Innovation years. There are several reasons to
Innovation is andremains one of the most important topics over the last years. There are severalreasons to innovate e.g. such as the attraction of new customer groups, to beone-step ahead competitors or to serve the fast-paced society, that always wantsto be mesmerized. Using the possibilities of innovation can amplify theposition in the market and increase the businesses market shape. Also, itoffers therefore new capabilities to combine innovations and create even newinventions.
On the one hand companies with many years of empirical knowledgeventured an approach on launching new products and technologies. On the otherhand, a quantum of brand-new companies with innovative concepts stormed themarket and therefore challenged the competition since the World Wide Web tookover as the biggest market place ever. In the list of this years mostinnovative companies (Sorin-George andCatalin, 2016) there is a huge diversity of firms, innovation marketleaders such as Apple and Tesla, but also new companies (e.g. 3M). To go deeperinto the software and Internet industry where innovation is the core ofsuccess, companies need to be part of the continuous changing process anddesires of their industry and customers. Compared to other industries where youare limited by natural circumstances and declining resources, companies need tobe aware that their ideas and technological progress should never end. Thinkingin future, being pioneers of their industry is exactly what Amazon is doingsince 1995.
This leads to the main topic of this essay, how Amazon has beenusing innovation to drive the company’s success. 1. Amazon as a go-aheadcompany with its innovationsWith over 500,000employees and a revenue of $ 136 billions in 2016, Amazon is one of the largestand most successful electronic commerce and cloud computing company worldwide (Amazon.com, 2017). Also in 2015, Amazon has become the fastest companyever to reach $100 billion in net sales (Jeffrey, 2015) .That would not have been possible without itsinnovational and forward thinking strategy that Jeff Bezos, CEO and Founder ofAmazon, 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 hasbecome an enormous empire of commerce around the globe.
Furthermore, a largenumber of new groundbreaking technologies assisted to achieve that. With Kindlefor example, Amazon launched a-first-of-its kind portable reader with thevision 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 Internetand Audible for a total amount of over $500 million to diversify itsacquisition portfolio into several market sectors for its success. 1.
1 The important roleof Amazon Prime In the 21st century timeis a factor that has become ever more important for society and therefore forcustomers. People have gotten the feeling that they have scant time left,especially when it comes to fulfilling their desires and needs. Since 2005, Amazon Primehas become a significant backbone in Amazon’s e-commerce and streamingbusinesses. The membership costs $99 annually and additionally to its serviceof getting free shipping within two days and the possibility of an one-hourdelivery on certain orders, it includes the service of streaming movies, TVshows, podcasts, Amazon’s original productions, etc.. Amazon Prime is availablein a large number of countries as for example Canada, Germany, Japan etc.
WhilePrime is primarily used by Amazon to hearten and amplify loyalty with itscustomers who desire faster shipping, Amazon is steadily trying to innovate andto diversify their services on Prime to attract and gain new customers and moremarket share worldwide. That is the reasoning why there is a great diversity ofthe services provided, e.g. the so called „Amazon Prime day”, which is anexclusive 30 hours sale where Amazon discounts more than 100 products up to60%. 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 membersjoining the Prime service than on any other day in Amazon history (Amazon – Press Room – Press Release, 2017) Furthermore, Primemembers spend in average $600 more in a year than non-prime members (CIPR – Release, 2017) According to CIRP, the share of members that statedthat they are likely to renew for another year has remained high for severalquarters, always comfortably above 90%. In fact, in some quarters no customersin the sample have said that they would definitely not renew their Amazon Primemembership, which indicates the loyalty toward Amazon.
Since Amazon has not had a profit calculation for Prime when they launched theservice in 2005, it could have remained a poor dog. Against the odds, thecomplete opposite happened. Since then Prime is increasing its number ofmembers 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 revenueelevated 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 ofPrime was a definite success for the company. 1.
