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The darkness of COVID-19 still looming, 2020 seems a grim time for conducting a SWOT analysis for most businesses – but not Amazon. In this Amazon SWOT analysis, you will see why 2020 has been a challenging yet rewarding year for Amazon.
SWOT analysis is a contextual review of the strengths, weaknesses, opportunities, and threats. In this SWOT analysis for Amazon, the context is Amazon retaining its position as one of the Big Four in the big tech industry.
With stock prices hitting a record high of $3531.45 early September, 2020, Amazon has never looked more robust. Let’s look at internal factors enabling Amazon’s success.
What are Amazon’s major strengths?
Amazon gained $570 billion in market capitalization during the pandemic months. With a total market capitalization of $1.49 trillion, Amazon is closing in on its tech rivals Microsoft and Apple. What made this meteoric rise possible despite the biggest global crisis since WWII? Let’s see.
- Pandemic: Lockdown measures prompted customers to shift to shop online for things they would usually have bought from retail stores. In a report from Facteus, consumer spending on Amazon is up by 70% year-on-year.
- Market Share: According to emarketer, Amazon has 38.7% of the e-commerce market. Nearly 2 in 5 people shop from Amazon. To give you a scope of Amazon’s dominance, Walmart, which is in second place, has only 5.3% of the e-commerce market.
- Diversification: Apart from e-commerce, Amazon is a key player in digital streaming, cloud computing, and artificial intelligence. According to Canalys’s report, Amazon’s cloud platform AWS has 32.4% of the market share. Also, according to Forbes, Amazon’s streaming platform Amazon Prime Video has a penetration of 52.9%.
- Board of Directors: Amazon’s board of directors includes a former COO of Starbucks, a former dean of the MIT Schwarzman College of Computing, former chair and CEO of MTV Networks, and former CEO of PepsiCo. This year, General Keith Alexander, former National Security Adviser, joined Amazon’s board of directors. Amazon’s catchphrase is “Work hard. Have fun. Make history.” With the clout the board of directors bring to the table, it’s only natural that Amazon is redefining the limits of 21st-century business.
- Supply Chain: According to RBC Capital Markets, Amazon has partnered with 1300 companies, which employ 85,000 people, across 400 delivery stations across the US. Amazon’s wide and deep supply chain together with innovations such as drone delivery keeps Amazon at the forefront of e-commerce.
Amazon’s market share, stock market performance, top-management, strategy, infrastructure, and logistics are its greatest advantages. However, Amazon is not without its struggles. Next, we’ll look into five factors holding Amazon’s expansion back.
What are some of Amazon’s weaknesses?
Weaknesses are limiting factors Amazon has complete or partial control over. In the climb to the top, Amazon has made some critical compromises that could hinder its growth. Here’s a review of such internal issues:
- Seller Relationships: Sellers on Amazon are concerned about the new developments in inventory storage limits, faster delivery demands, threats from “black hat” practices, and competition from Amazon’s private label of products. If these concerns aren’t addressed, Amazon will fall out of favor; especially when anti-Amazon companies such as Shopify, Etsy, and Walmart are nibbling at Amazon’s heals.
- Employee Morale: An article on Verge states Amazon’s warehouse workers are resorting to walkouts, strikeouts, and strikes to demand better health protection and hazard pay. If the stress on efficiency overpowers the need for well-being, Amazon could face major employee issues.
- Work Culture: Employees describe Amazon’s work culture as hyper-competitive, critical, insensitive, and unfair. They also cite a lack of praise, disregard for work-life balance, and lack of benefits as other aspects with which they aren’t satisfied.
- Quality Focus: Amazon has its eyes on optimizing product search, ease of buying, and delivery speed. As a result, Amazon is not able to monitor the validity of claims or the quality of products sold on its platform. This could result in people migrating to platforms with higher reliability.
- Brick-and-Mortar Presence: Walmart, America’s largest retailer, is all set to take down Amazon with its Walmart+ membership platform. At the moment, Amazon cannot match the retail network of big-box companies such as Walmart and Target.
