Amazon Porter’s 5 Five Forces: (2022) Detailed Overview

Written by portersfiveforcesteam in Porter's Five Forces Analysis

 

Key Facts:

Name Amazon
Industry E-Commerce
Founded July 5,1994
Headquarters Seattle, Washington, US
CEOs Jeff Bezos, Andrew R.Jassy Jassy and Adam N. Selipsky
Revenues US $470billion,2021
Profit US$ 33.36 billion, 2021
Competitors Alibaba,eBay,Walmart (Retail Competitors) – Netflix,Hulu,Disney + (Online Streaming) -Alibaba Cloud, Microsoft Azure (Cloud Computing)

 

 

Company Overview

Headquartered in Seattle, Washington Amazon is an international e-commerce online retailing company, offers consumer electronics, digital content, computing services, retail goods, publishingand grocery. It was founded by Jeff Bezos in 1995 as a global online bookseller with world’s largest collection to any one via Web Access and it is valued at $ 420.55 billion in 2021.Its reported revenues are $ 470billion surged by 70% in 2021, reaching the 6th place in the Forbe’s The World’s Largest Retailers 2022 list. Its brand value is estimated at $ 705.65 billion in 2022.

 

 

Porter’s Five Forces Analysis

Porter’s Five Forces Analysis is used to determine the competition and profit margin in the Industry and guide the company’s to keep strategizing its operations in a better competitive position. It is invented by Professor Micheal E. Porter in 1979,at Harvard Business School.

 

Amazon Rivalry among Existing Competitors:

 

  • Amazon-Rivalry among Existing Competitors: Rivalry among Existing Competitor’s is the first force of Porter’s model to analyze the competitive positioning of the company with in it’s industry due to Amazon’s diverse structure and presence in different sectors it is in competition with various giants in different segments.
  • Amazon is generating US$ 222.07 billion, 47% of total of revenues from Online retail sales, US$ 103.33 billion ,an increase of US$ 23 billion from previous year, from Third Party Seller Services and US$ 62.02 billion from AWS, which are 22% and 13% of total revenue. The other services included Subscription Services ,Advertising Services, Physical strores and other Services contributing to the remaining US$ 82.17 billion 18% of the total revenues declared by Amazon in it’s Financial Report 2021.
  • Amazon Geographical Revenue Share: The biggest market for Amazon is North America which is solely contributed US$ 279 billion, 59.56% of it’s total revenue in 2021. International Sales contributedto US$ 127.78 billionand AWS to US$ 62.20 billion which are respectively 27.19% and 13.23 % of total revenue reported by Amazon in it’s Financial Results 2021.
  • Alibaba, eBay, Walmart (Retail Competitors) Alibaba Group is the biggest competitor to Amazon in online retailing with a US$ 258 billion in 2021.Alibaba faced a decline in it’s operations due to China’s anti-monopoly law and rising competition from social commerce companies.

Walmart is also gave a recorded sales of 567.7 billion in the fiscal year ended January 2022.

  • Netflix,Hulu,Disney + (Online Streaming) Amazon is facing tough competition from Netflix which gave a record sales of US$ 29.71 billion in 2021 while Amazon earned  US$ 31.76 billion from its Subscription 

Netflix have around 223 million paid subscribers globally as of end of third quarter of Year 2022 while Amazon Prime has 200 million paid subscribers report by Statista as of early 2022

  • Alibaba Cloud, Microsoft Azure (Cloud Computing) Global Cloud Infrastructure spending will be reaching US$ 217 billion annually in Q3 of 2022.Amazon solely capturing the 34% of the market share as of Q3,2022 while Azure and Google Cloud is having 21% and 11% of the global market share.

Amazon Threat of New Entrants:

 

  • Amazon –Threat of New Entrants: This the second force to analyze possibilities of the new entrants in the market as strong barriers and heavy cost structure present in the Industry for the new entrants will neutralize the competition.
  • Amazon Fulfilment Centers: In case of Amazon, it is established in it’s main business segment with high capital investments, large scale warehouses and enjoying economies of scale with a very strong brandimage. Only Amazon US has 446 warehouses, Amazon India has 141 and Amazon UKhas 96 with current and planned locations. According to MWPVL Amazon has 21 million square meters logistics space globally.
  • Conclusion-Global Retail E-Commerce: In Year 2021 the total global retail e-commerce sales in 5.2 trillion USD which is expected to grow by 56% in future and reaching 8.1 trillion in 2026.So E-Commerce Retailing will be an attractive industry to big established giants and for new local entrants.