2 Amazon launchingPrime AirThe concept of Prime Airis not only the technological aspect of a drone, furthermore, it includes ahuge 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 tomarket).These purposes arecombined within just one invention and its main goal to deliver packages up tofive pounds weight in 30 minutes or less. Amazon Prime Air can be seen as a consumer service, as well as amerchant product offering. The service is supposed to satisfy external (retailconsumers) and internal (Amazon Retail and FBA merchants) customers.
Moreover, Prime Air isnot 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% ofAmazon’s orders are under five pounds (Bastford & Dinner, 2013) it seems tobe profitable to switch to the drone delivery. With $130 million of capitalcosts and 350$ of operating costs Amazon would only pay $0.
88 (Ark Investment, 2015) using the drone-delivery. According to Ark, even ifthe variables used by them were misguided, it will not change the cost perpackage significantly. Amazon’s costs could surpass $1 per package, just in case ifdrone users’ salaries were way higher than expected.(Ark InvestmentManagement, 2015)The small unmannedaircraft system (sUAS) will be fitted with the highly developed “sense andavoid” technology (SAA). Currently, the market is being explored with criticaltechnologies, e.g.
vehicle-to-vehicle communications (V2V), which is anautomobile innovation designed to permit automobiles to “communicate” with eachother. Furthermore, it is important to separate collaborative andnon-collaborative technologies. V2V provides collaborative SAA, which allowsvehicles to signalize the distance between them to create cognition andmaintain detachment. Whereas Amazon’s (sUAS) will probably fly below 400 feet,there would be the possibility to collide with birds, balloons or othervehicles. But with the Sensor-based SAA technology, these incidents should beprevented.
It enables non-collaborative communication between drones and othervehicles or entities, which guarantees more safety (Orrell, Chen andReynolds, 2017)And there are indeedsome limitations regarding that idea. Customers can use the prime air serviceonly, if they are living 10 miles or closer to an Amazon warehouse. Theinventors are supposed to be improving the safety and reliability of thatsystem and operation.
The limitations concerning the drone delivery when itcomes to operating are permissions only during daylight hours with low windsand good visibility, but not in rain, snow or icy conditions (Amazon, 2014). As seen in video of the first prime air delivery onDecember 7, 2016 (Amazon, 2016a), the drone lands on an Amazon sign, which thecustomer has to place in his garden. With this prerequisite, the question onhow Amazon will deliver packages to people that are living in apartment units,still remains. 2. Permanent search ofnew marketsFurther research (Burgelman, Christensenand Wheelwright, 2009) showed that innovational companies are bemoaning thatrivals who copied their original innovation have profited more, than theinnovators did themselves. One example for that could be the rivalry betweenAmazon and Walmart. About a year ago Amazon introduced Amazon Go which is ashopping technology store without lines and checkout.
All you need is an Amazonaccount, a supported smartphone and the Amazon Go app (Amazon, 2016b) When Amazon thought they would be the first tocommercialize it, Walmart quickly anticipated with a response: the Walmart Scan& Go app. Nevertheless, after withthe concept of Prime pantry and selling small priced groceries as well ashousehold goods, Amazon is going one step deeper in the sector of groceries.They decided for the first time to introduce a physical store, which couldrender 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 rumoredthat this is what the future of Whole Foods could look like. Six months laterthe first prototype grocery opened in Seattle, Washington. But this is not theonly market on which Amazon has put their focus. For example, fields likeadvertising (Amazon is providing their customers with a service called Amazonadvertising) and the entertainment section are markets in which they arefocalizing, especially the letter.
Furthermore, Amazon already made about $1.5billion from its „other categories” in 2016, which includes its advertisingservice campaign (Amazon.com, 2017) 2.1 Entering in media& entertainment market„We get our energy frominventing on behalf of customers, and 2014 is off to a kinetic start”, as JeffBezos CEO of Amazon in the press release of 2014 said.The year 2014 was indeed a „kinetic start” directed into the entertainmentmarket, since Amazon stated that their streaming activity on Prime InstantVideo „nearly tripled” over the last 12months, and that the amount of allocatable movies and TV series were 10 timeshigher than in 2013.
