For Amazon, they have an unrelated corporate diversification. This means that they pursue numerous different businesses, and there are little to no linages between them. Consider their foray into cloud services, electronics (including their home-grown Kindle), toys, tools, kitchenware, and more. Plus, their sub-sections like Amazon Web Services, the Fire phone, the FireTV, Amazon Fresh, and partnership with multiple online stores (like Zappos). CEO Jeff Bezos is doing everything in his power to realize his goal: to be the internet's one-stop shop. See below for how fast they have grown.
Unfortunately, to stay ahead of competitors, Amazon must be a first-mover, which often means not waiting for a profit to turn before jumping into another product category... or having any experience in it. For as many sales as Amazon gets (almost $1billion in only the Christmas season), they barely turn a profit. They expand per opportunity versus financial ability... Just as most unrelated diversified firms are. They are more cost-burdened than their counterparts that choose a related diversified strategy.
For example, choosing such a strategy means they have too many products to put into a single diversification center. It takes an average of 3.67 shipments to complete one order (called "split shipments"). Additionally, new markets don't sell themselves; Amazon needs to continually increasing their marketing budget as they increase their product range.
Motivation could include risk reduction, tax advantages, exploiting market share, growing firm to increase employee compensation. Typically, the value created by these for unrelated diversification is quite small;investors don't take kindly to a "sales before profit" mindset. This is why research generally shows that related diversified firms outperform unrelated diversified firms; they have a "profit before sales" mindset.
However, Amazon has gained a customer base and analytics into shopping habits that no other retailer (both online and physical) can match. And they show no sign of scaling back their diversification. Hopefully those two premises can find a way to work together to produce an easily-profitable and sustainable company.
Sources
- Gaining and Sustaining Competitive Advantage by Jay B. Barney [textbook]
- Amazon Looks to Diversification in Drive for Profit by Stephen Phillips [http://www.computerweekly.com/feature/Amazon-looks-to-diversification-in-drive-for-profit]
- Amazon 05 - Diversification Strategy by Pere Joan [http://www.slideshare.net/PereJoan1/amazon-05-diversification-strategy]
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