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Innovation is and
remains one of the most important topics over the last years. There are several
reasons to innovate e.g. such as the attraction of new customer groups, to be
one-step ahead competitors or to serve the fast-paced society, that always wants
to be mesmerized. Using the possibilities of innovation can amplify the
position in the market and increase the businesses market shape. Also, it
offers therefore new capabilities to combine innovations and create even new
inventions. On the one hand companies with many years of empirical knowledge
ventured an approach on launching new products and technologies. On the other
hand, a quantum of brand-new companies with innovative concepts stormed the
market and therefore challenged the competition since the World Wide Web took
over as the biggest market place ever. In the list of this years most
innovative companies (Sorin-George and
Catalin, 2016) there is a huge diversity of firms, innovation market
leaders such as Apple and Tesla, but also new companies (e.g. 3M). To go deeper
into the software and Internet industry where innovation is the core of
success, companies need to be part of the continuous changing process and
desires of their industry and customers. Compared to other industries where you
are limited by natural circumstances and declining resources, companies need to
be aware that their ideas and technological progress should never end. Thinking
in future, being pioneers of their industry is exactly what Amazon is doing
since 1995. This leads to the main topic of this essay, how Amazon has been
using innovation to drive the company’s success.             

 

1. Amazon as a go-ahead
company with its innovations

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With over 500,000
employees and a revenue of $ 136 billions in 2016, Amazon is one of the largest
and most successful electronic commerce and cloud computing company worldwide (Amazon.com, 2017). Also in 2015, Amazon has become the fastest company
ever to reach $100 billion in net sales (Jeffrey, 2015) .That would not have been possible without its
innovational and forward thinking strategy that Jeff Bezos, CEO and Founder of
Amazon, is pursuing since he created the company in his garage back in 1995.
The willingness to innovate and invent pioneered Amazon their way of what has
become an enormous empire of commerce around the globe. Furthermore, a large
number of new groundbreaking technologies assisted to achieve that. With Kindle
for example, Amazon launched a-first-of-its kind portable reader with the
vision of offering every book, in any language, which was sold out in 5.5 hours
(Wasserman, 2012). That game-changing product was just the beginning.
In addition, the acquisition activity of Amazon increased steadily since 1998.
For example, over the years Amazon bought Whole Foods Market, Alexa Internet
and Audible for a total amount of over $500 million to diversify its
acquisition portfolio into several market sectors for its success.

 

1.1 The important role
of Amazon Prime

In the 21st century time
is a factor that has become ever more important for society and therefore for
customers. People have gotten the feeling that they have scant time left,
especially when it comes to fulfilling their desires and needs.

Since 2005, Amazon Prime
has become a significant backbone in Amazon’s e-commerce and streaming
businesses. The membership costs $99 annually and additionally to its service
of getting free shipping within two days and the possibility of an one-hour
delivery on certain orders, it includes the service of streaming movies, TV
shows, podcasts, Amazon’s original productions, etc.. Amazon Prime is available
in a large number of countries as for example Canada, Germany, Japan etc. While
Prime is primarily used by Amazon to hearten and amplify loyalty with its
customers who desire faster shipping, Amazon is steadily trying to innovate and
to diversify their services on Prime to attract and gain new customers and more
market share worldwide. That is the reasoning why there is a great diversity of
the services provided, e.g. the so called „Amazon Prime day”, which is an
exclusive 30 hours sale where Amazon discounts more than 100 products up to
60%. The prime day 2017, on July 11, surpassed Black Friday and Cyber Monday,
making it the most notable day ever in Amazon history, with more new members
joining the Prime service than on any other day in Amazon history (Amazon – Press Room – Press Release, 2017)

Furthermore, Prime
members spend in average $600 more in a year than non-prime members (CIPR – Release, 2017) According to CIRP, the share of members that stated
that they are likely to renew for another year has remained high for several
quarters, always comfortably above 90%. In fact, in some quarters no customers
in the sample have said that they would definitely not renew their Amazon Prime
membership, which indicates the loyalty toward Amazon.

Since Amazon has not had a profit calculation for Prime when they launched the
service in 2005, it could have remained a poor dog. Against the odds, the
complete opposite happened. Since then Prime is increasing its number of
members steadily. There are up to 90 million members in the US, which means 63%
of their US customers are Prime members (CIPR – Release, 2017). Its revenue
elevated from $4.5 billion in 2015, up to $6.4 billion in 2016, which is 4.7%
of their total revenue (Amazon.com, 2017). In general, you could assume that the launch of
Prime was a definite success for the company.

