present in both the Kindle Fire tablet family as well as the server systems that make up Amazon's family of applications known as Elastic Compute Cloud (Amazon EC2) (Amazon introduces split 2011). With every page request, Silk calculates its division of labor between the mobile tablet hardware and Amazon EC2. In other words, the systems share responsibility in a symbiotic and redundant system that takes into consideration such factors as network conditions, the location of cached contents, page complexity and architecture and the list goes on. This results in the web browsing experience that Amazon users have grown used to. It is now available on the Kindle tablet ware, Amazon's brand new Kindle for movies, books, magazines, applications, web browsing, games, etc. (ibid).

To sum up this section's results and methodology, based upon Power's Five Points, a SWOT analysis and a detailed analysis of Amazon's infrastructure, it is clear that the retailing giant is in a strong position to increase its market share significantly. In conclusion, the house of Amazon has been built upon technology. Up to this point in time, this has served the company well. However, it is a two edged sword. In the last few years, Amazon has had some experienced some embarrassing technological glitches in its cloud server systems and in its Kindle tablet technology that might bring it into conflict with Google. Technological problems beset many companies. However, many companies are not like Amazon. If a comparison may be made to the history of the British Empire, the firm seems to be able to muddle through and beat all competitors. The company name and brand loyalty is based upon the competent use of technology to keep the customer needs first. It is however this approach that will be put to the test as the company faces stiffer competition in the years ahead to see how long this empire will rule.