AMAZON INC. BLUE OCEAN SUCCESS
Blue Ocean Strategy of Amazon Web
Services (AWS) - Leading the Cloud Computing Red Ocean
Analysis Case Study - 2013
Amazon started its cloud computing business Amazon Web Services in 2006,
which that point was a disruptive innovation where in Amazon offered
customers computing power and storage on demand at a low price. The
Amazon Web Service (AWS) offering relies on company's core technology
infrastructure that was built to drive its ecommerce business and
content business, also made cloud computing cheaper and more accessible
at a very large scale. Jeff Bezos took a big risk in the year 2006 and
utilizing Amazon's vast experience in digital business, created a new
business model for AWS and also created a first-mover advantage, and the
high growth that goes with it, for the company. AWS offers its services
at a drastically low prices and it initially targeted the startups that
are highly price conscious, which proved highly successful as innovative
web businesses like location-based social network Foursquare, document
sharing site Scribd, crowd based review business like Yelp, etc.
subscribed to AWS. AWS is based on Amazon strategy of not charging high
initially for hardware but charge customers on long term use of the
services (pay as per usage) which is a win-win for both the company and
customers.
AWS has been a fast growing business within the Amazon business
portfolio and it clocked revenues of $3.1 billion in 2013 and is
expected to grow by 58% in 2014 according to a new estimate from Pacific
Crest Securities. n a research note, Pacific Crest says it expects the
business to keep growing at a clip, with revenue hitting $6.7 billion in
2015. Despite risks involved in cloud computing like cloud outages where
in the websites of the companies that use AWS during outage will go down
and do not function, still use Amazon's web services clearly knowing
risk involved, but the incentives of quick and inexpensive forcing
smaller companies and startups to gamble rather than pay more high
charges for a simple guarantee their services will never go down. AWS
over the years has built a significant share in the cloud computing
market wherein it even attracted the Fortune 500 companies and
government departments to use its services. The reason behind the AWS
success can be attributed to the low pricing that the company offers its
customers. Amazon web services have lowered prices 31 times since it
launched in 2006, including seven price reductions so far in 2013.
The price war highlights that the cloud computing market is a red ocean
where in there is serious competition from major players like Google,
Microsoft, Oracle, etc. and plenty of medium and smaller players. AWS is
still leading this highly competitive market and building significant
revenues from this business offering. Forrester Analysts forecast the
public cloud market, the market segment AWS leads will grow from $4.7bn
in 2013 to $44bn in 2020 as the market shifts towards replacement of
current systems which also highlights the potential the AWS has in
future. Amazon is further planning to reduce pricing but increase the
performance and functionality of its offerings. Amazon has implemented a
rich software infrastructure to allow users access to large quantities
of computing resources at rock-bottom prices. Amazon Web Services
accounted for 37% of the $9 billion infrastructure as a service (IaaS)
market in 2013, according equity research company Evercore. The IaaS
market is growing by 45%, but Amazon Web Services has a growth rate of
60% and it built a huge computational capacity.
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Blue Ocean Strategy - Amazon Kindle Fire Creating Its Own Market
Kindle Fire is multi-touch screen tablet version of Amazon's most famous
e-book reader Kindle. Kindle Fire is also a classic example of Blue
Ocean Strategy adoption by Amazon and Blue Ocean Strategy is creating
uncontested market space and defining own set of boundaries to avoid
competing with others. Kindle Fire is a 7-inch multi-touch display with
IPS technology, runs on Google's Android operating system, with a price
tag of US$199 and have access to the Amazon Appstore and digital content
like streaming movies, TV shows, and e-books. Compared to the market
leader Apple iPad, Kindle Fire is a sort of low end device as it lacks
camera, GPS, storage capability, high end graphical display, powerful
chip, etc. Amazon's Blue Ocean Strategy is that it tries to define its
own market by targeting the non-iPad users, users who cannot afford iPad,
users looking for other Android based tablets and making the competition
irrelevant by making the device as a media consumption device empowered
by Amazon's media platform that has huge content like music, movies,
videos, books, etc. Kindle Fire differentiates itself from iPad and
other tablet devices by focusing not on high end features but with
simple and focused features that offers its users a unique experience
and affordability. Also Kindle Fire is light weight, durable, good
battery life and easy to use.
