The Company’s Introduction
Amazon.com, Inc. is an American company, the largest in the world by turnover of selling goods and services through the Internet and one of the first online services focused on the sale of real consumer goods. It was established in 1994 by an American entrepreneur Jeff Bezos, and the site was launched in 1995. The company was named after the Amazon River, the deepest in the world. Only books were originally sold online. In June 1998, the store began selling music CDs, and in November of the same year – video data. MP3-records appeared later in the range, as well as software, video games, electronics, clothes, furniture, food and toys. Currently, Amazon.com covers thirty-four categories of goods, including household goods, sporting goods, electronic books, consumer goods, etc. The service first took advantage of the power of the Internet: it can handle a much larger number of customers than the usual “physical” store, more items of goods, not limited to what is available (Gilbert, 2009).
Amazon is the leading company in the sector of e-commerce in the U.S. market with growing presence outside of North America. The company offers a wide range of products and identifies three areas of revenue: the media, sales of electronics goods, and “other”, which involves revenue from services not related to retailing. The company develops and examines new segments for development. So, since 2007, it has been experimenting with food retailing, but it started an active expansion of a new direction in the United States only in 2013. It is assumed that the company will be released on 25 markets by the end of this year. Online sale and delivery of food is a growing segment (more than 5% per year) (Wittekind, 2013).
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The price drivers are:
- Development of technology segment, including through acquisitions of IT companies and start-ups;
- Continued growth of the average check;
- Sales growth from markets outside the U.S;
- Ongoing transition from offline shopping to online shopping;
- Development of its own brand – Kindle electronic books.
Analysis of the Company
- Market leader in e-commerce
- Best of the sector in terms of choice, reliability, price, free delivery, reputation engine
- Stable market share eBooks Kindle
- Weak market position in China
- High dependence revenue from currency risks
- The seasonality
- Continued geographic expansion
- Increased market share in the retail market
- Increase costs in new markets
- Growth of competition
Financial condition of the company consists in:
- Consistently high revenue growth;
- Rapid growth in operating costs of the company as compared to revenue;
- Profitability ratios below the industry average;
- Worst performance management efficiency in comparison with competitors;
- Moderate debt burden, but an increase over the previous periods (Amazon.com, 2014).
Comparative analysis of the company shows that the company’s shares are overvalued by the market. Most of the multipliers indicate the presence of significant premium to the market price.
The company is the market leader in e-commerce; however, it is actively expanding in other directions. Profitability indicators are lagged behind the rapid revenue growth. At this point, the priority of the company is the rapid conquest of new niches and segments, often accompanied by rising costs and volatility of profitability indicators. Despite the already high price of Amazon shares on the market, in my opinion, the dynamics of the paper companies is caused by prospects for further development, which is already reflected in prices.
Products and Services
The company offers its own products and services. One of such products is Amazon Kindle. Amazon Kindle is a series of e-books that allow users to shop, download, browse and read e-books, newspapers, magazines, blogs and other digital media via wireless network. Kindle devices have displays based on the electronic ink technology; the latest generation processes 16 grayscales to simulate reading on paper with minimal power consumption, can download content from the network Amazon Whispernet, using EVDO-network Sprint or 3g-network AT&T depending on the version of the device. Kindle can be used without a PC, and use Whispernet for free. Furthermore, the device provides access to the Internet. Competition to Kindle made other devices based on electronic paper: Sony Reader, Barnes & Noble Nook, PocketBook Reader, iRex iLiad and others (Saunders, 2011).
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Alexa Internet is a subsidiary of Amazon.com, known as a site that collects statistics on attendance of other sites. Alexa collects information directly from users who have installed the Alexa Toolbar, on the basis on which the statistics is formed about site traffic and lists of related links. Currently, the role of Alexa Rankings is sufficiently large. All companies which are relevant to Internet marketing are set to improve their rankings. Nowadays the public is attracted differently. Some prefer to take a good position on the page of search engine results; others are seeking to ensure that their site was browsed by a greater number of users. In any case, each of them achieves financial success in its own way (Saunders, 2011).