 

1.2 Amazon launching
Prime Air

The concept of Prime Air
is not only the technological aspect of a drone, furthermore, it includes a
huge variety of innovations concerning four purposes: 1. customer obsession
(speed delivery), 2. invent and simplify (service efficiently and automation),
3. thinking big (service diversification) and 4. bias for action (be first to
market).

These purposes are
combined within just one invention and its main goal to deliver packages up to
five pounds weight in 30 minutes or less. 
Amazon Prime Air can be seen as a consumer service, as well as a
merchant product offering. The service is supposed to satisfy external (retail
consumers) and internal (Amazon Retail and FBA merchants) customers.

Moreover, Prime Air is
not only another move toward reducing its dependence on outside companies,
since the last-mile delivery is taken usually by entities like FedEx and UPS,
but also a serious challenge to the delivery competitors. Since about 85% of
Amazon’s orders are under five pounds (Bastford & Dinner, 2013) it seems to
be profitable to switch to the drone delivery. With $130 million of capital
costs and 350$ of operating costs Amazon would only pay $0.88 (Ark Investment, 2015) using the drone-delivery. According to Ark, even if
the variables used by them were misguided, it will not change the cost per
package significantly. Amazon’s costs could surpass $1 per

package, just in case if
drone users’ salaries were way higher than expected.

(Ark Investment
Management, 2015)

The small unmanned
aircraft system (sUAS) will be fitted with the highly developed “sense and
avoid” technology (SAA). Currently, the market is being explored with critical
technologies, e.g. vehicle-to-vehicle communications (V2V), which is an
automobile innovation designed to permit automobiles to “communicate” with each
other. Furthermore, it is important to separate collaborative and
non-collaborative technologies. V2V provides collaborative SAA, which allows
vehicles to signalize the distance between them to create cognition and
maintain detachment. Whereas Amazon’s (sUAS) will probably fly below 400 feet,
there would be the possibility to collide with birds, balloons or other
vehicles. But with the Sensor-based SAA technology, these incidents should be
prevented. It enables non-collaborative communication between drones and other
vehicles or entities, which guarantees more safety (Orrell, Chen and
Reynolds, 2017)

And there are indeed
some limitations regarding that idea. Customers can use the prime air service
only, if they are living 10 miles or closer to an Amazon warehouse. The
inventors are supposed to be improving the safety and reliability of that
system and operation. The limitations concerning the drone delivery when it
comes to operating are permissions only during daylight hours with low winds
and good visibility, but not in rain, snow or icy conditions (Amazon, 2014). As seen in video of the first prime air delivery on
December 7, 2016 (Amazon, 2016a), the drone lands on an Amazon sign, which the
customer has to place in his garden. With this prerequisite, the question on
how Amazon will deliver packages to people that are living in apartment units,
still remains.

 

2. Permanent search of
new markets

Further research (Burgelman, Christensen
and Wheelwright, 2009) showed that innovational companies are bemoaning that
rivals who copied their original innovation have profited more, than the
innovators did themselves. One example for that could be the rivalry between
Amazon and Walmart. About a year ago Amazon introduced Amazon Go which is a
shopping technology store without lines and checkout. All you need is an Amazon
account, a supported smartphone and the Amazon Go app (Amazon, 2016b) When Amazon thought they would be the first to
commercialize it, Walmart quickly anticipated with a response: the Walmart Scan
& Go app.

Nevertheless, after with
the concept of Prime pantry and selling small priced groceries as well as
household goods, Amazon is going one step deeper in the sector of groceries.
They decided for the first time to introduce a physical store, which could
render as a serious problem for its competitors especially for grocery chains.
Since Amazon revealed the Amazon Go introducing video (Introducing Amazon Go  – YouTube,
2016) showing customers buying groceries, experts rumored
that this is what the future of Whole Foods could look like. Six months later
the first prototype grocery opened in Seattle, Washington. But this is not the
only market on which Amazon has put their focus. For example, fields like
advertising (Amazon is providing their customers with a service called Amazon
advertising) and the entertainment section are markets in which they are
focalizing, especially the letter. Furthermore, Amazon already made about $1.5
billion from its „other categories” in 2016, which includes its advertising
service campaign (Amazon.com, 2017)

 

2.1 Entering in media
& entertainment market

„We get our energy from
inventing on behalf of customers, and 2014 is off to a kinetic start”, as Jeff
Bezos CEO of Amazon in the press release of 2014 said.
The year 2014 was indeed a „kinetic start” directed into the entertainment
market, since Amazon stated that their streaming activity on Prime Instant
Video  „nearly tripled” over the last 12
months, and that the amount of allocatable movies and TV series were 10 times
higher than in 2013. With these announcements, Amazons aim was made clear:
Becoming an entertainment giant.

