Amazon 5 Forces Essay

Porter’s Five Forces Threat of new entrant: High Threat of new entrant remained high because it is inexpensive to set up similar infrastructure compared to setting up a physical bookstore. This simply means that, anyone that has the resources and knowledge could set up a similar website to compete with Amazon. com. Established bookstore would also have the advantage of expanding their business to the Internet easily as they have the resources obtain from their physical bookstore business. Example of physical bookstore that has expanded their business to the Internet is Barnes and Noble (BarnesandNoble. om), Borders. com, BookSense. com and BookSite. com. Low However, threat of new entrant remained low in areas where it is very costly to set up similar information system because of the underline technology that is fortified by innovation making it rather unique. This is particularly true by looking at Amazon. com’s One-click shopping technology where Amazon. com has patented it to deter their competitors from copying the technology. In this case, they have successfully barred Barnes and Noble from copying this technology. Amazon. om has also brand recognition in selling books online thus this would make it rather difficult for other competitors, namely Barnes and Noble, to enter to the online business. This is true because Amazon. com has successfully create an awareness among the public where buying books online would be linked to Amazon. com. Bargaining power of buyer: High Bargaining power of buyer remained high because there are a wide variety of choices to purchase any given books from various sources. Example, a buyer has a choice to buy either from Amazon. com, Barnes and Noble or even from other sites such as BookSense. om and BookSite. com. In Amazon. com other businesses such as selling their online music business, the buyer would also have the advantage as they could buy their music from other sellers such as CDNow that has been into this business for quite some time. Intense competition from various sections of Amazon. com’s business has prompted them to price their product competitively. These products encompass books, music, electronics and much more. As an example, Amazon. com has previously priced Michael Jackson collector’s album 20-30USD below the market price in a move to attract customers.

Bargaining power of supplier: High Bargaining power of supplier is relatively high in their electronic business sector. This is because Amazon. com was unable to buy their electronic product directly from the main distributors such as Sony, Panasonic and Pioneer. These distributors have objected to selling their products directly to Amazon. com because Amazon. com has priced these products below market price that have resulted an outcry from the distributors’ main customers. Low However, bargaining power of supplier in Amazon. om’s online book sector is relatively low. Their power is low because Amazon. com has opened five new automated distribution centers in the US to lessen dependence on their main distributor. In this case, Amazon. com has become lesser dependence from Ingram that is their main distributor in the US. Threat of product substitute: High Threat of product substitute is very high in Amazon. com online business. Physical bookstores have an established brand name in their brick-and-mortar business and customers might not be comfortable buying books online.

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A more competitive competitor that might be able to offer better services and prices that would be able to substitute Amazon. com’s products. However in this case, Amazon. com’s One-click shopping might provide some form of switching cost to the customer. Example, a customer might be required again to enter their particulars in order to purchase a book elsewhere. Industry rivalry: High As the result of huge and wide presence of competitors, namely physical bookstores and other online bookstores, Amazon. com faces high industry rivalry in their online book business.

Established bookstore have cause intense rivalry in this industry because they have the advantage of a larger and well established customer base, greater brand recognition and brand awareness and wider selection of books. The entry of established bookstore into the online arena has further increase industry rivalry in this sector. Amazon. com also faces intense rivalry from their online music sector. For example, Amazon. com’s entry into the online music market has caused CDNow to take initiative to retaliate in the act to fend off Amazon. om from this business sector. CDNow has more advantage because they are well established and has more brand recognition as compared to Amazon. com. Amazon. com’s entry into the online auction business has also cause intense rivalry between eBay. com. eBay. com have taken steps to retaliate Amazon. com from successfully enter into this business sector. Reports from the articles collected have shown that Amazon. com has been not very successful in this sector. As a concluductory statement, Amazon. com faces intense rivalry in most of their business sectors.


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