Founded in 1994, Seattle-based Amazon.com began as an online retail store that specialized in the sale and distribution of books. Now Amazon is the largest retailer online, selling a broad range of entertainment items, electronic goods, and consumer goods. As one of the largest marketplaces in the world, Amazon directly distributes products to consumers and also connects third-party sellers to consumers. However, the company faces several challenges in maintaining its competitive advantage. To remain profitable, the company must be able to ethically leverage technology and continue to support a governance structure that aids the mission of the company. This report will examine how the structure, culture, and ethical practices of Amazon have impacted the company’s success.
Amazon.com, or Amazon, is one of the largest retailers of books, entertainment media, and consumer goods on the Internet. In FY 2012, the company reported revenues of $61, 093 and dwarfs its competitor eBay, which reported revenue of $14,072 for the same year (MarketLine, 2013, p. 3). Amazon is a Seattle-based company that was incorporated in 1994 and reincorporated in Delaware in 1996 (“2013 Annual Report,” 2013, p. 3). As an online company, Amazon was able to quickly begin operation after being incorporated. In July 1995, the company launched its website, targeting two geographic segments: North America and International (“2013 Annual Report,” 2013, p. 3). While many businesses toil for years before becoming successful, Amazon did not have to struggle long before becoming a success. Within two years of its launch, Amazon recorded significant growth. By 1997, sales increased to $147.8 million, up from $15.7 million in the previous year (“2013 Annual Report,” 2013, p. 3). Further, the number of customers who set up accounts with Amazon increased from 180,000 to 1,510,000 (2013 Annual Report, 2013, p. 3). Site traffic is another metric that is used to measure the success of online businesses. According to Media Metrix, Amazon increased its ranking from 90 in 1996 to 20 in 1997 in terms of the number of audience members reached (“2013 Annual Report,” 2013, p. 3). By the end of 1997, Amazon had built a significant presence as a leader in online commerce.
The expansion at the operational level during its pivotal growth period in 1997 contributed to Amazon’s eventual standing as a Fortune 500 company. Within one year, the company expanded its employee base from 158 employees to 614 employees while increasing the capacity of its distribution center from 50,000 square feet to 285,000 square feet (“2013 Annual Report,” 2013, p. 3). Further, the company made its first initial public offering in May 1997, enabling it to accrue $125 million in cash and investment balances at the end of the fiscal year (“2013 Annual Report,” 2013, p. 3). By the end of 1997, Amazon was positioned to become a leading retailer.
In addition to making a strong start following its initial public offering, Amazon has secured its position through the strategic acquisition of products and technology platforms. For example, in 2009 the company expanded its business operations through the acquisition of Zappos.com, an online apparel retailer (MarketLine, 2013, p. 5). In 2010, the company acquired Touchco, a firm that specializes in touch screen technology, to enhance the functionality of its Kindle book reader (MarketLine, 2013, p. 5). During this same year, Amazon made acquisitions to add to its product live. Amazon acquired BuyVIP.com, a fashion and lifestyle online shopping community that serves six million members internationally, and Quidsi, a company that operates Diapers.com, a baby care specialty site, and Soap.com, an online site for essential household items (MarketLine, 2013, p. 5). Through these strategic acquisitions, Amazon aims to expand both its consumer base and its product line.
The dominance of Amazon in the eBook market is also an important component of the company’s chronology. In 2007, Amazon launched the Kindle e-reader, a portable e-book reader that enables users to download and read books, magazines, and other written materials (MarketLine, 2013, p. 6). Following the launch of its first Kindle, the company has profited by introducing newer versions of the Kindle with improved functionality. In 2001, the company introduced the Kindle Fire, which competed against the Apple iPad in price (MarketLine, 2013, p. 6). Recent versions of the Kindle attempt to compete with other eBooks by adding multi-media applications and expanded features. For example, the 2013 Kindle Fire HDX possessed a seven-inch display, the Fire OS 3.0, and instant video downloads (MarketLine, 2013, p. 6). Amazon’s leadership in the eBook market has contributed to its lead over competing online bookstores as well as its overall position as the top online retailer.
Amazon’s business model is patterned after its mission statement. According to the company website, the mission of Amazon is “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices” (About Amazon, 2014). As this mission statement articulates, the primary goals of the company are to provide a wide range of products that consumers demand at low prices. Further, the company aims to make these products conveniently accessible to the online shopper. This mission statement plays a critical role in defining the business structure at Amazon. As the review of Amazon’s history revealed, the company has based its model upon making acquisitions that expand its product offerings. Further, the company has expanded the capacity of its distribution center as it has grown to improve the fulfillment of orders placed by online customers. The only lacking element from this mission statement is a connection to a broader philosophy. While the company’s goals are clearly stated, there is little reference to the overall vision of Amazon. To improve its mission statement, the company should clearly articulate its philosophy in addition to its mission.
