Amazon.com was founded by Jeffrey Bezos in 1995 as an online bookstore. The company’s original mission was to provide customers with a larger and more diverse selection of informative, inspirational and educative books compared with the brick and mortar (B & M) bookstores (Hill & Jones, 2012). Over time, Amazon’s mission has changed to include online retailing of various products and services such as data storage and cloud computing. Within 6 months of its launch, Amazon had already become very popular and Bezos borrowed $ 7 million to fund the company’s soaring book sales. The company whose core business in online bookselling was listed on NASDAQ in May 2007.
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On the other hand, Yahoo! was founded in 1994 by David Filo and Jerry Yang as a search engine company. By 1995, the company had become so popular that it was already receiving more than 1 million “hits” (Hill & Jones, 2012). In order to increase Yahoo!’s revenue base, the company started allowing other companies to place ads on its web portal at a fee. This called for additional capital in order to expand the company’s IT capabilities. Yahoo! founders successfully sourced $ 2 million as seed capital from a venture capitalist to fund the company’s expansion strategy. This money was used to further develop Yahoo!’s IT system. In 1996, the company, which is involved in the development of a search engine tool as its core business, sold 2.6 million shares to investors in its initial public offering (IPO). The IPO raised $ 338 million that was used to fund future growth (Hill & Jones, 2012). Yahoo! also hired Tim Koogle as its new CEO to further develop the company’s business model. Koogle focused on increasing Yahoo!’s advertising function and hiring marketing experts to strengthen the company’s core competencies.
The key strategic differences that have impacted on the relative success of both Amazon.com and Yahoo.com include:
- Improved employee motivation: At Amazon, Jeffrey Bezos empowered his employees by giving them the autonomy to make crucial decisions when dealing with customers. Employees have been organized into teams of between 5 and 7 employees to facilitate quick decision making. These teams have autonomy over the development and experimentation of ideas without interference from the management. Employees at Amazon also own 10% of the company. ( Hill & Jones, 2012).
- Amazon Associates Program: Amazon lets associates with their own websites to also host Amazon’s official website link. This helps to redirect customers to the company’s official website. The associates receive a commission for any sales that emanate from this arrangement.
- First mover advantage: As a pioneer in the online bookselling business, Amazon has managed to acquire loyal and satisfied customers.
- Diversification: Amazon has diversified its operations from the core business of selling books online to include internet retailing. Amazon has also ventured into data storage and cloud computing activities.
- Global expansion: Amazon has acquired more businesses specializing in IT and retail in order to solidify its unique competencies in SOA IT.
In the same way, Yahoo! has replicated its business model across the globe so as to increase advertising revenue. Yahoo! has also diversified its operations from its core business of a search engine to include the development of novel entertainment and media services.
Similarities and differences in the strategic plans of Amazon and Yahoo
Both Amazon and Yahoo! have forged alliances with other companies, with the former forming partnerships with such B & M companies like Office Depot and Toys “R” US. On the other hand, Yahoo! has acquired two shopping portals known as Yoyodyne and Viaweb (Hill & Jones, 2012) that have since been transformed into Yahoo! Stores.
Both companies have also diversified from their core businesses as a way of retaining their competitive advantage. For example, Amazon is now involved in internet retailing of products like toys and music CDs, among other products (Hill & Jones, 2012). The company has also exploited its rich experience in IT to explore data storage and cloud computing services. On the other hand, Yahoo! Is now involved in e-commerce transactions whereby the company lets other companies place their ads on its website at a fee.
Both companies have also customized their operations in order to suit the needs and preferences of customers in specific markets. For example, Amazon had to develop a new portal (amazon.co.uk) when it expanded its operations into the UK market. Likewise, Yahoo! has had to customize its web directory and portal to suit the needs and tastes of local users.
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Most of the services that Yahoo! provides to its users are free as the company’s revenue mainly comes from the ads placed by various companies advertising on its portal. On the other hand, Amazon mainly relies on sales made from online retailing activities.
Core competency refers to something that a company feels is the reason behind its success (Proctor, 2011). A core competency should not be imitated by others easily. In addition, a core competency should have a huge impact on how customers perceive the final service or product. Amazon’s distinctive competency is its IT background. Amazon has recruited many software engineers who have helped to develop innovative ‘customer-oriented’ software, such as I-Click. This is an internet-based software that facilitates ordering and payment services. Amazon’s senior managers have taken advantage of rapid developments in IT competence to sell various products online, thereby transforming it from an online bookstore to an internet retailer.
In contrast, Yahoo! has created more channels and content with a view to building a robust business model. This is in line with the company’s strategy of “becoming the most useful and well-known web portal on the internet.” (Hill & Jones, 2012).
The functional strategy is the approach taken by a functional area in order to achieve the strategies or objectives of a business unit or corporate by maximizing productivity and resources (DuBrin, 2011). Therefore, the functional level strategy should augment a company’s business strategy.
This paper recommends that Amazon should embrace the recruitment and retention of competent employees as its functional level strategy. This would allow the company to develop services and products that are on-demand in an ethical manner and at a lower cost (DuBrin, 2011). This would be a wise move since companies hire individuals into specific departments. The paper also recommends that Yahoo! Should implement high speed in the development of its products and in customer service as the company’s functional strategy. If customers using Yahoo! As their search engine are able to locate what they want in the shortest time possible, this would improve their satisfaction and hence customer loyalty.
DuBrin, A. (2011). Essential of Management. Stamford, Mass.: Cengage Learning.
Hill, C., & Jones, G. (2012). Strategic Management: An Integrated Approach. Stamford, Mass.: Cengage Learning.
Proctor, T. (2013). Strategic Marketing: An Introduction. New York: Routledge.