Another service of Amazon.com is IMDb. IMDb is the world’s largest database and website on cinema. It contains information on more than 2 million movies, television series and their separate series, and about 5 million personalities related to cinema – actors, directors, writers, etc. Almost all the information of IMDb is freely available, the website operates on the basis of free software (Apache, Perl and others). IMDb started as an independent company in 1990, bringing together a number of movie lovers. In 1998, Jeff Bezos contacted with IMDb. He offered to buy some of the shares under the condition of full preservation of universal free access to the resources of IMDb. The only thing he wanted in exchange for the investment to Amazon.com was the right to sell film products through the website IMDb.com. Since then, the collaboration between IMDb and Amazon.com began; thanks to the latest, the server capacity was greatly expanded, the dividends were paid to the shareholders of IMDb Ltd, many enthusiasts of IMDb were adopted in the company’s staff. Today it is one of the few examples of successful interaction between big business and film fans-altruists, members of the so-called open source community of enthusiasts. The database of IMDb website is monthly visited by millions of people, and is one of the hundred most popular sites on the World Wide Web (Saunders, 2011).
However, one of the most important services of the Amazon.com is Amazon Simple Storage Server or Amazon S3. During the loading of pages of many major Internet projects, it can often be seen that the resources like images and video are often loaded from somewhere in s3.amazonaws.com. They are in the cloud, namely in Amazon S3. Sometimes it is not so obvious: the well-known service for synchronizing data between computers – Dropbox, a beautiful, multi-platform client, has stored its files also on Amazon S3. No need to explain why the heavily loaded projects need a reliable platform for placing files, which will be 99.9% online. However, it may be necessary for a normal user too. For example, the trivial task is data security (Baun, 2011).
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Naturally, someone might think that the Amazon S3 is just a regular web hosting. However, cloud computing and regular web hosting have significant differences. The regular hosting always has a few limitations. The first one is the most clear – the amount of hard disk drives (especially when it comes to expensive SCSI). It is necessary to do an upgrade every time when disk space is not enough. One may be faced with the second constraint when too many users suddenly come to the resource and the server is crashing. One can lose a lot of important data even with the backup made a few hours ago. A completely different situation is with Amazon S3. One is provided with as much space in the repository as necessary. Amazon uses a specially crafted equipment and distributed file systems, allowing to be scaled infinitely. Those are the same famous technologies that were used a long time ago (for example, by Google, to store huge amounts of data), but as a service for the end user. Amazon S3 ensures data security that is equally important. Any object is compulsorily redundantly stored in several places simultaneously. As soon as the object goes into the repository, S3 cares about its reliability, testing and, if necessary, increases the missing data redundancy. Besides that, S3 also regularly checks the integrity of the stored data using checksums. If the violations are suddenly found, the integrity is restored again with the help of the redundant data. Also, there is the versioning system. One can use it to store, retrieve and restore the previous versions of the object stored in Amazon S3. The default query retrieves the latest version, but the older modification of files can be downloaded by specifying the file version (Baun, 2011).
Certainly, Amazon S3 service is not free. If it comes to small amounts of storage (for the backup of certain important files) and low traffic, then the price will be very low. Amazon uses a regression in scale: the more one hosts, the cheaper a gigabyte of storage costs. Cost per gigabyte is $ 0.150 per month (Amazon.com, 2013). It is not a very large payment for the tranquility and guarantee of data integrity. Clouds can be public or private. Public cloud services can be used by anyone. Currently, Amazon Web Services is the most famous and largest provider of the services in the public cloud. The main difference between a private cloud from public is the provision of a service from the cloud in a closed from public access infrastructure limited by the number of users. There is another definition of “virtual private cloud”, in question when the provider uses public cloud infrastructure for the private cloud. With this organizational structure, a part of the customer’s data is stored and processed by the resources of their own infrastructure, and part by the resources outsourcing provider. An example of a virtual private cloud could be the Amazon Company’s service called Amazon Virtual Private Cloud (Baun, 2011).
