Free Starbucks Coffee

171 Starbucks

I can tell you why Starbucks is feeling the pinch and that is due to the fact that they over expanded a few years ago. Now it is time for them to rein in the stores that are making money and cut the non-profitable stores off the company payroll.

Yes, it is true that Starbucks is feeling the recession like everyone else but their prices are not attracting the working class consumer who is trying to just get the mortgage paid every month. Coffee may be seen as a luxury and something that is cut first from the family budget.

Sheila at Starbucks "Working"

Interestingly enough as I scanned the list of stores being closed in my city, I noticed that all of the affected stores are in working class neighborhoods. There are not any affluent Starbucks coffee shops on the list in my region.

In my own neighborhood, we have three Starbucks within half a mile of each other and they are not hurting for business. The patrons driving their expensive automobiles gladly stand in a long line and pay the inflated price for a decent cup of coffee.

Still it is obvious that over the last few years Starbucks has over-saturated the market.

Not only have they opened stores on every block but they also have kiosks in many grocery stores. Often there will be a grocery store kiosk and then a full-fledge Starbucks right across the street or even next-door.

Then again perhaps it is just bad karma. After all didn't the Starbucks chain put the average coffee shop owner out of business a few years ago? Now it appears that the giant is feeling the same pain in the pocketbook as the little guy. I would like to feel some sympathy for Starbucks but for some reason I cannot turn on the tears.

It was pure greed that placed Starbucks in this belt-tightening position. Greed, glut and more money were the goals with a store on every block worldwide.

It doesn't take an advanced degree in economics to realize that too much of a good thing is simply too much.

We're in an economic downturn and jobs are getting cut everywhere as businesses tighten their belts and get ready for rough weather ahead. Newspapers are laying off staff, car makers are slowing down SUV and pickup truck production. It's the same wherever you look. But it still seems different somehow when it happens to Starbucks. The company announced that it's going to close 600 company-owned outlets across the United States. (This will eliminate about 12,000 jobs by the way. If you're one of those, you already know what this means to you.)

The news seems to have shocked a nation accustomed to layoffs and soaring food prices and $4.00 gas. The company's explosive growth has become a running joke in America. The Onion ran an article about Starbucks setting up outlets inside other Starbucks. In the dog-show mockumentary Best In Show, a couple relates how they met when she was in one Starbucks and noticed him in the Starbucks across the street. Whether you laughed or gnashed your teeth over it, the expansion of Starbucks into every available open space seemed a given.

Now that the company is seeing sales fall, no doubt some people will applaud the comeuppance of a corporate giant that has ground community coffee shops and culture between its massive corporate gears. These people should keep in mind that the company has more than 15,000 stores worldwide. You're still going to be within line of sight of a Starbucks from pretty much every point on earth.

But people who applaud the decline of Starbucks should consider that Starbucks is no Wal-Mart. Its growth wasn't nearly as destructive to the local small business coffee shop market as people think. In fact, it appears to have been the best thing that ever happened to that market. Last year, Slate ran a piece that examined what effect Starbucks had on mom and pop shops and found that their business actually increased when a Starbucks moved in across the street. Dramatically.

It wasn't that Starbucks wasn't trying to be the 800 lb. corporate gorilla. In the Slate piece the owner of a Los Angeles chain of coffee shops reported that Starbucks showed up one day, tried to buy him out cheap, and said if he didn't take their deal, they'd just come in anyway, put stores right next to all of his, and squash him like a bug.

That'll put the fear of God into pretty much anyone, so the owner called a friend, who happened to run the Seattle's Best Coffee chain. The friend reassured him this was going to be the best thing that ever happened to him, and indeed it was. Sales increased so much that he started following Starbucks around and putting in new stores next to theirs.

Why did this happen? Apparently because Starbucks increases the size of the market for premium coffee. And those new coffee drinkers sooner or later move beyond Starbucks to see what other shops might have to offer.