 

The billion-dollar race for streaming supremacy

Estimated annual video content budgets of Netlix and Amazon

(Statista, 2017)

These days most of the
best TV-movies and TV-series are often not to be seen in television. The
streaming sector, which is dominated by Netflix and HBO with most of the market
shares, is growing and Amazon embraces the opportunity to build an own “entertainment
empire”.

Streaming services such as Netflix are increasingly funding their own content
tempting you to sign up. Amazon is getting on that track with its own shows
exclusively developed for Amazon Instant Video by the company’s production arm,
Amazon Studios. Since 2013 Amazon created nearly 40 TV-series with betting on
big names such as Woody Allen, fourth time Academy Award Winner, who is
directing a show for them. But the biggest one is yet to come. The Lord of
the Rings canon was named Amazon customers’ favorite book of the
millennium in 1999. The trilogy directed by Peter Jackson earned a combined
gross of nearly $6 billion worldwide and in November 13, 2017 Jeff Bezos
tweeted that „Amazon Prime heads to middle earth”. Yet the same day, Amazon announced
on a press release that it has acquired the global television rights to The
Lord of the Rings, based on the celebrated fantasy novels by J.R.R. Tolkien,
with a multi-season commitment, for a total sum of $250 million (Amazon – Press Room – Press Release, 2017).

In other words, Amazon is using the same successful strategy they used with the
book market. The aim is to create an entertainment experience that can not be
ignored. If the strategy works with media and entertainment how it did with
books, consumers may not have many options left what streaming service to use,
the answer should be clear: Amazon.

2.2 Amazon Web Service

There is one statement on which every cloud computing expert agrees: Amazon Web
Service (AWS) is the largest public cloud vendor that exists. In November 2017,
Gartner Inc., a research and advisory firm related to IT, stated that AWS is clearly
the market leader in cloud services (Gartner Reprint, 2017).

Since Amazon launched the service back in 2006, they fundamentally changed the
way IT operates. Before AWS, firms had to establish a cloud presence with the
goal to get into a datacenter and connect their server to the internet. That
means companies had to install their own hardware, firewall, servers and buy
their own internet connection, which was not only exceedingly expensive, but
also decelerated the business process. Which leaves a company with one
datacenter and immense monthly costs. Amazon recognized this problem and since
they already built this worldwide infrastructure for themselves, they decided
to let other companies and people utilize it (Newcombe et al., 2015).

 

Nowadays, Amazon is the
provider companies such as Spotify, Airbnb, BMW, Siemens, Netflix and even the
CIA rely upon. Furthermore, AWS’s revenue is increasing steadily. In 2016, AWS
made $12.2 bn (8.9% of their total revenue) which proves that the strategy
management made the right choice in heading into the IT business.

 

Discussion

Amazon is indeed a very
innovative company regarding all the aspects mentioned above. It has a stimulus
to reach every goal it has set itself and to conquer the international market.
In my opinion, this desire to dominate every market sector, the way Amazon is
doing it, is connected with a negative impact. Not only is Amazon competing and
setting a high level for competitors such as Netflix, UPS or FedEx., but is
able to even eliminate its competition. Amazon is putting local stores out of
contention. Using their market force for this purpose could be seen as an abuse
of power.

Furthermore, Amazon is
being criticized for many more aspects. For example, concluding a 10-year deal
with the CIA for $600 million, in which Amazon offered them a
„Top-Secret-Cloud”, seemed quite dubious.

Nevertheless, Amazons
vision is to reduce their prices for customers and to serve them to fulfill
their needs, wants and demands as fast as they can, is quite reputable.

 

Conclusion

I wish to lead to an end by using a strong quotation
of Jeff Bezos. “If you don’t
tolerate critics, don’t do anything new or interesting”. That shows how important the term innovation is entrenched in
Amazon. They always have been and will be successful in launching new
inventions and innovations to be one step ahead of its competition. With Amazon
doing the first steps they started more than just one revolution. Amazon Go is
an example of how the future of grocery chains might look like. Drones could be
the future of delivery and the AWS is now the biggest Cloud worldwide.

Amazon notices new
opportunities that appear and seizes them. They see themselves as a company for
customers. It is for a good reason that Jeff Bezos divided companies in two
fractions: Into those that work to raise prices and those that work to lower
them. The customer-based strategy proves to be a full prosperity. Their annual
revenue is increasing continuously. In fact, the World Wide Web can be seen as
the biggest market place ever, with Amazon having the lion’s share of it.

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