SWOT (Strength, Weakness, Opportunities, and Threats) analysis or matrix is a powerful tool used by individuals and organizations to evaluate their competitive positioning by identifying their internal strengths and weakness and external threats and opportunities.
In other words, SWOT analysis helps organizations make strategic decisions based on their current state of affairs. Below is our SWOT analysis of Amazon.com, inc., one of the world’s largest and most influential companies.
Amazon Company Overview
Amazon.com, Inc., founded on July 5, 1994, is the world’s largest online marketplace and internet company by revenue. It is one of the ‘Big Five’ companies in the U.S information technology sector alongside Apple, Facebook, Google, and Microsoft. Perhaps, it is one of the most influential companies in the world.
Amazon’s presence spans from industries like cloud computing, artificial intelligence, and consumer electronics to e-commerce, retail, entertainment, and digital content distribution. Some of the most popular Amazon products (and services) include Amazon Prime, Amazon Web Services (AWS), Kindle, and Alexa.
The company has over 40 subsidiaries. One of its most well-known subsidiaries is Twitch, a video live streaming platform, which Amazon acquired in 2014 for $970 million. The service reported 15 million daily active users in February 2020.
Amazon also owns Whole Foods Market, a supermarket chain with around 500 store locations in the United States, Canada, and the U.K.
Amazon operates several different transportation services to deliver packages. It includes Amazon Air (cargo airline for bulk transport), Prime Now, and Amazon Logistics. The company is also developing an automated last-mile delivery system using drones and self-driving cars.
For 2020, Amazon reported net revenue of $386 billion with an income of $21.3 billion, compared to $280 billion revenue and $11.5 billion income in 2019.
Amazon SWOT Analysis
Strengths in a company’s SWOT analysis refer to internal factors providing a competitive advantage over others.
1. Brand Awareness: Amazon, Inc. is one of the most widely recognized brands globally. In 2020, Amazon was ranked fourth in the list of the world’s most valuable brands by Forbes, with a brand value of $135.4 billion. According to Kantar’s global BrandZ ranking in 2021, Amazon’s value exceeded that of Google and Apple to become the most valuable brand for the first time.
The rise in brand value of Amazon has been steady over the last few years. The company has evolved from an online marketplace for books to an e-commerce giant with a brand ecosystem.
2. Customer-centric: Customer-centric (or client-centric) is a business culture in which companies build brand loyalty over time by enhancing their consumer experiences. In other words, customer-centric businesses keep their customers at the center of their decision-making process and always tries to keep them satisfied.
One of the reasons behind Amazon’s explosive growth in recent years is its robust customer relationship management or CRM. By efficiently tracking preferences and purchasing behavior or million of its customers, the company is able to provide a seamless shopping experience and highly competitive pricing.
Through its customer-centric approach and ever-growing customer spending insights, Amazon has created a large selection of household products that it sells under Amazon Basics.
3. Robust Delivery Network: As the world’s largest e-commerce company, Amazon has a fully grown packaging and shipment services that even rivals the operations of FedEx and UPS in the U.S. Its efficient logistics and distribution system create better delivery experiences for the customers with fast and reliable deliveries at their doorsteps.
An Amazon Fulfillment center in Madrid, Spain | Image Courtesy: Álvaro Ibáñez/Flickr
At the focus of Amazon’s vast delivery network are fulfillment centers (distribution centers) that are placed all around the country, mostly near a big city with high demand. Some of these fulfillment centers might be specialized to handle groceries, large appliances, and furniture, or high-value items.
According to a study conducted by researchers at Wharton School of the University of Pennsylvania in 2018, the number of Amazon fulfillment centers in the United States grew by just 8 in 2006 to about 90 in 2016. By increasing the number of fulfillment centers, the company has managed to reduce its shipping costs by as much as $13 billion.
4. Cost Leadership: Cost leadership is a market strategy in which companies focus on reducing the cost of operations to gain a competitive advantage. In this strategy, business keeps their prices similar or slightly lower than the competitors, but the cost is significantly lower.
Amazon is more oriented towards cost leadership than traditional brick-and-mortar retailers. Extensive storage and distribution facilities, key strategic partnerships with logistics providers around the globe, and superior customer service add to the cost advantages of the company.
5. “Glocal” Strategy: The “Go global & act local” strategy of Amazon has enabled the company to quickly establish itself as a dominant player in markets outside the United States. By leveraging its logistics capabilities while creating ground-up tailored offerings for the local market, Amazon has successfully fought off domestic competition in different geographies.