There are several competitors of Amazon in the sphere of cloud computing. The most serious competitor of this kind is a cloud service Dropbox. Today it is most organically integrated into the file structure of the computer on Windows, Linux or Mac OS, offers comfortable clients for Android and iOS, gives 2 GB of space for free to the registered users, and for $ 99 a year – 100 GB (Amazon.com, 2013). Another Amazon competitor is Apple. Apple iCloud also offers 5 GB at the beginning as Amazon, but it is not designed for storing the unstructured abstract data. Books, music, videos purchased from iTunes Store are invited to post in this space, as well as the relay Photo Stream from the personal terminal Apple to iCloud, which turns this storage into an automated cloud server of backup media (Wittekind, 2013).
Slightly different approach to cloud storage offers another competitor of Amazon – Box service, which makes an emphasis on the sharing of documents issued on the Internet – a kind of cloud workflow. Again, there is a provided 5 GB free space and the opportunity to expand it (25 or 50 GB for $ 10 or $ 20 a month for individuals and from $ 15 per month for business customers – up to 1TB) (Amazon.com, 2013). Admission system is elaborated with special care, which allows flexibility to assign permissions to read and write different files for different users and groups. Another cloud storage with its own specificity can also be mentioned – MediaFire with 50 GB of free space (however, one has to watch the advertisement or abandon it for $ 1.50 per month), and Mega – also 50 GB free (highly reliable and distributed data storage, but very slow download and upload files, about 10 KB/s) (Wittekind, 2013).
Until recently, a set of Google cloud services consisted of Google Storage, BigQuery and Google App Engine. The infrastructure service was clearly not enough in the company’s portfolio to complete the picture. The company announced the launch of a new service that is likely to become a major competitor of Amazon. With the new service, Google expects to not only attract the new customers, but also to make its cloud ecosystem more attractive to the application developers. The main emphasis was placed on the service scalability, the cost and performance in developing Google Compute Engine. According to the company officials, the establishment of such a service was not a trivial task, even for a giant like Google that has quite an impressive amount of resources. The examples of opportunities of Google Compute Engine have been demonstrated as the application for the calculation of the genome using the 600 processor cores in the Google Cloud and an application that utilizes 10,000 virtual machines. At the request of Google, the value of their new service is 50% lower than the industry leaders of cloud hosting (Wittekind, 2013).
Microsoft Azure, iCloud from Apple, Amazon Web Services, and now Google Compute Engine – all of them are trying to lure into their cloud network exactly as the developers who are now “live” in the Amazon Web Services in the majority. The fact that the developers are coding by standards and rules of the Amazon Web Services, makes Amazon the industry leader. This is its main advantage.
Why exactly Amazon.com has managed to become the largest online store in the world? The answer to this question is not so simple. However, a few moments are emerging if one thinks about it. First, the company is focused on the long term. Secondly, Amazon has been improving all the time. The company pays a lot of attention to the client orientation. Thus, Amazon.com exactly was the first to introduce such an option as customer reviews on the product; even negative reviews were allowed. It is interesting that manufacturers have resisted the introduction of this function for a while. They thought that the introduction of such options may adversely affect sales in the presence of a large number of negative reviews. However, practice has shown that the reviews are only increasing sales.
Another factor in the company’s success is that it did not get stuck on the sale of books. Instead, today Amazon sells a variety of goods, including appliances, DVD and even digital music. If one talks about the managing of the Amazon, the situation is very difficult. The company believes that success can be achieved only due to small groups. That is why Amazon has no particularly difficult vertical hierarchy in managing. Everything is based on the work of small groups. The selection of the personnel of the company carefully considers each candidate. It wants only the best people.
An important role in the successful sales of Amazon takes the correct marketing of the company. It managed to build such a system of sales, in which ordinary people themselves are beginning to promote the products Amazon. Any site owner can sell the Amazon products through its resource, receiving a certain percentage of sales. This powerful system is not afraid of any crises. Amazon lost as much as 500 million dollars during the collapse of the dotcom. However, it had not unsettled the company. Today, it is launching new projects about which the whole world speaks.