With these announcements, Amazons aim was made clear:Becoming an entertainment giant. The billion-dollar race for streaming supremacyEstimated annual video content budgets of Netlix and Amazon (Statista, 2017)These days most of thebest TV-movies and TV-series are often not to be seen in television. Thestreaming sector, which is dominated by Netflix and HBO with most of the marketshares, is growing and Amazon embraces the opportunity to build an own “entertainmentempire”. Streaming services such as Netflix are increasingly funding their own contenttempting you to sign up. Amazon is getting on that track with its own showsexclusively developed for Amazon Instant Video by the company’s production arm,Amazon Studios. Since 2013 Amazon created nearly 40 TV-series with betting onbig names such as Woody Allen, fourth time Academy Award Winner, who isdirecting a show for them.
But the biggest one is yet to come. The Lord ofthe Rings canon was named Amazon customers’ favorite book of themillennium in 1999. The trilogy directed by Peter Jackson earned a combinedgross of nearly $6 billion worldwide and in November 13, 2017 Jeff Bezostweeted that „Amazon Prime heads to middle earth”. Yet the same day, Amazon announcedon a press release that it has acquired the global television rights to TheLord 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 thebook market. The aim is to create an entertainment experience that can not beignored. If the strategy works with media and entertainment how it did withbooks, consumers may not have many options left what streaming service to use,the answer should be clear: Amazon.2.2 Amazon Web ServiceThere is one statement on which every cloud computing expert agrees: Amazon WebService (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 clearlythe market leader in cloud services (Gartner Reprint, 2017).
Since Amazon launched the service back in 2006, they fundamentally changed theway IT operates. Before AWS, firms had to establish a cloud presence with thegoal to get into a datacenter and connect their server to the internet. Thatmeans companies had to install their own hardware, firewall, servers and buytheir own internet connection, which was not only exceedingly expensive, butalso decelerated the business process. Which leaves a company with onedatacenter and immense monthly costs.
Amazon recognized this problem and sincethey already built this worldwide infrastructure for themselves, they decidedto let other companies and people utilize it (Newcombe et al., 2015). Nowadays, Amazon is theprovider companies such as Spotify, Airbnb, BMW, Siemens, Netflix and even theCIA rely upon. Furthermore, AWS’s revenue is increasing steadily. In 2016, AWSmade $12.2 bn (8.
9% of their total revenue) which proves that the strategymanagement made the right choice in heading into the IT business. DiscussionAmazon is indeed a veryinnovative company regarding all the aspects mentioned above. It has a stimulusto 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 isdoing it, is connected with a negative impact. Not only is Amazon competing andsetting a high level for competitors such as Netflix, UPS or FedEx., but isable to even eliminate its competition. Amazon is putting local stores out ofcontention.
Using their market force for this purpose could be seen as an abuseof power. Furthermore, Amazon isbeing criticized for many more aspects. For example, concluding a 10-year dealwith the CIA for $600 million, in which Amazon offered them a„Top-Secret-Cloud”, seemed quite dubious.Nevertheless, Amazonsvision is to reduce their prices for customers and to serve them to fulfilltheir needs, wants and demands as fast as they can, is quite reputable.
ConclusionI wish to lead to an end by using a strong quotationof Jeff Bezos. “If you don’ttolerate critics, don’t do anything new or interesting”. That shows how important the term innovation is entrenched inAmazon. They always have been and will be successful in launching newinventions and innovations to be one step ahead of its competition. With Amazondoing the first steps they started more than just one revolution. Amazon Go isan example of how the future of grocery chains might look like. Drones could bethe future of delivery and the AWS is now the biggest Cloud worldwide.Amazon notices newopportunities that appear and seizes them.
They see themselves as a company forcustomers. It is for a good reason that Jeff Bezos divided companies in twofractions: Into those that work to raise prices and those that work to lowerthem. The customer-based strategy proves to be a full prosperity.
Their annualrevenue is increasing continuously. In fact, the World Wide Web can be seen asthe biggest market place ever, with Amazon having the lion’s share of it.