One of the recent examples of the success of Amazon’s “Glocal” strategy is India, where it has gained a competitive advantage by making adjustments in its marketing and customer services according to local needs.
Amazon’s largest tech campus in the world is located in Hyderabad, India. The campus span over an area of 68 acres or 65 football fields. | Image Courtesy: Wikimedia Commons
6. Subsidiaries and acquisitions: The company started in July 1994 simply as an online bookstore, but it’s now involved in a multitude of business operations, from selling groceries to an audiovisual content provider and cloud storage service. Much of what Amazon is today is a result of acquisitions it has done over the years.
Amazon’s acquisition of Zappos.com in 2009 (for $1.2 billion) was a decisive factor in its transformation into an online retailer. Then in March 2012, Amazon bought Kiva System (for $775 million) that eventually evolved into Amazon Robotics, an automated system that performs pick, pack, and shipping operations in Amazon warehouses.
Between January 2015 and June 2021, Amazon acquired more than fifteen technology startups, including Cloud9IDE, Harvest.ai, and Graphiq, to fuel AWS growth.
In 2021, the company acquired MGM Studios (Metro-Goldwyn-Mayer) for $8.45 billion. This deal will allow Amazon Studios and Prime Video to expand their content inventory significantly.
Elements within a company (internal) that put it in a disadvantageous position to its competitors are referred to as weaknesses.
1. Shrinking margins in E-commerce: Even with improving performance, Amazon’s e-commerce business is delivering the lowest margins. According to a McKinsey report, higher on-site advertising and warehousing/shipping expenses for e-commerce companies, including Amazon, keep their margins often lower than that of brick and mortar stores.
For the second quarter of the financial year 2021, Amazon announced $53.2 billion in revenue from its online store, which is well below the market forecast of more than $57 billion.
2. Product Failure or Flops: Amazon has its share of failures. Some of its major bets that didn’t end well are — Fire Phone (discontinued in 2015), Amazon Local (deals service similar to Groupon), Amazon Restaurants, Amazon Destinations (hotels booking), and Endless.com (an online marketplace for high-end clothing).
An unboxed Amazon Fire Phone sold in Britain
These failures dented Amazon’s deep pockets. For instance, in the third quarter of 2014, the company reported a loss of $170 million due to the dismal sales of Amazon Fire phones.
3. Lacking Brick and Mortar Locations: Without adequate physical stores, especially outside the United States, Amazon is unable to efficiently tap into specific product segments (fashing and clothing) and generate new revenue streams.
4. Tax Avoidance Issue: Tech giants, including Amazon, have been accused of tax avoidance by international authorities and jurisdictions. The company is known for its poor tax conduct. According to a report by the Fair Tax Foundation that evaluates tax practices of companies, Amazon has paid just $3.4 billion in income taxes in the United States while making $26.8 billion net profit on $960.5 billion revenue in the last decade.
Opportunities are external elements that can be used/employed by companies to their advantage. These are the opportunities in Amazon SWOT analysis —
1. Vertical Integration: A vertically integrated company is any company that has expanded its business operations in the supply chain, either towards the end customer (forward) or towards raw materials (backward). In most cases, both backward and forward integration is achieved by acquiring businesses that provide those services or goods.
Over the years, Amazon has evolved into a vertically integrated company. It has its own warehouses and transportation services that operate on both ends, towards suppliers as well consumers. Amazon also has its own book publishing platform allowing independent writers to publish their works.
2. Global Expansion: Amazon conducts its e-commerce business in 18 countries across the globe with only a limited presence in China. While North America remains its largest revenue source, sales in Amazon’s international markets are growing at much faster rates. For the first quarter of 2021, the company announced a 60 percent Y/Y (same time last year) increase in net sales from its international e-commerce segment.
Recently, the company launched its e-commerce site in Poland, one of the last major European nations to get a dedicated Amazon platform. On 1st September 2021, the company launched Amazon.eg, in Egypt, replacing Souq.com, a local e-commerce platform that Amazon bought in 2017.
However, the company is more focused on its e-commerce expansion in the promising markets of south and southeast Asia. In India, Amazon is investing heavily to expand its existing network of fulfillment centers to offer much faster deliveries. In 2020, the company boasted of making deliveries in a remote Himalayan town located in the Ladakh region.
Amazon entered Singapore in 2017 to tap into its westernized consumer base and to establish a regional base for its entry into other emerging Southeast Asian economies, such as Malaysia, Indonesia, and Vietnam.
