Institute For Development Policy and
Course Title : e-Business, Organization & Strategy
Course Code : IDPM60352
Lecturer : Ping Gao
Date Due : 6 May 2011
Title : “Theoretical analysis of the business model of Amazon.com”
Student ID : 7680680
Word Count : 3222
Student ID: 7680680
Business model is defined as the logic way that a firm follows in order to create value for its customer segments (Aspara et al. 2011). However this definition is broad as the literature has identified at least twelve definitions of the term ‘business model‘ between the years 1998-2002 (Shafer et al. 2005). The rising complexity of markets leads the organizations not only to serve customer’s needs appropriately but also to find ways to capture value from providing innovative products (Teece 2010). Moreover, the internet has become a critical tool for the organisations to conduct international business electronically
(Hanafizadeh & Nikabadi 2011). Although the dynamics of marketplace have benefited from the e-commerce market, the organisations often face challenges such as change and
IT innovation (Mellahi & Johnson 2000). Therefore, organisations of that kind need to overcome these difficulties using effective business models. Amazon.com was the first organisation that changed the book selling industry by providing book retailing online
(Munk 1999). Today, Amazon offers additional services and goods such as movies, music disks, computers, and clothing (Amazon.com 2011). Economist (2000) argued that
Amazon.com is connected to e-commerce concept as it was the first firm that begun the whole industry. For that reason, the analysis of the Amazon.com business model is critical in order to understand business models of similar online retailers as the most of them follow the same model. Specifically, the purpose of this essay is to analyze the business model of Amazon.com using Gao’s (2008) framework.
The Information and communication technology innovation has led to the creation of new business models. Botto (2003) explains that e-business models describe the work
Student ID: 7680680
conducted in electronic environments. E-Business models give description of relationships between customers, consumers, partners and providers who constitute of the organisation’s internal and external environment. In addition, these models use the internet as the main tool to implement transactions, create value for customers and determine firm’s strategy (Currie 2004; Shafer et al. 2005). Therefore, Papakiriakopoulos et al. (2001) argue that e-business models comprise of four main elements : coordination (management abilities), co-operation, customer value and core competence.
Amit & Zott (2001) note that e-business target to attract customers by automating the transactions using communication and computerized technologies such as
computers, e-mail, internet. Therefore, this new type of business seek to automate as much business transactions and processes as prossible (Andrew et al. 2006). The positive impact of automation is the fact that errors during processes are minimized while the speed of processing increases (Rodgers et al. 2002). As a result, the firm that conducts business over the internet can improve its relationship with customers and increase their loyalty. Finally, some significant advantages are noted: sales increase, customer lock in by maximizing confidence, rendering services, business development, updated information availability. The Analytical Framework
In the context of this essay, the business model of Amazon.com is analyzed through Gao’s framework (Gao 2008). The particular framework is used as it covers the most essential elements for our case study such as Internet/IT, value, environment, the firm boundary and firm capability and resource. The following figure (figure 1) represents the relationship between the elements.
Student ID: 7680680