Strengths and weaknesses are internal characteristics affecting Amazon’s performance. Opportunities and threats are external characteristics driving performance. With a review of internal factors complete, let’s move to the external factors.
What are some opportunities for Amazon?
Innovation is the reason Amazon is so successful. From 118 in 2010, the number of patents granted to Amazon has soared more than 20 times to 2054. Here are some new opportunities Amazon’s innovative culture spurs:
- Podcasting: Recently, Amazon has integrated a podcast service with its Amazon Music platform. The new move aims to bite into Spotify’s and Apple’s share as the leading podcasting services. This service would work well with Amazon’s Alexa.
- Package Delivery: Morgan Stanley has estimated that by 2022, Amazon’s delivery network would grab $100 billion worth of business from the US Postal Service, UPS, and FedEx. This year, Amazon is planning to open 1500 delivery hubs in cities and suburbs across the US.
- Amazon Fresh: Amazon’s latest undertaking, Amazon Fresh offers seamless in-store and online shopping along with consistently low prices. With its first store already open to select customers in Woodland Hills, California, Amazon Fresh stores could be a game-changer for Amazon.
- Small Business Accelerator: Amazon has announced an $18 billion investment to help small businesses sell to customers. The investments include areas such as logistics, tools, education programs, services, and people. The vision here is to accelerate the growth of existing sellers as well as onboard 100,000 new sellers on the platform.
- Food Industry: Amazon’s venture into food delivery is another avenue to leverage Amazon’s supply chain expertise. Zomato, India’s leading food delivery company, has expressed concerns over Amazon entering this lucrative business.
What’s unique about Amazon is its pioneering spirit. Amazon wants to be the first and the best at what they do. Every new endeavor Amazon enters, the world expects greatness. But can Amazon “deliver”? Let’s evaluate some of the threats Amazon faces.
What is the biggest threat to Amazon?
Amazon’s threats are adverse factors beyond the control and influence of Amazon. With Walmart, Amazon’s biggest competitor, gearing up for a brawl for market share, there’s trouble in paradise. In recent times, the following are threats to Amazon:
- Counterfeits: Amazon faces increasing pressure from the government to be held liable for damages counterfeit products third-party sellers sell through Amazon cause. Recently, a court ruled that Amazon is liable for the physical injury and property damage resulting from an explosion that a counterfeit battery sold on Amazon caused.
- Government Regulations: In the early months of the pandemic, the Government of India banned the sales of non-essential goods on Amazon. The ban resulted in a $398 million loss. Government policies also favored local retailers more than it did the e-commerce industry. Such shifts in policies are and will remain a major threat to Amazon’s growth domestically and internationally.
- Antitrust Investigations: At a House Judiciary antitrust subcommittee hearing, Congress raised concerns over Amazon’s monopoly and data-privacy policies. Specifically, members questioned whether Amazon enables or hinders the success of other businesses. Amazon is facing similar scrutiny from the European Union as well.
- Quality Control: In 2020, according to Statistica, third-party sellers account for 53% of the products sold on Amazon. In a congressional hearing, Jeff Bezos admitted to the possibility of even stolen goods being sold on Amazon. The lack of accountability and supervision could lead to a drop in trust.
- Competition: Walmart announced the Walmart Fulfillment Service. With this launch, third-party sellers now have an alternative to Amazon. Although the gap in market share between Amazon and its closest rival is huge, the gap is expected to shrink in the years to come.
To sum it up, Amazon’s biggest threats are those emerging from government scrutiny and policies.
Amazon SWOT Analysis: Conclusion
Let’s review – what is SWOT analysis? In this Amazon SWOT analysis, we’ve analyzed the following:
- Strength: Internal factors enabling Amazon’s growth
- Weaknesses: Internal factors hindering Amazon’s success
- Opportunities: External factors fueling Amazon’s rise
- Threat: External factors retarding Amazon’s progress