Porter's Five Forces - Amazon

Extract

[...] In this regard, Amazon seems to be ahead of its competitors. Thus, the bargaining power of customers may decrease in the event that a customer wants to get a particular item in a short period of time, he will, de facto, go to the sales platform which offers the fastest delivery time. On the price side, the same mechanism operates. Indeed, it has never been so easy to compare prices than on the internet, tools even exist to allow this comparison. [...]

[...] Porter Analysis In 1979, Porter's Five Forces Analysis was created. It is a strategic model, developed by engineer and Professor Michael Eugene Porter, who then taught at Harvard Business School. It is an analytical tool that helps establish a framework to assess the level of competition within a market in order to derive an appropriate business strategy. This analysis revolves around 5 ‘forces' that determine the intensity of competition and rivalry in a market and, therefore, the potential interest that this market holds in relation to the investment opportunities and profitability that the market holds and we can draw from it. [...]

[...] Porter Analysis for Amazon A. Threat of new entrants The significance of this threat is moderate. It is very easy to build an commerce business but much more difficult to build an empire that relies on very well-oiled distribution logistics networks. To develop an e-commerce solution, it is not necessary to have physical premises. Thus, while for a ‘traditional' business, it is necessary to provide for the rental of premises, with all the logistical concerns that this represents, the barriers to entry are less restrictive for e-commerce. [...]

[...] Finally, sellers on Amazon face strong competition among themselves and Amazon can play in this competition as it pleases and offers advertising packages to sellers who wish to promote their products. Sellers, therefore, become totally dependent on Amazon and no longer have much leeway. It, therefore, seems that their bargaining power is weak. E. Intra-Sector Competition In the e-commerce sector, which could be described as ‘generalist', competition is very high. Amazon's strength is to succeed in establishing itself internationally, which companies like Cdiscount or Rue du commerce cannot do. [...]

[...] However, Alibaba has only $72 billion in revenue, compared to about $280 billion for Amazon[10]. Unlike Amazon, Alibaba dominates the growing Chinese market and offers social networking services, which allows it to have a preferred communication channel for its sales. Therefore, Alibaba has a certain strength of differentiation from Amazon. Finally, it is worth remembering that Amazon has a turnover that represents 43% of the market share on a global scale. You could almost say that the American giant is ridiculing the competition[11]. F. [...]