Amazon: A History of Innovation

You must choose two organisations operating within the same industry and evaluate their separate approaches to innovation. Then explain how these approaches have contributed towards a competitive advantage. Finally for just one of the organisations outline and justify future innovation opportunities.

The two organisations that I have chosen for this report are Amazon and eBay.

In today business world building a business and operating it no longer guarantees that you will be successful in your industry. Now the business cycles have become shorter thus requiring a new type of management that consists an ongoing process of renewal and transformation.( Damanpour&Aravind,2012) Thus to thrive in the current marketplace each business should be ready to transform and innovate. Now let’s take an example of Amazon (AMZN) that has in past years emerged as a winner and leaves a trail of gradual and impressive growth. Recently with the bust of the Dot com bubble Amazon was among the few winners that survived.( Byers,2006) It was only because they have an innovative and viable business model that is build keeping in mind the radical profit formula and market changing customer value proposition.( Brown, 2008) They never limited themselves to books but moved to items that were easily shippable. They did not stop here as they used their white space or online presence to create a value proposition for buyers and sellers of used books. (Brandt, 2011)

The used the sales and service model to serve third party sellers that were actually their competitors thus transforming their business to sales and service model from direct sales. In the year 2002 they even changed this model for their new customers that were the IT industry. They invested in their innovative resources rather than just sticking to their core this was a risky step but it worked wonders for Amazon as they have risen to 7^th largest web services platform in the past five years in the world. Their most successful launch is of Kindle e-book in the year 2007 that was a success for the company but a setback to the publishing industry. The mantra behind their success is that whenever they find oppurtunities in the form of new customers they build new business models to exploit them. (Davila, Epstein and Shelton ,2006)

Let’s study about the nature of innovation in Amazon that has helped the company to reach new heights. According to Xavier Garambois who is the Vice President of the EU retail in Amazon “ We have made Innovation as a part of our DNA and we aim to refine and add technology that improves and enhances the satisfaction of our customers”. (Junnarkar,2012)Amazon works on Eliminate- Raise- Create- Reduce framework for its business model. We can easily explore it as they have created a new channel for its customers through technology but have eliminated the retail distribution channel which was quite old as well as traditional in the retail industry. They have added the “one click checkout” that had eliminated the need for inputting billing and shipping address as well as information.( Stone, 2013) Their innovative business model helps them to deliver to a diverse range of customers that adds up to their competitive advantage. (Orland, 2011)

eBay: Focusing on Acquisitions and Innovation

Since it was started in the year 1995 eBay has surprised all in being more than an auction site. They are offering new services, acquiring companies and exploring new technologies. They have invested in testing and building new technologies that would lead to the next business opportunity.( Bradley, 2001) Their recent Redlaser comparison app is an example of their innovative technology as it allows customers to compare the product while being in the store to all available options even when they are of the competitive brand. This eliminates the customers concern for “showrooming” as it helps the retailers to target customers by sending targeted offers based on the products that the customers have scanned. (Edison,Ali&Torkar, 2013) Their innovation strategy is not all about addition of new technologies but many recent acquisitions are a critical component in their strategy. Since the year 2008 eBay has acquired around thirty eight companies that share the same passion and vision that eBay has.( Wolverton, 2002) Guy Schory who is responsible for the strategic initiatives in eBay informs how they make efforts to ensure that their employees connect to the employees of the new acquired companies. In their integration plan they surround new innovators in the company of like-minded entrepreneurs as a soft landing strategy.

They invest in startup programs by providing resources and tools to grow globally. They even organise hack-a-thons that enable employees and developers to send their innovative ideas and applications to the company’s top management. This helps them in recognizing the top talent along with providing them with new websites and applications that the participants create to win the 100,000 dollar prize. eBay believes in fostering a culture of innovation by creating an environment and attracting people through rewards and recognition . They are a company that has innovation as a platform as much as they have commerce.

The challenges that Amazon faced over the course of few years some of them were:-

• In India Amazon faced the accusation of making a “back door” entry in the retailing business:- the company has always tried to be innovative and expanding. But recently they faced a road block when their expansion plans in India were frowned upon by the Indian government. As in India there is a law that an overseas or foreign company can only do business in India through an Indian subsidiary or with a partnership with a local company. (Strumsky, Lobo, Tainter,2010)
• They are facing challenges with their new technology of cloud computing:- as cloud computing is desirably the biggest hope for many companies for the future. Amazon has faced slowed growth with their Amazon Web services (AWS). It is believed that AWS is pretty small in comparison to the efforts that Amazon is putting in selling devices and books.( Woods, 2014) Many believed that public cloud computing is the next big thing of the future and it will dominate the computing business this slow growth is a major concern for Amazon.
• Competitors like Google and Microsoft are always on a lookout for any weaknesses in Amazon and with the recent AWS slowdown they got what they wanted. It was reported that Google announced price cuts that were pretty dramatic once they got the news of the AWS slowdown. Microsoft followed suit with “Azure” which is a cloud business that has policy similar to Amazon.
• Amazon is lacking behind IBM, Google and Microsoft as it does not have big clients.