The key thing to keep in mind about Starbucks is that coffee used to cost a nickel. It came in a chipped white cup served in a diner somewhere by an old lady in a weird pink dress, and she'd keep refilling that cup for you forever. Coffee used to be a loss leader. It was largely Starbucks that took specialty coffees like lattes and espresso out of little ethnic cafes and introduced them to mainstream America. It was Starbucks that created the idea that a cup of coffee came with a bunch of other stuff in it, and was worth three bucks or more.

Once that idea was ingrained, it wasn't just Starbucks that profited from it. The rising tide Starbucks created raised all boats. The restaurant business has always been absurdly risky. Well over half of new restaurants fail in the first three years. The failure rate for coffee shops? Ten percent.

That's because, especially at Starbucks-style pricing, the markup on coffee is so high. It's a simple business to run and it's hard to fail. A lot of people who were squeezed out of the more traditional job market over the last couple decades and went "self-employed" did it by opening up coffee shops.

So if this is the end of the golden age of coffee, we've got a lot more to worry about than Starbucks. If hard times are making Americans rethink the Iced Frappucino, if they're going to go back to a cheap cup of joe to save money, then a lot of small businesses are going to suffer. Next time you're walking through your nearest commercial district, try counting the coffee shops. Then imagine them all closing. It should be pretty sobering, even if you don't like coffee.

This observation certainly bears truth if you look at the spectacular growth Oracle has experienced in the last 15 odd years. However, if you closely examine the current strategies of Oracle, it appears that some key tenants of Sun Tzu's treatise has been broken, which may have negative impact on Oracle's ability to maintain its stature and growth.

Given the spectacular growth of Oracle in the last fifteen years to the database and application giant it has become, it obviously requires tremendous amount of hard work, innovation and certainly a firm understanding of the precepts of Sun-Tzu's famous canon "The Art of War". Having been so successful in the past by predominantly growing organically, yet pursuing the recent strategic shift by Oracle to embark on a mega acquisition and growth strategy seemed both peculiarly atypical and thought provoking. Spending in excess of USD $24 billion on acquiring or increasing ownership in a whopping 40+ companies in the last three years, however, sounds like something that an ultra-aggressive leader like Ellison would do.

What Do I Want to Be When I Grow Up?

The reason for Oracle to go on an acquisition binge is quite clear and understandable. For starters, Oracle clearly realizes that it has to move beyond its core database business and be serious about its applications business. The reason why the core database business needs to expand is because database technology is increasingly becoming commoditized. With industry stalwarts like IBM DB2, MS SQL on one hand and OpenSource entrants like MySQL and PostgreSQL on the other, Oracle's dominance is continually challenged and Oracle's control of the enterprise database market that it enjoyed in the last 10 or so years is being continually marginalized. And this trend is likely to continue as organizations have become smarter about their IT expenditures and competing database software vendors have become more mature, the database software continues to become commoditized and is fast loosing its cache to warrant a premium price as well as profit margin from customers.

As per a JoinVision study named "Open Source in the Fast Lane", it states “IT specialists indicated they deploy MySQL 30% more frequently than Oracle, SQL Server or DB2.”

The graphic below from the same study paints a disturbing picture if one is traditional database vendor.

From a 2006 column written by Jack Loftus in SearchOpenSource, “"In 2005, the industry witnessed great momentum around open source databases, from product enhancement, improved customer support and increased adoption to new vendors jumping on the bandwagon," Yuhanna said. "Open source databases continue to make inroads into enterprises, offering low-cost database management system alternatives to support all types of business applications." “Proprietary vendors would have to hide their heads in the sand not to see the marketplace impact of greatly improved product quality and support offered by commercial open source database vendors….that the fact that proprietary vendors have issued deeper discounts, scaled down versions and more advanced features at no extra cost have bolstered the case that OSS is having an effect.”