Amazon.com offers Kindle Fire at a lower price as it eliminated many
costly feature like the camera, 3G, GPS, Bluetooth, etc but it offered
its customers other features like its own developed web browser Silk
that serves the web pages quickly using the network speed and computing
power of the Amazon Elastic Compute Cloud (Amazon EC2) and the
datacenters that host Amazon EC2 are run by Amazon. Low storage is
compensated as the users can store their data on the Amazon EC2 Cloud,
and Amazon has huge content like books, music, movies, videos, TV Shows,
etc that users can easily download and play it on the device. Kindle
Fire is being sold by Amazon at close to its cost and at a slight loss
but it is hoping to make money through selling the content that includes
19 million songs, books, movies, applications, etc. Since Kindle fire is
closely tied to the Amazon Ecosystem like Amazon.com store, cloud,
content and it will be hugely beneficial to the marketers and content
providers to sell their offerings easily, target customers with specific
offerings, to interact and understand the consumer behavior through
this. Kindle Fire also helps in increasing its core business which is
e-retailing as the device provides an easy access to the store where
customers can buy and sell anything and everything.
According to IDC, Amazon sold about 4.7 million units of Kindle Fire
during the fourth quarter of 2011 and the device was shipped to
customers from November 15, 2011. The device has boosted Amazon revenues
in the first quarter of 2012 and also helped the company to double its
market share of the Android based tablets market and capture more than
half of the US market for Android based tablets. Kindle Fire is equipped
with Web surfing, e-reading and video streaming activities that most
consumers want and Amazon hopes that the device sales will help to
increase digital media sales to eventually contribute a larger
percentage of revenues of Amazon total revenues and the device will also
helps in connecting and transacting with consumers on various other
fronts. According to a study conducted by RBC Capital analyst Ross
Sandler of 216 Kindle Owners, Amazon can expect to make $136 per Kindle
through the life of the tablet and e-book sales will contribute most of
the part. Study also found that 80% of Kindle Fire owners bought an
e-book, and 58% bought three or more e-books and Sandler believes that
the average Kindle Fire owner will spend $15 per quarter on e-book. Over
60% of Kindle Fire owners bought an app, and almost 50% bought three or
more and Sandler believes that Kindle Fire owners will spend $9 per
quarter on apps for the life of the device.
Kindle Fire has boosted Amazon revenues in first quarter 2012 and
according to the company it remains the best selling, most gifted, and
most wished for product on the site. Amazon also announced that in the
first quarter 2012, 9 out of 10 of the top sellers on Amazon.com were
digital products = Kindle, Kindle books, movies, music and apps and it
highlight the importance of Kindle Fire, as it provides Amazon with a
device to handle the shift from physical media products, like books,
DVDs, video games and CDs, to digital versions of such content. The rise
in North America sales of digital content where Kindle Fire is
exclusively sold is another testimony of how Kindle Fire is going to
drive sales of digital content and ultimately revenues in future. With
such positive response Amazon is looking to add more digital content to
its inventory and also looking to expand the sale of Kindle Fire in
other countries. With more and more tablets being sold in future, Amazon
can through its Kindle Fire and huge digital content inventory expects
to increase the sales of both the device and content and significantly
increase its revenues.
Amazon Kindle Fire - Blue Ocean Strategy - Four Actions Frame Work -
ERRC Grid
| ELIMINATE | RAISE |
| Camera No 3G Bluetooth GPS |
Durability Light-Weight Screen Clarity Video Load Time Speaker Quality Contents (eBook, |
| REDUCE | CREATE |
| Screen Size (7") Storage Capacity |
ePub Format Streaming Video DRM Free Music Flash Video Silk Browser Cloud Storage |
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Forbes Article
It's Not About Ideas. Do What Amazon, Netflix, Uber And AirBnb Did,
Head For A Blue Ocean.
Bernhard Schroeder - 11 May 2019
If you want to become an entrepreneur but don't know where to start,
relax. It's not about ideas, it's about understanding and researching
current industries that have not innovated their products or services
and have a large customer market. If you think about what Netflix,
Amazon, Uber and AirBnb did, you can clearly see, they created nothing
new in terms of products. So, what did they do? They changed the "game"
in an industry that was not being innovative and was ripe for
disruption. In other words, they headed for a "blue ocean" made famous
by management thought leaders W. Chan Kim and Renee Mauborgne in their
perennial bestseller, Blue Ocean Strategy.
