Research Notes
Challenges / Risks Amazon.com
Risk Factors (Annual report (p14-23)
If any of the following risks occur, our business, financial condition, operating results, and cash flows could be materially adversely affected. In addition, the current global economic climate amplifies many of these risks:
- Intense Competition
- Expansion Places a Significant Strain on Management, Operational, Financial and Other Resources
- Expansion into New Products, Services, Technologies and Geographic Regions Subjects Us to Additional Business, Legal, Financial and Competitive Risks
- We May Experience Significant Fluctuations in Our Operating Results and Growth Rate
- We May Not Be Successful in Our Efforts to Expand into International Market Segments
- If We Do Not Successfully Optimize and Operate Our Fulfillment Centers, Our Business Could Be Harmed
- The Seasonality of Our Business Places Increased Strain on Our Operations
- Our Business Could Suffer if We Are Unsuccessful in Making, Integrating, and Maintaining Commercial Agreements, Strategic Alliances, and Other Business Relationships
- Our Business Could Suffer if We Are Unsuccessful in Making, Integrating, and Maintaining Acquisitions and Investments
- We Have Foreign Exchange Risk
- System Interruption and the Lack of Integration and Redundancy in Our Systems May Affect Our Sales
- We Face Significant Inventory Risk
- We May Not Be Able to Adequately Protect Our Intellectual Property Rights or May Be Accused of Infringing Intellectual Property Rights of Third Parties
- We Have a Rapidly Evolving Business Model and Our Stock Price Is Highly Volatile
- Government Regulation of the Internet, E-commerce and Other Aspects of Our Business Is Evolving and unfavorable Changes Could Harm Our Business
- Taxation Risks Could Subject Us to Liability for Past Sales and Cause Our Future Sales to Decrease
- We Could be Subject to Additional Income Tax Liabilities
- Our Vendor Relationships Subject Us to a Number of Risks
- We May Be Subject to Product Liability Claims if People or Property Are Harmed by the Products We Sell
- We Are Subject to Payments-Related Risks
- We Could Be Liable for Breaches of Security
- We Could Be Liable for Fraudulent or Unlawful Activities of Sellers
Enabling Mechanisms
"Several mechanisms are needed to ensure there is an effective electronic marketplace" (Skyrme, 1997, p2) to support internet commerce. These include:
- access to the Internet and its applications;
- World Wide Web website (with appropriate software). The interface which the customer sees should be easy to read and navigate and should disclose to the customer the full cost of the transaction (i.e. tax, shipping should be included);
- payment facilities which enables the payment details to be checked and authorised e.g. credit card payment
- secure interfaces with security protocols and digital certificates to protect private and financial details;
- a business plan that includes strategies intended to increase e-commerce throughout all sectors of the business;
- ongoing training and development programs targeting employee online skills.
Characteristics of Digital Economies
- high up front costs but negligible incremental costs
- potential for exponential growth by harnessing positive network effects
- online networks are created more quickly than offline, more frequently and are more interactive than offline (the many-to-many) web 2.0 business model innovation.
- online networks can spread more rapidly and are less hindered by geography than offline
- barriers to entry are lower than ever and barriers to success are low compared to offline economies.
Challenges Facing Online Businesses
Entities conducting their business online are faced with a range of challenges they must address to enable them to effectively participate in the electronic marketplace. Failure to address these fundamental issues may inhibit businesses sustaining internet commerce.
Social and Cultural Factors
- Social and cultural differences may create barriers for individual users. Some challenges facing online businesses may include:
- cultural differences pertaining to the use of e-Commerce
- lack of access to payment facilities e.g. some buyers may not have credit card options available
- user’s resistance to new technologies
- user internet illiteracy
Technical Factors
Skyrme (1997) outlined a range of technical challenges which may prevent some buyers and/or sellers entering the digital marketplace. They include:
- low speed of internet /bandwidth
- low availability of web network (lack of access to internet)
- lack of ISP (internet supply providers)
- lack of broadband
- lack of experts to set up, operate and maintain the electronic interface.
Financial Factors
Online financial security is an ongoing challenge for e-business. Some factors which may prevent the secure exchange of information and payments include:
- authentification systems: the buyer and seller need to be assured that the transaction is authorised;
- payment needs to be ''simple, reliable and risk free, in multiple currencies and without hefty bank fees'' (Skyrme, 1997, p2).
- security: ''e-business depends on providing customers, partners, and employees with access to information, in a way that is controlled and secure. Managing e-business security is a multifaceted challenge and requires the coordination of business policy and practice with appropriate technology. In addition to deploying standards bases, flexible and interoperable systems, the technology must provide assurance of the security provided in the products''. (The Oracle White Paper, 2002, p6)
Political or Governance Factors
E-commerce has allowed buyers and sellers to operate globally across political boundaries. This has rasied challenges related to legislation harmonisation. Buyers and sellers need to know under whose jurisdiction the transaction takes place (buyer or seller) so that issues and/or conflicts related to customer protection, warranties, taxation, ownership of intellectual property, distribution of prohibited material or products can be resolved easily.
Corporate Factors
e-Business must address and demonstrate to their customers that they are trustworthy and transparent. Some of the major challenges facing online business entities include:
- privacy – buyers and sellers expect sensitive information to be protected from theft or misuse;
- ethics where the internet community determine what is acceptable and unacceptable behaviour on the internet.
