Michael Porter created a five force model which visualises an industry as being influenced by five forces. This model can be used by an entrepreneur to gain better knowledge of an industry and therefore have a better chance of competing against competitors.
These five forces are as follows, Supplier Power, Threat of Substitutes, Degree of Rivalry, Buyer Power and Threat of New Entrants.
Compared to other e-commerce sites amazon has a lot of rivalry from sites such as EBAY which also allow customers to find a very wide array of different products fairly. It is also rivalled with companies such as Game and HMV when it comes to online sales of media such as video games, movies and music. Amazon has advantages over stores such as game as Amazon does not have any retail stores and therefore the products can be sold for cheaper. Another advantage is that customers may want to buy more than just media, therefore amazon is the easier option as the customer will not have to change websites and search all over the web. Overall amazon is fairly unique as a large site that sells such a wide array of products and even markets its own product.
Amazon does not suffer too greatly from the threat of substitutes. As it is an E-commerce company it does not rely heavily on raw materials as it primarily buys and sells products. If the price of CD’s or Video games rise Amazon will not be hit as hard as retail stores selling the same product as they have no costs of running a store. Therefore they will have a price advantage over the retail stores.
In some respects amazons customers have a lot of buying power. If the customer does not deem the prices or delivery times of Amazon to be adequate they can very easily use another website to purchase the product.
Amazon cannot patent the idea of selling products online therefore there is always the threat of new companies taking a portion of the market. Some of the things that will make it hard for a new company to enter the industry are the costs of storage, for any company to successfully compete with amazon they would have to store a considerable amount of product which would incur high costs.