In addition, as requirements for quick information retrieval becomes higher, and the availability of cached information in RAM becomes greater (think Google, BI) there is more and more dependence for fast caching and retrieving data from RAM rather than constantly hitting a database for that information. Given Moore's Law, this trend has continued since the inception of microchips and is likely to continue in the foreseeable future. As knowledge workers become more sophisticated and require not just saved information, like Purchase Order or Employee Record, to be retrieved quickly but also expects derived business intelligence data and calculations to be done on fly, the use of cached data takes a more central role and database become a solid state repository. Hence database will continued to be used to save and synchronize the cached data as business events occur, rather than a active participant in creating the derived data.

Although, Oracle has had a portfolio of applications and has been partly successful in making inroads at customers who were already using Oracle's database to sell them these applications like Oracle Financials, HR, Supply Chain etc, it still lacked the market share domination, revenue share and growth in core application software that companies like SAP and PeopleSoft had enjoyed in addition to successes of new entrants like Hyperion, Siebel and Retek to name a few.

So from a strategic perspective, Oracle had to move and move quickly to expand its software offerings and improve its software to database share of its revenues in the years to come. Also, Oracle needed to move beyond its image in the application business as providing good software but not the best software in any said corporate category i.e. back office, which was the domain of SAP and PeopleSoft and front office which was the controlled by Siebel, Retek (retail).

Hence, Oracle embarked on an aggressive strategy to expand by acquiring what where termed “best of breed” software in many of the front office and back office segments and integrate it with its core software offerings. This would allow Oracle to first have a more comprehensive software offering to compete with the likes of SAP in the enterprise domain and Microsoft and increasing SAP also in the SMB space, and secondly to improve its software application's image by acquiring “best of breed”. In addition, Oracle realized that acquisition of best of breed would also allow it to consolidate the market and reduce competition. Hence by buying best of breed, Oracle tried to accomplish all three goals at the same time.

Having witnessed this, one certainly understand the reason for the move and the nature in which it was done i.e. very hostile in the case of PeopleSoft, it screamed of “the Ellison way” and seemed very Sun Tzu like to annihilate one's enemy by whatever means necessary.

Tenets of Sun Tzu

One can clearly see that some of Sun Tzu's tenets are used by Ellison quite well. However, if one looks deeper, it becomes clear that some key tenets are also broken, with disregard, which can spell trouble for the software giant. It appears as if the State (Oracle), in Sun Tzu's terminology, has decided to deal with its competition (enemies) by focusing entirely on an offensive strategy and tactics rather than depending on a combination of plays based on offensive, defensive, and forging alliances as the analysis suggests.

Sun Tzu's Tenets Followed By Oracle

• All warfare is based on deception. (18)

  Indeed, Oracle has traditionally done a good job in using this strategy to its advantage. In the past, Oracle has been charged with being liberal with truth regarding the functionality and scalability of its database vis-à-vis its primary competitor at the time, and now with the messaging around the timeline to integrate the acquired applications and deliver them on its Fusion platform. Oracle's proposed timeline, albeit ambiguous, and promises to not just integrate the acquired and core applications, but to deliver depth of functionality across an entire enterprise application footprint raises too many questions.

• Thus, though we have heard of stupid haste in war, cleverness has never been seen associated with long delays. (5)

  This one is a toss-up, but we have to give the benefit of the doubt to Oracle. Its ability to acquire this number of companies by any means necessary is quite impressive. In retrospect, not all acquisition candidates will prove worthwhile, but being able to move rapidly certainly points to a certain level of “cleverness”.

• Rapidity is the essence of war: Take advantage of the enemy's unreadiness, make your way by unexpected routes, and attack unguarded spots. (19)

  The discussion above applies here. Some of the acquisitions that Oracle did especially PeopleSoft, Siebel, Hyperion, G-log and Retek took the competition by surprised and unnerved them.

• Make forays in fertile country in order to supply your army with food. (21)

  Indeed, getting into front-office market space and other lucrative markets from core database is venturing into fertile country. Middleware is also a significant fertile territory where Oracle reaps and will continue to reap revenues and healthy margins.