Blue Ocean Strategy is an approach that challenges everything that you
thought you knew about the requirements for entrepreneurial success.
Blue Ocean Strategy can be summarized in a nutshell: the best way to
beat the competition is to make the competition irrelevant. Imagine that
the marketplace is comprised of two sorts of oceans: red oceans and blue
oceans.
To discover an elusive blue ocean, Kim and Mauborgne recommend that
businesses consider what they call the Four Actions Framework to
reconstruct buyer value elements in crafting a new innovation wave. The
framework poses four key questions:
Raise: What factors should be raised well above the industry's
standard?
Reduce: What factors were a result of competing against other
industries and can be reduced?
Eliminate: Which factors that the industry has long competed on
should be eliminated?
Create: Which factors should be created that the industry has
never offered?
If you think about it, lets review what these market leaders did with
Blue Ocean Strategy in mind. Amazon did not build bookstores but built
an enterprise infrastructure to have access to one million book titles
and competed well with Borders and Barnes & Noble. Netflix did not use
stores in their business model to compete with Blockbuster; instead they
focused on customer service. Uber did not even try to buy cars and
compete with the independent taxi companies, they created a mobile app.
AirBnb does not own homes or hotels, instead they redefined the travel
experience by uniting existing property owners onto a common easy-to-use
platform.
Existing marketplaces with lots of competitors live in crowded,
shark-ridden red oceans. Red oceans are characterized by multiple firms
offering similar products competing mostly on price. Think Target versus
Wal-Mart, Sony versus Samsung. Meanwhile, blue oceans are characterized
by untapped market space, demand creation, and the opportunity for
highly profitable growth.
In recent years, Dollar Shave Club took on Gillette by offering
subscription-based access to razors at a better cost and service. As a
potential entrepreneur, just examine large industries or product lines
and see if customers are happy with their current choices. Wherever you
find customers are not ecstatic, dig deeper. A few years back, Chobani
did the same thing to yogurt by offering Greek yogurt, more protein and
less sugar. None of these examples showcase a completely new, never
heard of before product. But all these companies either innovated the
current product in the marketplace or they offered a simple innovation
or twist to the business model for their company. In almost every case,
the customer is happier with the new company or product. That means they
were dissatisfied before these companies came along.
If you want to get a jumpstart on surfacing an opportunity, pay
attention to something new you see (craft beer, organic pet food, cloud
storage, etc.) and do some research. Or go to places where you can
observe people: malls, airports, universities and just walk around. See
what people are doing and not doing. Don't look for anything in
particular, just observe. Another option is to walk through Target or
Wal-Mart and slowly walk up and down the aisles. Look for current
products that seem over priced or they don't exactly make the customer
ecstatic. Then research how big that industry category actually is. If
it's billions, keep going. Run a few of your best "opportunities"
through the Blue Ocean Strategy framework of raise, reduce, eliminate
and create.
The founders of Skullcandy did something similar by walking through
Target to spot their earphone opportunity. If you want to be an
entrepreneur, you have to solve a problem in a big marketplace. To spot
a problem, go looking. Once you find some problems, use Blue Ocean
Strategy to innovate a solution and perhaps you will create a billion
dollar company.
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Amazon's Application of Blue Ocean strategy
The Global Gazzette Article (Hult International Business School)
by Charles Goulart Jr. Oct 28, 2019
Amazon has 45% of E-Commerce total market sales being 235.8 billion
dollars. They disrupted the retail industry and the company keeps
finding paths to disrupt their own business model. The company values
are described as customer focus, passion for innovation, operational
excellence and long-term thinking. These values can be observed in
Amazon's history.
Amazon was founded in 1994 by Jeff Bezos. He is a challenge hunter,
graduated from Princeton with summa cum laude, went to Wall Street and
became the youngest senior vice president on the hedge fund. He left the
fund to start working in the garage of his parent's house in Seattle.
With an initial investment of $250,000 (corrected by the inflation:
$421,192.59), he started what we know today as Amazon. Today the company
is worth 858.94 billion dollars and is traded with a P/E ratio of 87.56
They eliminated the need for physical stores, which allows them to work
with lower investments on expensive square-foot real estate because they
do not need to be physically located in big urban centers. Moreover,
they are open 24/7 to address their client's needs.