Amazon possesses a functional-level strategy that aims to maximize revenue by cutting operational costs. By reducing its operational costs by reducing its reliance upon physical capital, Amazon can offer consumers a low price and secure its position as a price leader. As the company asserts in its 2013 Annual Report, it must retain and expand its network of online sellers, effectively manage its inventory and fulfill orders, and effectively expand its infrastructure to remain competitive (“2013 Annual Report,” 2013, p. 6).
The Amazon website lists the executive officers and directors who have served on the Board of Directors since January 17, 2014. As listed in the 2013 Annual Report, the following personnel serve as key leaders on the board:
Jeffrey P. Bezos – President, Chief Executive Officer, and Chairman of the Board
Jeffrey M. Blackburn – Senior Vice President, Business Development
Andrew R. Jassy - Senior Vice President, Web Services
Diego Piacentini – Senior President, International Consumer Business
Shelley L. Reynolds – Vice President, Worldwide Controller, and Principal Accounting Officer
Thomas J. Szutak – Senior Vice President and Chief Financial Officer
H. Brian Valentine – Senior Vice President, Ecommerce Platform
Jeffrey A. Wilke – Senior Vice President, Consumer Business
David A. Zapolsky – Vice President, General Counsel, and Secretary
As an assessment of the strengths brought by the board members demonstrates, each member is effective in furthering the interest of shareholders by increasing Amazon sales and boosting revenue.
The primary attribute of the board is that each member possesses significant experience with the company. For example, the Chairman of the Board, Jeffrey P. Bezos, has served as the President of the company since it was founded and possesses a background in technology that enables him to compete effectively in a high-tech industry. Jeff Blackburn is the Senior Vice President and assisted Amazon in purchasing the online move database websites IMDB (Mandgalindan, 2012). Further, Blackburn assisted in the acquisition of Zappos and invested in cloud services to improve the technological capabilities of the Amazon website (Mandgalindan, 2012). The expertise of Bezos and Blackburn enable Amazon to remain consistent with the objectives it possessed when it was founded.
While Bezos and Blackburn are most noteworthy for their contributions to the company, other members of the Board have contributed significantly to increasing revenue and introducing operational efficiencies. Because Amazon operates primarily online, Senior Vice President Andrew Jassy has one of the most important roles on the board, operating both web services and infrastructure for the company. Jassy has utilized cloud computing technology to create efficiencies in data management and data storage (Mangalindan, 2012). Under the direction of Senior Vice President Diego Piacentini, the company’s International segment received $4.9 billion in revenue in 2012 (Mangalindan, 2012). Piacentini was able to successfully utilize the strategy of price competition to target consumers in China, Africa, and Europe (Mangalindan, 2012). Senior Vice President Jeffrey Wilke has been with Amazon since 1999 and oversees retail operations in North America, which reported $5.9 billion in 2012 (Mangalindan, 2012). Wilke’s primary contribution to the company was automating tasks to reduce overhead and improve the safety of workers at distribution centers (Mandalindan, 2012). As a review of the key members of the Amazon Board of Directors reveals, the majority of Amazon Board Members have been with the company for at least five years, while many of the Board members have been with the company since its initial public offering. As a result, the Board is strongly aligned with the mission of the company and equipped to increase the value of the company for consumers and shareholders alike.
In addition to recruiting board members with experience and commitment to the company, Amazon adopts a board structure that aligns the interests of the board with the interest of the shareholder. The board is primarily composed of independent directors who do not have a relationship with Amazon (“Corporate Governance Guidelines,” 2014). The primary advantage of ensuring the board is composed primarily of independent directors is that it ensures that the performance of company executives can be objectively assessed by board members and ensures that board members have less of an incentive to obscure information that is presented to shareholders. The primary drawback of the compensation of the board is that the CEO of the company serves and Chairman of the Board. While employees of the company serve the function of the Board by providing critical information on performance, combining the function of CEO and Chairman presents a conflict of Interest when the Chairman must critically assess the performance of the company and the performance of executive officers. Thus, the impartiality of the Board of Directors is diminished by the dual role provided to the CEO of both operating and monitoring the company.
According to all indicators, Amazon can be characterized as a large company. The company reported total revenue of $61,093 million in the fiscal year 2012, which represented a 27.1 percent decrease from the previous year (MarketLine, 2013, p. 3). In its North America segment, the company reported total assets of $26,108 million for 2013, which has increased from $20,703 million in 2012 (“2013 Annual Report, 2013,” p. 66). Though Amazon is a U.S. -based company, it also has experienced impressive growth internationally. In its International segment, the company reported total assets of $14,051 million in 2013, an increase from $11,852 million in 2012 (“2013 Annual Report, 2013,” p. 4). As of December 31, 2013, Amazon employed 117,300 full-time and part-time employees (“2013 Annual Report,” 2013, p. 4). It can be expected that a company of this size would allow for less autonomy to ensure that employees work efficiently and provide consistency to consumers.