• When invading hostile territory, the general principle is, that penetrating deeply brings cohesion; penetrating but a short way means dispersion. (42)

  This one sounds counterintuitive, however, here the point is that when employees and investors see incremental steps to address strategic imperatives as inadequate and eventually disillusionment sets in, however, if they see bold steps taken by the leadership, they tend to follow closely and follow strongly. This leads to loyalty and innovation by the troops that see the vision and follow the general.

• Place your army in deadly peril, and it will survive; plunge it into desperate straits, and it will come off in safety. (58)

  Certainly, taking on SAP (Enterprise Apps/Middleware), IBM (Middleware/DB), Microsoft (Enterprise Apps, DB), BI companies (Cognos, SAP etc) other database (MS SQL, MySQL) and middleware (Tibco, SAP, IBM) providers at the same time is akin to taking ones employees and investors in “deadly peril”. However, if Oracle does manage to pull it off it would be a high-risk/high-reward endeavor.

• For it is precisely when a force has fallen into harm's way that is capable of striking a blow for victory. (59)

  Desperate times requires desperate measures and Oracle's ability to constantly innovate while it is bogged down in normalizing architectures, data structures and deal with attrition will truly test its mettle.

Tenets that are Broken by Oracle

• Attack him where he is unprepared, appear where you are not expected. (24)

  Oracle has certainly stepped in the ring with full frontal assault where collectively the enemies are bigger, stronger and has better products and domain expertise then it has. Plus there is no element of surprise for the most part. Some of the acquisition plans were a smart move, however, from a macro perspective, it was expected by its major competitors like SAP, IBM and Microsoft that Oracle has to focus its efforts on brining a more mature and integrated applications and middleware product in the market. Hence, Oracle does not have a clear advantage over any of its core competitors from a timing perspective.

• Therefore the skillful leader subdues the enemy's troops without any fighting; he captures their cities without laying siege to them; he overthrows their kingdom without lengthy operations in the field. (6)

  In fact, Oracle has embarked on a full-frontal assault on its competitors, some of whom which are much stronger and better equipped to respond to the external threat. Also, Oracle has not made any strategic alliances through its acquisition marathon. Hence, not only does Oracle face threat from companies that are natural allies like IBM/SAP (services, Eclipse), SAP/Microsoft (database, Duet, customer), but also faces consternation from the ranks for the acquired company due to messy acquisition or sieges that Oracle put on its targets.

• Sun Tzu said: Whoever is first in the field and awaits the coming of the enemy, will be fresh for the fight; whoever is second in the field and has to hasten to battle will arrive exhausted. (1)

  From an application standpoint, weather it be back office, front office, business intelligence, or middleware, Oracle does not have a “first in field” advantage over any of its competitors. IBM, SAP, Microsoft, Cognos and others has a clear advantage over Oracle since they control, strategically speaking, a higher ground than Oracle given their product maturity, and integrated architecture due to organic growth.

• So in war, the way is to avoid what is strong and to strike at what is weak. (30)

  Again, Oracle has taken on both strong, weak and everybody in the middle in its quest to dominate the applications and middleware market. This presents a huge problem for Oracle as the honey moon period ends and its customers will not be happy with just seeing blueprint and expected dates but will expect a truly integrated suite based on previously “best of breed” application.

• Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near. (19)

  This again goes to the point of deception. However, Oracle still needs to provide blueprint, timelines, integration strategy, data models and guidance to customers and the Street, hence it cannot be overtly deceptive to its competitors.

• He who exercises no forethought but makes light of his opponents is sure to be captured by them. (41)

  This point speaks to the many comments and sentiments that Larry Ellison is most notorious of making. They may garner awe with the uninitiated and laughter from others, but to analysts, competitors and customers the credibility and messaging is often taken with a grain of salt.

• If fighting is sure to result in victory, then you must fight, even though the ruler forbid it; if fighting will not result in victory, then you must not fight even at the ruler's bidding. (23)

  Executive and employee attrition at Oracle and its acquired companies in the last couple of years is a clear sign that many field commanders do not agree with the General's strategy.

• It is the business of a general to be quiet and thus ensure secrecy; upright and just, and thus maintain order. (35)

  Larry Ellision is known to be many things but being quiet is certainly not one of them.

