Blog #2: Amazon a Story of Reshaping the Forces In Your Favor - Eduardo Fuentes (efuentes)

“To sustain long-term profiability you must respond strategically to competition; reshape the forces in your favor” (Porter, HBR 2008), states Michael Porter. "In the middle of difficulty lies opportunity", Albert Einstein used to say. What do you have if you combine these two pieces of advice? A company that does not collapse when it is shaken by competion, a company with a proactively crafted strategy to reduce the share of profits that can leak to its competitors. This is the reality of Amazon.

The more I kept reading aboutthe firve competitive forces, the more I kept thinking Amazon. They are not perfect, but they have reshaped the forces in their favor to reduce the impact of other competitiros in the online retail space.

Let us start with the first force, supplier power; “to neturalize supplier power, standardize specifications for parts so your company can switch more easily among vendors” (Porter, HBR 2008). This is something that Amazon took to the extreme. What does Amazon.com use as the infrastructure to run in the Cloud? They use Amazon Web Services, a Cloud Service Provier, owned by the same parent organization Amazon.com, Inc. What a great way to neutralize the supplier power: owning the technology layer needed to run your business! They cannot be canibalized nor manipualted by their Cloud Provider because they are their own. How about delivery? When Amazon saw their reliance on USPS, UPS and Fedex was looking risky, they came up with their own delivery system: “it costs Amazon $6 to move a single box through its own network, versus $8 to $9 to move through UPS or FedEx” (Shanker Morgan Stanley, 2019). These two tactics also align with the the fourth force, new entrants; imagine how much investment a competitor would require to reduce its operational costs by running its own Cloud infrastructure and buying its own vans for delivery, the purchase of the vans in 2019 made Amazon the largest operator of Sprinter vans at that time (Chang, BusinessInsider 2019): “to scare off new entrants, elevate the fixed costs of competing” (Porter, HBR 2008).

The second force, customer power, is reshaphed by Amazon by taking the online retail experience to the next level: an ecosystem. Amazon has expanded its services to make it harder for customers to buy somewhere else. You can get it all by becoming an Amazon customer, you can fulfill your online shopping needs, your reading needs (eBooks and Audiobooks), your entertainment needs (Amazon Prime Video and Amazon Music), just to name a few. Do you get all this from Walmart? From eBay? No, you do not. This tactic also helps with the fifth force, substitutes; “to limit the threat of substitutes, offer vetter value through wider product accessibility” (Porter, HBR 2008).

These are just a few examples of Poter’s Five Ccompetitive Forces in action with a company that we all know. Why should you care? Because this story shows that you have better chances to succeed if you understand how these forces influence industries of all shapes, especially if you take the time to proactively design a strategy to reshape them: you might not be able to control all factors in your industry, but you can control how you as a company react to changes in those factors, even better, don’t react, proactively have a strategy.

Premak, R. (2019). Amazon has quietly ordered 2,000-plus vans to deliver your Prime packages — and UPS and the Postal Service should feel stressed. Business Insider. Retrieved from https://www.businessinsider.com/amazon-van-order-worry-usps-ups-2019-7

Chang, B. (2019). From electric vans to autonomous robots, here are all the vehicles Amazon has and will use to deliver packages to your doorstep. Business Insider. Retrieved from https://www.businessinsider.com/amazon-vehicles-used-deliver-packages-2019-7