3. Future Expansion Through Acquisitions: Strategic acquisitions play a key role in the growth of any large company. In the case of Amazon, its merger & acquisitions strategy is driven by innovation and improving customer experience, and expanding into new business models.
Amazon’s largest acquisition to date, the Whole Foods Market, is considered the most innovative and consumer-centric grocer in operation. One of the major industries Amazon is likely to disrupt in the next few years is pharmaceutical. After the company announced its acquisition of online pharmacy retailer PillPack in June 2018, three of the largest pharmacy chains in the country lost about $11 billion in market value.
4. Opening Physical Retail Stores: Amazon plans to open multiple large retail stores across the United States to beef up its revenue from clothing, electronics, and other household item sales. According to the Wall Street Journal, the new Amazon department stores are likely to be smaller in size than the traditional ones.
While the influence of department stores has reduced significantly compared to a decade ago or so, market analysts believe that physical stores cannot be completely replaced just yet.
The company already operates more than 20 bookstores and a dozen of physical outlets that sell electronics and household products across the United States.
Amazon is expected to introduce new and better shopping experiences to its customers with the help of user feedback and the innovative technologies that are currently present in Amazon Go and its line of grocery stores.
Like opportunities, threats also have external origins. Any external factors that can affect a business negatively or hinder its operations are considered threats. What are the threats that Amazon faces? Let’s find out.
1. Increasing Competition: The Seattle-based conglomerate has its fair share of competitors from Walmart and eBay to Google, Microsoft, and Netflix competing for market share in different business segments.
Amazon’s largest competitor in the e-commerce industry is Walmart, which has a significant online presence. In 2020, Walmart reported $523.9 billion in net revenue as compared to $386 billion by Amazon. However, a large portion of Walmart’s revenue comes from its brick-and-mortar locations.
In India, Walmart indirectly competes with Amazon through its subsidiary e-commerce company Flipkart. The company also faces tough competition from Alibaba, and Otto Group, the second-largest online retailer in Europe by revenue.
Amazon’s most profitable business, Amazon Web Services (AWS), has already established itself as the industry leader. According to Synergy Research Group, a market intelligence provider, AWS is the world’s leading cloud infrastructure with a 32 percent market share as of the first quarter of 2021. However, its largest competitors, Microsoft Azure (20 percent) and Google Cloud (9 percent) are quickly catching up.
While AWS has the largest market share, its competitors, including Azure, Google Cloud, and Alibaba Cloud, show a higher yearly growth rate. For the first quarter of 2021, Microsoft reported a 51 percent revenue from the same time last year.
2. Regulations and Lawsuits: Amazon’s unparalleled growth in recent years hasn’t come without any repercussions. National policies/regulations and lawsuits hinder a company’s growth prospects.
Last year, in November 2020, the European Commission launched an antitrust probe against the U.S based online retailer for possibly abusing its market position in European markets using big data. Then in 2021, the company faced its first government antitrust lawsuit in the United States over claims that it is unlawfully crushing its competition.
Amazon is also facing multiple discrimination lawsuits filed in various states across the U.S from current and former employees. In an unrelated matter, the company recently agreed to pay a sum of $13.5 million to its warehouse workers for spending extra time in mandatory security checks after each shift.
3. Fraud/Counterfeit Products: Counterfeiting and fraud are harmful to any online retailer, and in the case of Amazon, this problem is quite severe. There have been numerous reports of bogus merchants hijacking abandoned product pages with extensive reviews and better ratings to dupe customers into buying their dupe items. Even Amazon’s own line of brands, such as Amazon Basics, is not safe from this.
Frequently Asked Questions
Who Own Amazon?
As of August 2021, about 61 percent of the total outstanding shares of Amazon were owned by various institutions, including asset managers and mutual fund managers. The top four institutional investors of the company are Vanguard Group, BlackRock, Fidelity Investments, and Capital Group.
The founder and executive chairman of Amazon, Jeff Bezos, remains the company’s largest individual shareholder with 10.1 percent (or 51.2 million) of the total outstanding shares. Amazon’s CEO and President, Andrew Jassy, owns about 0.02 percent of the total shares.
Who is the Current CEO of Amazon?
On July 5, 2021, Jeff Bezos stepped down as the chief executive officer and President of Amazon and was replaced by Andrew Jassy, who previously served as the CEO of AWS. Jassy joined Amazon in 1997 and is responsible for creating Amazon’s cloud computing platform. Outside Amazon, Andrew Jassy is chairman of a Seattle-based charter school and a minority stakeholder of Seattle Kraken in the NHL.