However, the biggest challenge of e-commerce is the delivery time. Going
in the opposite direction of the market, Amazon was able to reduce the
delivery time and now you can purchase a product and get it delivered to
your house in 2 days with no additional cost. This was achieved by
Amazon Prime, which is a premium subscription service, it started in
2005 and charges U$119 of yearly subscription from its members.
According to Jeff Bezos, on the yearly investor letter of 2018, they had
more than 100 million members. This is almost 12 billion dollars of
inflows that Amazon can invest in the supply chain.
Amazon rose customer satisfaction to a new standard, pioneered with
one-click shopping, customer reviews, and fast receipt verification on
email. Amazon is more convenient than Alibaba (Market cap 390728 $Mil
and 43.7 P/E) and easier to use. Furthermore, the products come from
China in which it takes a longer period of time to get to the US. The
website is not clear with product quantities and prices. Therefore,
Amazon is the market leader.
In 2000, they created a third-party marketplace with a start at 3% of
total sales and in the last fiscal year (2018) it accounted for 58% of
total sales. Interestingly, Sun Tzu in the book Art of War gives the
advice "keep your friends close and your enemies closer". Thus, the
market place concentrates the competition under its platform: rather
than incurring the costs of having a website, any company can sell
through Amazon and scale the sales through their supply chain.
The inflection point was hit last year (2018), from now on the yearly
operations can break even. For example, AWS (Amazon Web Services), is a
marketable product, with high demand, and Amazon can supply it at
one-tenth of the cost of the competition. Because they spent years on
R&D, they will see the result coming out now. This product is different
from the used online sales segment; however, it recalls the letter that
Bezos wrote to the shareholders in 1977.
In this letter, he says that Amazon is an internet business with the
purpose to create real value for the customers and that they began
serving them with books. That's an important word: began. Because they
have been actively looking for projects that can increase their
profitability based on their large customer base.
Looking at AWS and making a projection that the net sales will grow at
half the growth rate of the previous year and roll it over until 2023,
it gives the result of 70,647 million. And many have been commenting on
a possible IPO of AWS. This would be an incredible payoff for Amazon
shareholders, and more money for investments in the database network,
without compromising the cash flow of Amazon.
In conclusion, Amazon has created value innovation and for these
reasons, they have a P/E ratio of 87.56 against Alibaba (36.32). Even
though some might consider this P/E too high, we should look at the
nature of Amazon innovation and their free cash flow. This P/E might
drive skepticism on the investors' side; however, Amazon's core values
are to make bold investments and jettison bad investments. In other
words, Amazon is a trillion dollars startup. The question is: until what
point will they be able to keep these profitability margins and if do
so, will they pay dividends for the enthusiast investors that had
believed in this philosophy along these twenty-five years history?
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AMAZON GO: CHECKOUT-FREE SHOPPING IS
NOW A REALITY
Posted by the Blue Ocean Team | 02
August, 2020
Imagine walking into a grocery store, swiping your smartphone at the
hi-tech entrance gates, picking up whatever you need, and then walking
straight back out. No lines, no cashiers, nothing. Ten minutes later
you're automatically charged for your items through an app that gives
you a digital receipt. Grocery shopping done.
Endless lines: A major pain point of the retail industry
We all know checkout lines are a nuisance and feel like a huge waste
of time. They have always been a major pain point of the retail industry
that shoppers have been forced to put up with. Even when self-checkout
machines were introduced, they didn't seem to solve the problem. If
anything, they created additional frustration.
From constraint to opportunity
Despite all the frustration, time-consuming checkout lines have
mostly been accepted as simply the way things are both by retailers and
customers. That is, up until now. Amazon has just launched the world's
first checkout-free store in Seattle, offering a futuristic shopping
experience, arguably easier than shopping online.
So how does it actually work? Cameras and sensors track the shoppers'
progress throughout the store, what they pick up off the shelves, and
what they put back. Customers are then billed after leaving the store
through the Amazon Go app.
By eliminating cash registers and checkout lines, Amazon has seemingly
turned a major pain point on its head and changed the playing field of
in-store shopping. Although some first-time customers have said that it
will take some getting used to and can initially be a strange
experience, a lot of people are excited about how easy and smooth it is.
Amazon has created another blue ocean using superior technology to displace an existing service - the human cashier.