The story of this giant online retailer, Amazon.com began with an e-commerce dream of Jeff Bezo's in 1996 in Seattle, USA. It provides services to four primary customer sets: consumers, sellers, enterprises, and content creators. Consumers now can not only find books but also furniture, computers, toys, beauty supplies - an incredibly wide range of products on Amazon.com. Amazon's e-business contributes to the success of this online retail business as it focuses on effectiveness through improved customer, service, reduced costs and streamlined business process. Business performance is improved by using electronic information technologies and open standards to connect suppliers and customers at all steps along the value chain.
Amazon was publicly listed on NASDAQ in 1997; the company's market capitalization is worth approximately USD 139 billion as of November 2014, and has been increasing since 2010. This analysis will leverage Porter's five forces to determine whether the current market valuation is proper.
PORTER'S FIVE FORCES ANALYSIS
Porter defined the forces which drive competition - industry structure is determined by the competitive environment is created by the interaction of five different forces acting on a business. In addition to the threat of new entrants into the market and rivalry among existing firms, there are also the forces of buyers' power, the power of the sellers, and the threat of substitute products or services.
Threats of New Entrance
The threat of new entrants for giant online retailers as Amazon is medium. The online retail industry has become more sizable and profitable as more consumers prefer online shopping. For instance, according to a study commissioned by United Parcel Service Inc. in 2013, e-commerce grew about 15% to $186 billion, seven times the growth rate of total U.S. retail spending. In addition to the fast-growing industry, low capital requirements and low barriers to...