Although very smart, insightful and shrewd businessman that Larry Ellison might be, it appears that the mega-acquisition strategy is laden with acute risks.

The Ultimate Objective of a War

Notwithstanding the timelines Oracle has to share with regards to its consolidated Fusion platform rollout, by conservative estimates it may take anywhere from 6-8 years before a comprehensively integrated application will be mature enough to have a normalized core and integrated business processes. Most importantly, even after an integrated core, Oracle still will not have the depth of business rules and process automation that SAP has to offer, the competency in middleware that vendors like IBM, Tibco and has to offer and will continue to see a commoditization of its database business. And while Oracle is busy fighting multi-front battles with financially and technically strong opponents; it will have fewer resources to focus on expanding its core database business.

Also, it is important to note that what was once a “best of breed” application looses its status as such as soon as it is acquired and becomes part of a different or bigger category of software. Hence, Siebel may have been best of breed CRM application, but when it is integrated into a platform core that is much bigger than CRM then it is only as strong as the weakest link in the entire platform's footprint. In software, the benefits of one function do not overcome the deficiency in other core functions. So what used to be “best of breed” does not automatically stay best of breed ex post facto acquisition.

Ultimately, apart from all the other tenets of Sun Tzu, some of which are followed and others broken, the entire strategy of Oracle has one glaring risk, which is that it does not abide by the most basic and important tenet of Sun Tzu's cannons, which is that the ultimate objective of a war in not to fight but it is to win. And if one can win without fighting that “war” is most desirable.

So if one can win without raiding resources associated with one's State (corporation), army (employees), citizens (shareholders) and exchequer (capitalization and debt/equity ratio) are better served. However, Oracle's strategy ensures a multi-front, multi-year battle without a clearly articulated objective to claim victory.

Moreover, it has expanded from its existing business of selling books to selling a wide variety of products such as DVDs, music CDs, computer software, video games, electronics, apparel, furniture, food and more (Wikipedia 2006). Similarly, Amazon aside from its domestically shared market also set up four other separate online stores in the United Kingdom, Germany, France and Japan, thus shipping globally on selected products (cited in Haddad & Sheth 2001).

Overview of the Online Industry

The population of the Internet and World Wide Web has raised fast since 1990s with the development and advancement of computer technologies. Many firms have launched their business through the Internet because of this technology innovation. This resulted in various and widely sales of products in the Internet business. Online buying grows at an amazing rate. Therefore, companies that carry out Internet based business have great opportunities to succeed. Conversely, there is a greater competition and threats are all around considering that many companies had entered the online business (cited in University of Texas at Dallas.com n.d.).

Amazon.com vs. Other Online Bookstores

Book retailing is one of the flourishing industries. Barriers to entry into this industry are quite high and suppliers have modest influence over booksellers. The introduction of the internet has brought about many changes to this industry because it has increased rivalry, buyer power and substitutes (American Booksellers Association 2002).

The largest market for books is the United States. Before, book publishing is still fragment, thus high percentage of publisher's sales occurs through the wholesalers. However, with the emergence of superstores like Barnes & Noble and Borders.com which are directly supplied with more than 95 percent of books from the publishers such percentage decreased (American Booksellers Association 2002).

Since these stores can reduce intermediates like wholesalers, they can sell their products at a discounted price. Because of this strategy, their sales growth rate raised to 71 percent compare to 4 percent sales of non-superstores. In addition, according to their self-report, they are growing almost 25 to 35 percent a month. Many independent stores have gone out of business because of this happening. Such scenarios are the threat to the success of Amazon.com (American Booksellers Association 2002).

It is necessary to understand the book industry as a whole and the competitors in order to remain competitive in the market. Two of the Amazon.com largest competitors are Barnes & Noble and Borders.com.

