Amazon e-Strategy: A Strategic Assessment of Amazon.com

Benefits of an e-Strategy at Amazon

Amazon's remarkable ascent as one of the top online global retailers can be attributed to the foresight its founders showed in creating a comprehensive distributed order management, Enterprise Resource Planning (ERP), Supply Chain Management (SCM), and e-commerce series of systems. The many other e-commerce sites that rose quickly with massive infusions of venture capital just as quickly exited the market, flaming out due to a lack of system and process scalability, poor understanding of customer dynamics, and a complete loss of focus on scalable business models. All of these factors caused Amazon's competitors to exit the e-commerce market through acquisition, merger, or complete withdrawal.

When starting Amazon, Jeff Bezos invested heavily in distributed order management, ERP, SCM, and e-commerce integration points with book distributors initially, then expanded into a broader product mix. This allowed the enterprise to scale quickly as volumes increased during the company's first five years. Having built this reliable, scalable, and secure platform, Bezos and the Amazon founders concentrated on creating an analytics layer throughout their architecture that could quantify customer, distributor, dealer, and even competitor activity on the site (Amazon Investor Relations, 2012). This reliance on analytics gave Amazon executives and technical staff the insight they needed to launch quickly into entirely new product categories, get the complex task of localization right, and create the highly popular and profitable Amazon Web Services (AWS) cloud computing and Software-as-a-Service (SaaS) hosting platform (Mitchell, 2012).

From a technology standpoint, Amazon's performance today can be directly attributed to the insightful decisions made in 1994 and 1995, when the company's founders prioritized the development of enterprise-wide platforms and a strong focus on analytics over spending time on the front-end website's facade (Lindic, Bavdaz, & Kovacic, 2012). As Bezos later remarked in interviews, by investing to create a truly world-class enterprise back-end system first, the company was freed to fast-track the actual user interface of its e-commerce sites globally at a pace that left competitors far behind in terms of functionality and product breadth (Amazon Investor Relations, 2012). Bezos chose in 2007 to institute a culture of metrics that capitalized on nearly two decades of investment in their infrastructure (Amazon Investor Relations, 2012). Combining the global e-commerce enterprise-tested infrastructure with the most robust set of analytics any e-commerce provider had assembled, Amazon was ready to expand its product strategies, offer greater options through Amazon Web Services — then projected to reach $1 billion by 2015 even by conservative forecasts — and invest heavily in its state-of-the-art recommendation engine technology, which presents products and services to customers in real time during shopping sessions (Sun, 2012).

It is important to appreciate the vast scale of Amazon's e-commerce infrastructure when completing this analysis of their e-strategy. They possess greater agility, flexibility, and capability to execute than any other online retailer globally. How they choose to use these technologies to attract new customers and retain existing ones is predicated on the ability to extract maximum value from this infrastructure while staying focused on delivering a world-class customer experience in each transaction. Based on the analysis undertaken here, it is abundantly clear that Bezos and the executive management team are passionate about keeping the company as customer-focused as possible, including the continual, selective use of technology to strengthen the user experience both online and offline (Murphy & Narkiewicz, 2010).

The overarching objective of this analysis is to understand the value of e-strategies in organizations, with Amazon as the organization of interest. Specifically, the paper concentrates on the benefits of having an e-strategy at Amazon, defines how e-strategies contribute to Amazon's broader accomplishments, and analyzes how Amazon aligns its e-strategy to the overarching organizational strategy. The analysis continues with an examination of the key business factors that catalyze the e-strategy at Amazon, followed by a suggested strategic plan for ensuring e-strategy initiatives continue to lead to profitable growth. The final section provides an assessment of the technical infrastructure needed to accomplish the proposed strategic plan.

As Amazon has continually evolved its position as a global force in online retailing, its command of supply chains globally has also evolved rapidly. In Gartner's latest rankings of the highest-performing supply chains, Amazon placed within the top twenty-five for five consecutive years (Amazon Investor Relations, 2012). This signals that Amazon has progressed beyond relying solely on enterprise-wide infrastructure to compete and is now on a growth trajectory that makes supply chain processes themselves a core competitive advantage.

Amazon's founders arrived where they are today because they correctly interpreted and acted quickly on the market signals occurring in the emerging e-commerce markets of the early 1990s. It must have been tempting to jump directly into designing a flashy website in static HTML rather than concentrating on creating an enterprise-wide infrastructure. Yet that is exactly what Amazon did, creating what would eventually morph into the world's first distributed order management and ERP system that ran as a Web Service, orchestrating suppliers as diverse as Ingram Book Company alongside thousands of resellers and individual booksellers (Lindic, Bavdaz, & Kovacic, 2012). The strategic benefits of this heavy infrastructure investment began to show strong Return on Investment (ROI) during the latter 1990s, when Amazon was introducing new products and services at a pace that defied offline retailers (Amazon Investor Relations, 2012).

This pace of new product introduction and ancillary service launches was achievable because of the deep expertise and core competencies Amazon had built — including a rapidly emerging dynamic of being able to quickly translate intelligence and information into shared knowledge, both tacit and explicit. Amazon was learning how to use its back-end infrastructure, e-strategy, and broader strategic supply chain and distributed order management strategies to become a learning organization capable of transforming analytics and business intelligence (BI) into organizational memory and expertise (Cross & Baird, 2000). Amazon was busy changing the entire playing field of e-commerce in the early and mid-2000s while its main competitors were still focusing only on the veneer of their sites. Amazon realized that the depth of customer experience it could offer would depend more on how deep and rich the functionality of its infrastructure was (Amazon Investor Relations, 2012). All of these factors together allowed Amazon to create a knowledge-sharing ecosystem that gave the company the ability to quickly gain technology advances in personalization, pricing, and recommendation optimization — all areas of formidable competitive leadership for the company today (Birkinshaw & Sheehan, 2002; Amazon Investor Relations, 2012).

When an e-commerce organization begins to base its competitive strategies on a process-centric approach to competing, it creates one of the most powerful sets of differentiators available (Murphy & Narkiewicz, 2010). Competitive differentiation moves beyond price and availability — the two factors that push online retailers back into a commodity-like selling role (DiRusso, Mudambi, & Schuff, 2011) — and toward delivering an exceptional customer experience. Amazon concentrated on the core process areas of personalization, price optimization, fine-tuning its recommendation engine, and the pervasive use of analytics throughout the company, including in marketing, to measure results against strategic business objectives (Amazon Investor Relations, 2012). The net result of all these factors was the ability to align every system and process within the company around the priority of delivering an exceptionally efficient, economical, and trusted experience for any customer, anywhere, at any time (Murphy & Narkiewicz, 2010). These factors combined to set the stage for the strategic objectives of delivering an exceptional experience and, further, gave Amazon the ability to successfully compete against IBM, Google, and Microsoft in the cloud computing services market (Amazon Investor Relations, 2012).

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