This essay aims to assess the Amazon’s market valuation. In the first part, Porter’s
Five-Forces analysis focus on the e-commerce industry will be conducted to evaluate
profitability potential. In the second part, value chain of Amazon will be briefly evaluated
so to identify Amazon’s its competitive advantages in the industry and thus support
accessing its market valuation.
1. A. Porter’s Five-Forces Model for Amazon
1. 1. The Threat of New Entrants: Low Intensity
Given in the current digital era where setting up an online store is convenient, Amazon is
exposed to low intensity on the threat of new entrants due to several strong barriers to
entry. First of all, Amazon, the world’s largest online retailer is at a market leader position
possessing large economies of scale, thus it is able to impose anti-competitive strategy.
Secondly in terms of Amazon’s capital, it has sufficient investment and concrete base in
their supply chain infrastructure, as well as owning the world’s three largest Linux
databases as its core technology so to facilitate enormous information processing, which
all these are difficult for new entrants to develop and to apply for patented technology at
the initial stage. Regarding these factors, it is extremely costly for new entrants to reach,
match or even beat over Amazon’s position in the market.
1. 2. The Bargaining Power of Buyers: Medium Intensity
The bargaining power of buyers at Amazon has medium intensity. On one hand, their high
bargaining power comes from many online alternatives such as Barnes and Nobles site and
Apple’s ITunes application store available for customers’ selection. Additionally,
customers’ switching cost is low due to easy access to various online stores via Internet,
and buyers are able to use digital applications like ‘shopbots’ to seek for online bookseller
that offers the best price for a particular book title conveniently.
On the other hand, they have low bargaining power due to their confidence on Amazon, a
sophisticated online brand which guarantees safe and prompt international shipping
delivery and a reliable system to secure their private and confidential information. Besides,
Amazon as one of the most customer-oriented company has gained high customer loyalty
by offering lower prices and excellent customer services as its attractions.
1. 3. The Bargaining Power of Suppliers: Low Intensity
Amazon is exposed to low intensity on the bargaining power of suppliers. According to the
fourth quarter of 2011 American Customer Satisfaction Index survey, Amazon.com scored
88 as the highest among the E-Commerce sector. Thus the publishers and merchants ought
