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Amazon Dominates the Retail Industry

Autor:   •  December 23, 2017  •  2,416 Words (10 Pages)  •  285 Views

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Amazon is involved in miscellaneous patent infringement cases. “In 2013, Online News Link filed a lawsuit against Amazon, alleging that the company infringed on three of its patents that describe a method of inserting links into online newspapers and media” (MarketLine, 2015, p. 32). Several other cases followed in the year of 2013 as well as 2014. “In 2014, Kaavo filed a complaint against the company and AWS for patent infringement in the US District Court for the District of Delaware, alleging that AWS’ Elastic Beanstalk and CloudFormation infringe a patent entitled ‘Cloud Computing Lifecycle Management For N-Tier Applications’” (MarketLine, 2015, pg. 32). Patent infringement cases have considerably impacted Amazon’s brand image in the past. The cases may also further harm its brand equity in the future.

Amazon offers numerous information technology related services and products to consumers. These services and products include global compute, storage, analytics, database, deployment and applications. The company has been frequently facing problems with its web hosting and cloud computing servers. “In 2011, Amazon reported certain problems with its Relational Database Services, and EC2, a cloud computing service hosted at its North Virginia data center” (MarketLine, 2015, p. 32). This particular outage was due to the shifting of network traffic to the wrong router. In addition, customer data was lost and the company failed to give an explanation as to why. Similar instances also occurred in 2012, 2013 and 2014. “According to industry sources, in 2014, Amazon S3 had 22 outages for 2.66 hours” (MarketLine, 2015, p. 32).

Outages of such key services can lead to a loss of confidence among enterprise and business consumers. With an abundance of companies offering similar services, inconsistent service provided by Amazon can also lead to a loss of customers to competitors.

Opportunities for Amazon

Amazon.com, Inc. is faced with considerable opportunities in the retail industry. There is an increase in online retail sales and a growing emphasis on online display advertising business. There is also a growing demand for cloud computing services.

Globally, online retail sales are growing at a much faster rate. “According to the US Department of Commerce, online retail sales in the US increased from $169.3 billion in 2010 to $297.3 billion in 2014, representing a compound annual growth rate of 15.1%” (MarketLine, 2015, p. 33). Amazon is a dominant player in the online retail industry. The company can accumulate top line growth from the increasing online sales by leveraging its online retailing capability. “Online spending reached $1.5 billon on Black Friday in 2014, an increase of nearly 25% over 2013. Amazon’s sales grew by approximately 24% on Black Friday” (MarketLine, 2015, p. 33).

The company has also been expanding its focus on the online display advertising business. Amazon has consistently expanded its online display advertising business worldwide to tap into the market. The company is establishing next generation advertising products by advancing its technologies and video content as well as customer data. “The growing market for online display advertisements and the company’s efforts to strengthen its foothold in the industry would add an incremental source of revenue for Amazon” (MarketLine, 2015, p. 34). Spreading emphasis on online display advertising will complement Amazon’s top-line growth.

The request for cloud computing services is anticipated to grow significantly. “The public IT cloud services are expected to account for over 50% of worldwide software, server, and storage spending growth by 2018” (MarketLine, 2015, p. 34). Amazon web services offers a low-cost infrastructure in the cloud that controls government, enterprises and startup businesses in more than 190 countries. The company has been broadening its web services considerably in recent years. Amazon can use the increasing demand for cloud computing services as an advantage to expand its business even further.

Threats to Amazon

Amazon.com, Inc. is also faced with considerable threats to the company. There is an increasing pressure to collect sales tax on merchandise sold through online websites. There is also a growing competition in the e-reader market and a risk of foreign exchange fluctuation.

The push for imposing internet sales tax on merchandise sold on retail websites has been building up strength in the past years. “In 2013, the US Senate passed the Marketplace Fairness Act, which requires all online retailers with revenues of $1 million a year or more outside their home states to collect sales taxes for the states where they ship goods” (MarketLine, 2015, p. 35). This could impact many of Amazon’s sellers who do more than $1 million annually in out-of-state transactions. Furthermore, the lack of differences in prices may weaken Amazon’s appeal to customers. This could lead to customers migrating to different retailers who offer similar goods at a comparable price. In return, it adversely affects the company’s revenue.

The market for e-readers is exceptionally competitive in the US. Amazon’s Kindle competes with Barnes & Noble and Sony for a share in this growing industry. The e-reader industry has been made even more competitive as tablets are beginning to act as a substitute for the device. “In order to beat competition, Amazon launched third generation Kindle starting at $114 in April 2011. The price offered by Amazon was $35 less than Barnes and Noble’s least expensive Nook, and $66 less than Sony’s least expensive e-reader” (MarketLine, 2015, p. 36). Price wars can intensify and Amazon’s margins can pressurize as competition in the e-reader market grows.

Amazon receives a substantial amount of its revenue from international operations. “Net sales and related expenses generated from the international websites are denominated in the local currency of the corresponding websites and primarily include Euros, British Pounds, Japanese Yen and Chinese Yuan” (MarketLine, 2015, p. 36). In addition to the above statement, Amazon maintains cash equivalents and marketable securities in the foreign currencies listed. Cash equivalents and marketable securities balances could be significantly less than predicted if the US dollar enhances. Immense exposure to foreign currency makes the company greatly sensitive to foreign currency exchange fluctuations. As a result, Amazon’s consolidated revenues could record compelling gains or losses.

An overall threat Amazon.com, Inc. faces is competition. There is a number of powerful companies in the

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