Reference no: EM132937392
Amazon's Vertical Integration
Jeff Bezos, the owner of Amazon has become the world's richest person with a net worth of approximately $200 billion. This can be attributed to the extremely fast growth in the share value of Amazon. One of the premier reasons behind this fast growth is vertical integration. First Amazon starts using the services itself. Over a period of time, Amazon builds operational efficiencies in these services. Once these services have a competitive advantage over similar other services, Amazon offers them to other corporations and users. This model has been wildly successful and has been instrumental in making Amazon the giant that it is today.
When Amazon started its business, it wanted to be an asset-light company. Bezos was of the opinion that he would simply pass on the orders from the customers to the publishers. However, he soon realized that the order fulfillment and customer service was weak. As a result, Amazon had to create its own warehouses. Jeff Bezos has invested a lot of time and money in making Amazon's warehouses the most efficient ones. Today, these warehouses are largely run by using technology like robotics process automation. These warehouses offer the lowest cost amongst their competitors. Once Amazon was sure that it could take on competition, it started offering the service to other companies.
Amazon has also developed one of the best cloud computing ecosystems. Amazon's business model has traditionally relied on the use of computing technology to gain better insights into customer behavior. As a result, Amazon acquired a lot of storage space, databases and created other applications for its own use. However, these applications were built in such a way that they could be offered to other smaller businesses as well.
Amazon has recently announced its intention to launch its delivery business. This has sent the shares of companies like UPS and FedEx into a tizzy. After all, Amazon is the master of innovation. It has been working on technologies like drone deliveries to reduce the cost of its operations. It is also known to be experimenting with other technologies such as in-house deliveries. On the other hand, companies like UPS have massive unions. The workers there are opposed to any kind of technological advancement. They believe that the increase in operational efficiency will lead to job loss and redundancy.
To sum it up, Amazon has become the master of vertical integration for online companies. When internet businesses started thriving, there was considerable ambiguity as to whether they will be able to achieve vertical integration. Amazon has certainly shown the way. It is on the way to becoming one of the most vertically integrated companies in the world.
Questions:
1. Describe Amazon's vertical integration strategy and outline its value chain activities.
2. Discuss three (3) benefits and three (3) risks of Amazon's vertical integration strategy.
3. What is Amazon's level and type of diversification? Justify your answer.
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Amazon vertical integration
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