There is no doubt that the online retail space is being occupied extremely fast as every producer and retailer wants to get their products and service on the web. But what about the company that started it all? Amazon started out as one of the first online retail stores selling books but has now expanded to offering a multitude of services and becoming one of the biggest e-commerce players. In this paper, I analyze how Amazon got to where it is today, the challenges it has faced, the ones it’s facing now and the one it’ll be facing in the near future. Along with mentioning the challenges, I’ll also analyze the source of these challenges and pressures as well as what change they will bring to the organization. I conclude this paper with my predictions for the organization.
Founded in 1994 by Jeff Bezos, the 24-year old company is now the most valuable company in the world according to Financial Times Global 500 rankings. The company started out selling books but now has diversified into various fields including cloud-computing, publishing, television, furniture, electronics, etc. Having such a diverse range of products means the company has a lot on its plate. This complex business model also means more problems are likely to crop up. However, money isn’t a problem for Amazon. Thanks to great timing, leadership, and impeccable insight, Amazon was able to avoid one of the biggest problems that is usually the cause of most organizations’ demise – finance. Amazon’s business model capitalized on a new fast-paced world. One can argue that thanks to the Internet, the information could be access at lightning speeds. This meant people didn’t like to wait anymore. Amazon not only created a business model that allowed people to make purchases fast, but it also developed a system that allowed people to get what they ordered in a few days’ time. Over the years, Amazon has poured billions of dollars to make its Prime membership program more attractive. The result of all this? Amazon has become a true market leader in terms of revenue and market share but there are still some problems that it faces.
The first problem Amazon is facing has been plaguing the company since its early days. The problem of bad work conditions in its warehouses and offices. Amazon has had a history of underpaying its employees, denying them the rights to form unions, penalizing them for taking breaks, maintaining bad work conditions. Amazon CEO has gone on record mentioning these problems and that he is aware of them. Does that mean these work conditions are a direct result of decisions made by upper management? Could be argued but more importantly is Jeff Bezos and his management going to do anything? Since 2013, Amazon workers have gone on several strikes in order to negotiate better work conditions with the behemoth but so far there isn’t even concrete evidence that conditions are becoming better.
Another problem that Amazon has been trying to tackle for a few years is competition. Amazon is an online retailer that sells other brands’ products. However, with the Fulfilled by Amazon program (FBA), Amazon is allowing its competitors, which are physical retail stores to sell their products on Amazon. This results in a few things. First, it results in reduced price competition as Amazon allows competitors to use their platform to sell their own products. However, FBA products are also shipped by Amazon, therefore the overall workload in the shipping department increases. And lastly, it means an increase in its work operations, and sometimes only for seasonal workloads. Though Amazon has already poured in billions of dollars into logistics to create one of the largest and most efficient delivery systems, it’s not perfect and now it’s slowly becoming insufficient. The problem with this is that these vendors can stop working with Amazon at any time so there’s always a bit of risk involved. But despite this, Amazon continues to negotiate deals with companies like UPS and FedEx to improve its overall shipping operations.
Increased orders and the workload that comes with it is also a problem that Amazon has to deal with. In its early days, there were massive delays due to an unprecedented number of orders being made on holidays like Christmas and New Year. To cope up with this sudden increase in demand, Amazon hires seasonal workers during the time but sometimes even this is not enough and full-time workers have to work overtime and miss holidays.
The company has also been launching products in categories like electronics, furniture, home decor, etc. under its own brand. The battle is now in getting the public’s favor through marketing efforts. My prediction is that if the company is able to compete with other established brands in the segment on pricing, value, and availability, it might have a chance, otherwise, it will be just one of Jeff Bezos’ many failed companies.
Most of these pressures and challenges are the direct result of three factors: need to scale up, government regulation, and competition. Amazon is growing at a stunning pace and in order to keep that pace, it needs to invest the revenue into new products, ideas, and campaigns. In other words, Amazon is scaling up to keep the momentum. Government regulation is forcing Amazon to find new ways to keep their workers happy while not sacrificing the speed and efficiency they are known for. One way the company is doing this is through automation. Also, competition is forcing the company to launch and pour resources into its other ventures like Amazon Music, Amazon Video, Amazon Studios.
These pressures exist because Amazon provides a service used by millions. That is, the company affects millions of lives and any entity this big attracts government regulation, intervention, and public criticism. However, the company should view these as chances to improve its services and become better.
I believe in order for Amazon to tackle these problems, it will have to bring both first-order and second-order changes into the company. Scaling up requires first-order change wherein the company needs to introduce plans to build bigger facilities, further optimize its delivery system, and continue to work on its content on Amazon Publishing, Music, and Video to stay relevant. Second-order changes will also be introduced in the form of a shift in how workers are treated, that is, giving them greater rights and better work conditions. Most likely, Amazon will pour resources into marketing and using economies of scale to make the products under its own brand more competitive and appealing to consumers. While all this is happening, Amazon is also likely to be slowly moving towards physical retail stores to become a hybrid retailer. It has also started that process with the purchase of Whole Foods as research shows consumers are still highly likely to shop at physical retail stores. Maybe, everything online isn’t the future after all.