Book Retail Industry Analysis

The book retail industry was expanding at a phenomenal rate during 1970's and 1980's. New stores were opening and growing into markets previously not served by any bookstore. The number of new books published each year grew because new authors increasingly found their way into print. Similarly, the profit for publishers rose in robust percentages. The book retail industry began evolving into the maturity stage of the industry life cycle in the mid of 1990s. Mark Domnitz, ceo of American Bookseller Association, predicts that Internet book purchases will grow exponentially over the next few years (cited in University of Texas at Dallas.com n.d.).

Porter's Five Forces of Competition framework such as competition from substitutes, entrants, rivals, supplier power, and buyer power is a valuable tool in analyzing the industry (cited in University of Texas at Dallas.com n.d.).

Substitutes

Substitutes for reading include watching television, going to movies, renting movies, listening to CD's, tapes or the radio, playing computer or video games, talking on the telephone, surfing the Internet, playing sports, exercising, etc. Booksellers are conscious of their prices since some of these substitutes leisure activities do not directly cost the consumer like watching television and making local phone calls (cited in University of Texas at Dallas.com n.d.).

Entry

The book retail industry has very high barriers to entry. The capital requirements necessary to establish a bricks and mortar bookstore would be virtually impossible for a newcomer. Consumers know the big name players. High product awareness and large marketing budgets make it very difficult for new entrants to enter into this industry (cited in University of Texas at Dallas.com n.d.).

Rivalry

Looking at the entire book retail industry, competition is quite diverse. A consumer could purchase books from a bricks and mortar store, which could be a large chain, a non-book retail store, or a small independent store. A consumer could also choose to buy their books on-line. With the onset of Internet bookstores, price is even more of a factor in consumer book purchasing (cited in University of Texas at Dallas.com n.d.).

Buyer Power

Buyer power in the book retail industry is very high. This fact can be directly associated with the significant amount of substitutes and intense rivalry in the industry. As mentioned earlier, if a consumer is looking to purchase a book he/she has many options. The amount of buyer power ultimately depends on the need or desire for the book (cited in University of Texas at Dallas.com n.d.).

Supplier Power

Supplier power in the book retail industry would be considered moderate. Book retailers can purchase books from over 1,700 publishers as well as wholesale distributors. Publishers have control over the distribution of titles (through copyright protection), the list price and the retailers' cost price. These limitations do afford the publishers some supplier power over the book retailers (cited in University of Texas at Dallas.com n.d.).

Amazon.com Competitors' Analysis

Two of Amazon's largest competitors are the Barnes & Noble and the Borders Group, Inc.

Borders Group, Inc. is the second largest operator of book and music superstores based on sales and number of stores. It offers customers over 650,000 titles and 10 million book, music and video items in stock and ready for immediate shipping from Border's distribution center (Durkin, MA, Kass, C, Modi, T & Ulin, M 2000).

Barnes & Noble is the largest bookstore chain in the world. . From its fledgling beginning of one store in 1971 Barnes & Noble acquired and ran several mall based bookstore chains including B. Dalton Bookseller, Doubleday Book Shops and Scribner's Bookstores. It carries a range of 60,000 to 175,000 titles. In 1997, Barnes & Noble once again expanded its operations to make books available to customers through the Internet (Durkin, MA, Kass, C, Modi, T & Ulin, M 2000).

Several aspects of these two largest competitors posed a threat to the company. Barnes & Noble launched its online store in 1997. If it succeed because of its unique operating channels such as the retail stores, the Internet, 1-800-THE BOOK and mail order, it would capture some of initial customers and develop some brand loyalty (Durkin, MA, Kass, C, Modi, T & Ulin, M 2000).

On one hand, Borders.com has offered books, music, CDs and videos. Such actions would be also a threat to Amazon.com because the company expanded its product line to include music. Thus, it is expected that the competition between Amazon.com and Borders.com will be increased sharply in the diversified products market (Durkin, MA, Kass, C, Modi, T & Ulin, M 2000).

Analysis of Amazon.com

Amazon.com identifies the key success factors in its business model such as a strong brand, providing customers with outstanding value and a superior shopping experience, massive sales volume and realizing economies of scale (Durkin, MA, Kass, C, Modi, T & Ulin, M 2000).