The structure of Amazon features clear organization and division into hierarchical units. As the history section determined Amazon is divided into two primary segments: North America and International. Amazon possessed a well-defined hierarchical structure that includes ten levels of classifications (Stone, 2013). Laborers in the Amazon fulfillment centers represent the bottom level of the classifications, program managers and senior product managers represent levels 5 and 6, and executives represent level 10 (Stone, 2013). Decision-making is centralized and the chain of command extends from top-to-bottom (Stone, 2013). Overall, this structure is typical for a larger firm. Successful enterprises typically possess clear chains of command and a hierarchical structure. However, as an online business, this chain has many disadvantages. Many competitors facilitate autonomous organizational structures to accommodate the decentralized nature of technologically oriented businesses.
While Amazon lacks an explicit statement to describe its corporate culture, its business practices provide clues to the main components of the company’s culture. As the mission statement reveals, Amazon’s focus on the consumer is a strong component of its culture (About Us, 2014). Further, the company seeks to compete through technological innovation. As the company notes, all aspects of operations, including fulfillment, customer service, and development are reliant upon innovative technology to function (About Us, 2013). Employees of the company share a belief that technology can be used to enhance the experience of Amazon visitors and to make online shopping more convenient for the consumer. Thus, Amazon culture is centered on the delivery of technology to meet client needs and fulfill the overall mission of the company.
Recently, Amazon has been involved in patent infringement cases that have presented ethical dilemmas. In August 2013, Online News Link sued Amazon for allegedly infringing upon three of its patents that introduced a method for inserting links into online media (MarketLine, 2013, p. 6). Additionally, in November 2012, Innovative Automation complained that Amazon services related content distribution on Amazon eBook platforms and media distribution services infringes U.S. patents (MarketLine, 2013, p. 6). Further, in July 2012, Technology Properties Limited, Phoenix Digital Solutions, and Patriot Scientific Corporation complained Amazon infringed upon a patent by combining the Kindle Fire with specific peripheral devices (MarketLine, 2013, p. 6). The primary impact of these violations is that the company stands to lose money settling these disputes in court. Further, analysts assess that these patent violations could potentially diminish Amazon’s brand image as well as its future brand equity (MarketLine, 2013, p. 6). Thus far, the company has not responded satisfactorily to these ethical dilemmas. Though Amazon has defended itself against legal actions, it has not satisfactorily demonstrated to shareholders that the allegations are false or that the company has taken action to remedy practices that breach copyright law.
Beginning as an online book retailer, Amazon has grown significantly to become one of the largest online marketplaces for consumer goods. The governance and structure of the company partially attributed to its success. The Board of Directors provides the expertise of independent consultants and the experience of company founders to ensure that Amazon retains its original mission of providing excellent service and value for online consumers. However, the company also faces challenges in maintaining its market lead. First, its corporate structure encourages conflicts in interest by enabling the CEO to serve as Chairman of the Board. Second, the company possesses a hierarchical structure that prevents employees from exercising levels of autonomy that are typical for high-tech businesses. Finally, the company has been the target of patent infringement suits, diminishing the overall image of the brand. To maintain its competitive advantage, Amazon must maintain an impartial board by eliminating sources for conflict of interest while addressing recent ethical dilemmas that negatively impact the image of the company.
2013 annual report. (2013). Amazon. Retrieved from http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsannual.
About Amazon. (2014). Amazon. Retrieved from http://www.amazon.com/Careers-Homepage/b?ie=UTF8&node=239364011
Corporate governance guidelines. (2014). Amazon. Retrieved from http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-govConduct.
Mangalindan, J. P. (2012, January 5). Meet Amazon’s all-stars. CNNMoney. Retrieved from http://money.cnn.com/galleries/2011/technology/1112/gallery.amazon-all-stars.fortune/index.html
MarketLine. (2013). Company profile: Amazon.com, Inc. Retrieved from https://store.marketline.com/report/ml2580641sa--amazon-com-inc-strategy-swot-and-corporate-finance-report-2/
Stone, B. (2013, October 15). Why it’s so difficult to climb Amazon’s corporate ladder. Bloomberg Businessweek. Retrieved from http://www.businessweek.com/articles/2013-10-15/careers-at-amazon-why-its-so-hard-to-climb-jeff-bezoss-corporate-ladder