 

Amazon Bargaining Power of Suppliers:

 

  • Amazon-Bargain Power of Suppliers: The important factors are number of suppliers, forward integration and supplier’s size. Amazon is large business so have influential power on suppliers and easily switch them with low cost.
  • B2C & B2B Market: Outside USA, Amazon is operating in Canada, Germany, France, UK, Spain, Italy, Japan and India with a value of gross merchandise volume of amounted to 15 billion USD with a projected increase by 5 fold by 2023. The most attractive B2B category launched by Amazon is Maintenance, Repair and Operation Supplies (MRO) with a listed 18 million products in 2020.
  • Supply Chain Issues: Supply Chain disruptions affected 93% of the Amazon sellers revenues during 2021 due to COVID measures as a huge quantity of their products are coming from overseas. Jungle Scout reported 48% of the large brands reported 1-4 month delayed inventory orders.
  • Conclusion: The increasing trend of e-commerce and website store sales supported by Shopify etcmay create future challenging situation for Amazon at mass level .Even though Amazon proved to be highly diversifying operational company.

 

Amazon Bargaining Power of Buyers:

 

  • Amazon-Bargain Power of Buyers: Amazon is highly customer focused company with a priority of customer satisfaction and product quality
  • Customer Satisfaction: Amazon scored 78 points out of 100 in American Customer Satisfaction Index (ACSI) reported by Statista, March 2022.
  • Amazon is winningover Walmart: Amazon steal the share of US household spending items nearly 5 times more than Walmart is having in 2021.Amazon is having approximately 15% of clothing & apparel spending of US consumers while Walmart holds 6.5%.
  • Conclusion: Amazon use Killer Rule to keep it’s customers happy with a strong brand image and loyalty.

 

 

Amazon Threat of Substitute Products or Services:

 

  • E-Commerce Retail: Amazon is facing a low switching cost with large pool of substitutes with low cost. A customer can easily choose from Amazon, Ebay or Walmart.
  • Digital Streaming: Changing consumer’s trends and life patterns may be affecting digital streaming and replaced by e-sports, social media usage and any new trend in leisure activities. Amazon Prime may be facing future competition from Netflix, YouTube, Nike, Microsoft, Google etc.
  • Conclusion: Amazon is continuously struggling on these substitutes with a wider supplier base, inventory availability, efficient supply chain for better pricing offer and assures the product availability.

 

  

 References:

 

  1. Statista (Nov, 28, 2022).Amazon Statistics and Facts | Statista. [online] Statista. Available here 
  2. Forbes 12 May 2022 The World’s Largest Retailers 2022. Available here
  3. Statista (June, 24, 2022).Amazon’s global brand value from 2006 to 2022 | Statista. [online] Statista. 
  4. Amazon Annual Report, 2022. Available here
  5. Statista (July, 2, 2019). 21 Million Square Meters of Logistics Space Worldwide | Statista. [online] Statista. 
  6. Statista (March ,11 2022). E-commerce net sales of Alibaba Group in 2021 and 2026, by category | Statista. 
  7. Statista (March,2022).Amazon Prime Video Statistics and Facts  | Statista. [online] Statista. 
  8. Statista (Oct,2022).Number of Netflix paid subscribers worldwide from 1st quarter 2013 to 3rd quarter 2022  | Statista.
  9. Statista (November, 15,2022).Amazon, Microsoft& Google Dominate Cloud Market| Statista.
  10. Freight Waves (February, 4, 2022).Missing Profits: 93% of Amazon sellers lost revenue from supply chain disruptions. Available here
  11. Statista (December,2,2021).Amazon Business Stats | Statista. [online] 
  12. Statista (March,17,2022).U.S customer satisfaction with Amazon.com from 2000 to 2021 | Statista.
  13. Pymnts:(April 13,2022) Why Amazon Is Winning the Retail Battle Over Walmart

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