There are many challenges that eBay faced over the course of years:-

• ebay is getting stiff competition from Apple with their in store payment service that is in their iPhone 6 models. This is called as “Apple Pay” which will work at Macy’s, McDonald and many other retailers. Jordon McKee who is a senior analyst for mobile payments explains how every other retailing giant is giving competition to the PayPal. He further adds how eBay and PayPal should innovate and move fast to stay ahead of these competitions.
• PayPal opting to separate from EBay and announce that it is growing at a much faster rate than eBay. This announcement by some analysts is a major setback for eBay as the portfolio that they had with PayPal for the past twelve years is now over leaving them in the open with many other competitors. PayPal is eliminating a conflict that is natural as they are working close with each other. (Samuels, 2012)
• CEO John Donahoe has recently pointed out that “our business is continuing to fall short of our expectations” and that is not at all acceptable. Donahoe explained why some changes and improvements are needed like the website will be more users friendly. He also accepted to some past mistakes like customers not reacting to auctions and going forward for fixed price sales.

Innovations have helped Amazon as it has increased the customer satisfaction as their long term strategy. Fire Tv and Dash are among the recent innovations which are leaving the competitors behind. This omni-channel strategy is helping Amazon to integrate in-store experience and retailer’s website experience. Thus the challenges like the AWS issue has been successful overcome by this innovation strategy. They are even implementing innovative loyalty schemes for customers which will help them to retain customers. As we have studied earlier that many other software giants like Microsoft and Google are giving stiff competition to Amazon but the management at Amazon has found an innovative strategy to over come this challenge. Amazon is employing the use of real time videos, personalization and VoC strategies (Voice of the customer) strategies to increase customer loyalty and engagement. Through this the customers are presented with personalized assortments that are based on their previous purchases.

For eBay the separation from PayPal is a boon as well as now the customers will enjoy the local inventory which would be powered by Milo. This application will help the customers to know if a particular item is available at the store or not. (Wingfield,2004)This would be irrespective of the product is available online or at a local store. Milo has enabled eBay to connect local shoppers with the small retailers which would not have been possible without the PayPal separation. This application is also beneficial for the small retailers as they are able to integrate their business with eBay through Milo. eBay has overcome another challenge of fixed price sales by introducing their RedLaser mobile application that allows customers to compare the product while still being in the store. This eliminates the customers concern for “showrooming” as it helps the retailers to target customers by sending targeted offers based on the products that the customers have scanned.

Challenges Faced by Amazon and eBay

The distinctive competitive advantage in case of Amazon would be its one click ordering process or system.( Silverstein , 2007) They have a state of the art reviewing system which when put together with one click ordering system gives us a most compelling and perfect reason to shop from Amazon.eBay was challenged by Amazon in the online auction arena but eBay separated itself from its competitors based on differentiation by adding insurance and verified user programs. They have introduced many safety and trust initiatives as while shopping online trust and safety are the biggest concerns. 

Future innovation oppurtunities for Amazon can increase with the conceptual model of innovation as this model has three variables that are:-

• Organisation environment
• Resource dependent strategy
• Organisation structure

This will help Amazon to cover every area in the organisation and help them innovate successfully. According to a recently published article in the Wall Street Daily “Amazon’s Innovation will Dominate the future” as Amazon is a paragon of innovation.( Shavinina, 2003) They are consistently releasing technologies that are way ahead of their competitors. With Amazon prime Amazon is making its customers into Amazon addicts as they will get two day free shipping. The innovative oppurtunities that Amazon has to focus on a model that focuses on long term success and profitability. They have to concentrate on driving the costs down and increasing the profit. This innovative model will enable them to switch costs for the customers and set high barriers for their competitors. (Trott, 2005) Their innovation model has to concentrate on the fact that what are the interests of the customers. They can examine what were the previous purchases of particular customers giving them an idea what they already own and when they are compared with other customer’s recommendations can be made to interest them. Videos and written reviews from satisfied customers can encourage others to buy products from Amazon. (Brown &Osborne, 2005)

Innovation is constantly related to the changing conditions around us. Innovation is the new opportunity for any business to succeed as in this consumerization era traditional strategies and models will not work for long term.( Damanpour, 2014) Businesses have to innovate and change along with accepting the fact about consumerization they have to drive it and adopt with the technologies. They have to innovate to ensure that they are able to attract new customers along with retaining the old ones.( Eveleens,2010) The possibilities and oppurtunities with innovation are endless as the businesses have to adopt the consumer driven technologies to succeed.

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