Amzon.com is the only bookseller in the world's top 500 websites, according to Media Metrix. Additionally, according to one analyst report, Amazon.com is estimated to have over 80 percent of the online bookstore market (cited in Durkin, MA, Kass, C, Modi, T & Ulin, M 2000).

However, Jeffrey P. Bezos' vision, founder of Amazon, has evolved much further than just being the earth's biggest bookstore. The vision is to be the world's biggest one place-shopping stop for online shoppers and to become a premier general online retailer by leveraging its existing brand and business model (cited in Durkin, MA, Kass, C, Modi, T & Ulin, M 2000).

Amazon.com has several core values which play a crucial part in the success of the company. The first one is excellent customer service based on extraordinary technology. The company provides various services such as book reviews from other customers and from staff. In addition, many featured books contained descriptions, snippets of reviews and interview posted by authors (Durkin, MA, Kass, C, Modi, T & Ulin, M 2000).

Convenience and price is the second core value of the company. It sells books through Internet and has its own distribution system. Similarly, Amazon does not have to spend too much money on real state and other operation because it is pursuing Internet-based business. Thus, it can reduce its inventory expenses (Durkin, MA, Kass, C, Modi, T & Ulin, M 2000).

On one hand, the company has several key resources and capabilities to meet the challenges presented by opportunities and threats. These resources and capabilities have thus far allowed the company to be the world leader in the special retail industry. Jeffrey P. Bezos, founder and chairman of Amazon since 1994, is the driving force behind the company. He is a valuable resource that gives the company the competitive advantage with above-average return (Haddad, N & Sheth, J 2001).

Amazon.com has also a very strong brand name presence in the online-retail market which is primarily due to their successful exploitation of their "first-mover" advantage. It would be able to leverage this brand name as it realizes its plans for expansion in the future (Haddad, N & Sheth, J 2001).

In addition, the technological infrastructure of the company also gives its competitive advantage against the other rivals. It can pen a new store which has different products very easily because its core shopping technologies are easily re-usable (Haddad, N & Sheth, J 2001).

On one hand, its website is elegantly designed, easy to navigate and quick to load. It also has numerous proprietary inventions like the click shopping, personalized recommendations and user rating which make shopping more pleasurable (Haddad, N & Sheth, J 2001).

The four strategies such as outsourcing strategies, strategic partnership, compelling value, and active advertising (see Exhibit 1) implemented by the company have contributed to its success in sales growth and cost efficiency (Haddad, N & Sheth, J 2001).

However, transitioning the company culture is one of the problems and weaknesses may face by Amazon.com. A lot of changes have to be made in order for Amazon to adjust to different situations especially since the rules of business keep changing rapidly. Amazon was only a start-up few years ago but it grew rapidly and successfully in the online retailing business. Thus, Amazon is no longer can be considered a start-up but a company moving from one culture to another because of its expansion and time in the industry (Durkin, MA, Kass, C, Modi, T & Ulin, M 2000).

Another is the financial difficulties brought about by its international exposure. The fluctuation of exchange rates from different currencies into U.S. dollars may affect Amazon's money market. The success of Amazon's international expansion also depends on local economic and political conditions (Durkin, MA, Kass, C, Modi, T & Ulin, M 2000).

Conclusion

Amazon has grown admirably from its initial beginnings as a small online bookseller to a giant superstore company. During this process of rapid growth, it has incurred significant losses and it becomes more expose to a greater competition and threats. Cutting costs and achieving profitability remain Amazon's greatest challenges. However, there are key factors such as a strong brand, providing customers with outstanding value and a superior shopping experience, massive sales volume and realizing economies of scale which contribute a lot to the success of this company. These factors and the people around the company help Amazon.com to face the threats pose by other online bookstores. Essentially, the company should aim to maintain its gross margins in its existing business and in future product lines such as music CDs and videos. In order to do this, Amazon.com should develop strategic partnerships with all of its main suppliers.

Exhibit 1: Amazon.com Company Strategies