This report deals with the question as to how Amazon.com, Inc. maintains its competitive advantage on the online market through the extensive use of data warehousing. Therefore, as an introduction, a definition of data warehousing will be given. Afterwards, it will be explained how Amazon uses this technology and the company’s competitive advantage will be demonstrated by comparing its performance to other similar organizations such as Ebay Inc. and Barnes ; Noble.
According to Laudon and Laudon (2006), a data warehouse is “a database that stores current and historical data of potential interest to decision makers throughout the company” (Laudon and Laudon, 2006, p. 239). A data warehouse is thus basically just a big database where information of interest to the company is stored, regardless of its source and format. This information is standardized as it may come from different databases and operational transaction systems such as systems for sales or manufacturing or the customer accounts (Laudon and Laudon, 2006). The data in a data warehouse is made available throughout the firm and can be used as a basis for management analysis or help in decision making processes (Laudon and Laudon, 2006). There exist several query tools for data warehouses and many companies use intranet portals to give their employees access (Laudon and Laudon, 2006).
For example one can think of a manager who wants to know how many items of product x were manufactured and sold this February in comparison with last February. Without a data warehouse, he would have to go to the manufacturing department and to the sales department to get the data and as usually only current data is stored there, he may have problems getting the data from last year. This process would cost him valuable time and the data he gets may also not be in a consistent format. With a data warehouse, he would just have to start a query and would get the data within moments (Laudon and Laudon, 2006).
Having now clarified what a data warehouse is, the example of Amazon will be given. Therefore, the company will be introduced before its competitive advantage will be revealed. Amazon.com, Inc. was founded in 1994 in Seattle, Washington by Jeff Bezos, a computer science and electrical engineering graduate from Princeton University (Datamonitor, 2008). He started as an online book retailer and as the online market was growing steadily at that time, Amazon quickly expanded its range of goods and offers next to books today also electronic products, food and health and beauty products but also services such as those to third-party retailers, marketing and promotional services and web services for developers (Datamonitor, 2008).
When founding his company, Bezos had the vision to create a place where you can get “everything from anywhere online” (Laudon and Laudon, 2006, p. 104). Consequently, a core characteristic of Amazon became the customer-centrism, which Bezos defines through three goals: Firstly, he wants Amazon to be the most customer-centric company on earth, secondly innovation should be on behalf of the customers and thirdly the store should be personalized for each and every individual customer (Gillespie, 2005).
For example, if a customer wants to buy something at Amazon.com, he can always see in the product description what other customers who bought this article also bought. This data comes directly from Amazon’s data warehouse, so Amazon uses its data warehouse as well for giving information to its customers. Ever since its foundation, Amazon has been collecting and storing data in order to perfect its knowledge and to base its managerial decisions on the most complete set of data that is possible (Gillespie, 2005).
Amazon’s customer base has been growing rapidly and there is a high level of repeat customers as they quickly developed trust in the company and Amazon has become a strong brand name (The Economist, 2008). In addition to that, the high grade of personalization and the convenient ways to buy and track orders for example bring along a high customer satisfaction (The Economist, 2008).
So today, Amazon is known next to Ebay Inc. or Barnes ; Noble Inc. as one of the most successful online retailers. Through its quick responses to market trends and changes over the past few years which were possible because of the extensive data Amazon had collected about its customers, it has steadily expanded its position on the online market (The Economist, 2008).
Moreover, Amazon saves warehousing costs as it concentrates only on the online sale and has no traditional branches. Hence, warehouses and packing stations can be build where the ground is cheap and the overhead costs are lower (Laudon and Laudon, 2006). Amazon passes these cost advantages on to its customers and invests the saved money into developing new innovations. For example, Amazon invented and patented the one-click-buy method to pay for a purchase with a single click which makes the shopping experience much more convenient for customers (Laudon and Laudon, 2006).
Through standardized data and software applications, Amazon has furthermore created one of the most sophisticated supply chain systems in the world (Bacheldor, 2004). If a customer for example buys a CD or DVD on Amazon.com, the order-management system communicates with the inventory and warehouse-management system and the customer momentarily knows when the goods will be shipped and whether they come for example in one or two packages (Bacheldor, 2004). This on the one hand enhanced Supply Chain Management also improves the customer relations as it increases the transparency of an order and gives the customer all the information he might require (Bacheldor, 2004).