Amazon, the pioneer of horizontal and vertical integration (2024)

FAQs

Does Amazon use vertical or horizontal integration? ›

Amazon is an excellent example of a business that has embraced a vertical integration strategy, and it's a crucial reason why they've become a multibillion-dollar company. Amazon wasn't always like this. When Jeff Bezos started the company, he was working out of his garage.

Amazon, the pioneer of horizontal and vertical integration | NEXT Conference.

Amazon is a vertical supply chain company as a direct seller of goods. It grows through increased sales volume of its products as well as through the acquisition of companies such as Zappos, which sells women's shoes and apparel.

Google, Facebook (and ad networks), Amazon, Netflix, Uber and Airbnb are all examples of this kind of horizontal integration. Platforms, aggregators or simply networks of this size and capabilities just weren't possible before the advent of the internet.

Amazon integration is the process of developing the connection between any app or software and this marketplace. It allows accessing and transferring data between Amazon and the specific software.

Vertical Integration was first used in business practice when Andrew Carnegie used this practice to dominate the steel market with his company Carnegie Steel. It allowed him to cut prices and exhuberate his dominance in the market.

Carnegie became a tycoon because of shrewd business tactics. Rockefeller often bought other oil companies to eliminate competition. This is a process known as horizontal integration. Carnegie also created a vertical combination, an idea first implemented by Gustavus Swift.

Horizontal Integration was made famous by John D. Rockefeller's Standard Oil company.

Amazon's Acquisition of Whole Foods

Amazon was already a vertically integrated company in many ways: It publishes books itself and provides a publishing platform for independent writers, for example.

One well-known real-world example of forward integration is Amazon's purchase of Whole Foods for $13.7B, allowing it to expand into brick-and-mortar stores to sell food products to consumers through retail stores rather than exclusively through e-commerce.

Is Amazon forward integration? ›

Amazon's Example – WholeFoods Acquisition

It also has its transportation (Amazon Transportation Services) and distribution, which is forward and backward integration-toward suppliers-and forward integration because Amazon directly delivers to the end-users. It is a brick and mortar.

Amazon has a diversified business model.

Online stores contributed almost 43% of Amazon revenues. The remaining was generated by Third-party Seller Services, and Physical Stores. While Amazon AWS, Subscription Services, and Advertising revenues play a significant role within Amazon as fast-growing segments.

After its $13.7-billion acquisition of the health food grocer, Amazon cleared the FTC hurdle but was subject to much scrutiny. This merger was a vertical integration, increasing the company in scale, which is friendlier to regulators.

The Amazon organizational structure favors a vertical hierarchical approach with global, function-based groups and geographic divisions. This gives the company extensive top-down control over global operations, allowing it to increase market share and maintain market leadership status.

Facebook and Instagram. One of the most definitive examples of horizontal integration was the acquisition of Instagram by Facebook (now Meta) in 2012 for a reported $1 billion. 1 Both companies operated in the same industry (social media) and shared similar production stages in their photo-sharing services.

In economics, vertical integration is the term used to describe a business strategy in which a company takes ownership of two or more key stages of its supply chain. A vertically integrated automaker, for example, might produce automobile components and vehicles and also sell directly to customers.

Apple: The King of Vertical Integration

Apple Inc. is famous for perfecting the art of vertical integration. The company manufactures its custom A-series chips for its iPhones and iPads. It also manufactures its custom touch ID fingerprint sensor.

Carnegie Steel

Carnegie was a massive steel manufacturer in the late 19th century. It vertically integrated by acquiring companies before itself in the supply chain.

One of the first and most successful practitioners of vertical integration was Andrew Carnegie in the steel industry. In modern times, Braum's Dairy Stores are a good example of vertical integration: "From the cow to you" used to be their slogan. Horizontal Integration: This is a form of business expansion.

In addition, Carnegie Steel bought up its sources of raw materials and shipping (in a strategy called vertical integration) and bought out and absorbed its competitors (horizontal integration) to dominate the steel industry. By the 1890s, it was the largest and most profitable steel company in the world.

Who used vertical integration 1800s? ›

In the late 1800s, Carnegie Steel Company was a pioneer in the use of vertical integration. The firm controlled the iron mines that provided the key ingredient in steel, the coal mines that provided the fuel for steelmaking, the railroads that transported raw material to steel mills, and the steel mills themselves.

Today, Netflix uses its distribution model to promote its original content alongside programming licensed from studios. 2 Instead of simply relying on the content of others, Netflix performed vertical integration to become more engaged in the entertainment development process earlier.

One of the best examples of vertical integration is Apple.

The hardware and software operate seamlessly because they were designed specifically for each other.

Some of the most well-known examples of backward integration include Apple Inc. and Carnegie Steel. Apple Inc. has employed a vertical integration strategy for decades.

A prominent example of a vertical merger is the merger between eBay and PayPal. eBay provides a platform that allows people to sell items, while PayPal allows buyers to pay for these items. This kind of merger can greatly increase efficiency.

The reasoning here is obvious – private labels have better margins, and will increase Amazon's bottom line. The company's strategy for its private labels differs from brand to brand, however. In some cases, the brands are exclusive for Prime members, while others are broadly available.

Amazon owns over 40 subsidiaries, including Amazon Web Services, Audible, Diapers.com, Goodreads, IMDb, Kiva Systems (now Amazon Robotics), Shopbop, Teachstreet, Twitch, Zappos, and Zoox.

The business strategy of Amazon consists of focusing on investing in technologies, enhancing its logistics applications, improving its web services by fulfillment capacity, M&A strategy, R&D activities in logistics, experimenting with Fintech, and securing its inventions using patents.

What is Amazon's positioning strategy? Amazon's brand is built on customer satisfaction. It wants to be known as the most customer-friendly company on the entire planet. This means Amazon wants to position itself as the most convenient company with the lowest prices and the best customer service out there.

How does Amazon differentiate itself from other companies? ›

Growth strategies such as market development, market penetration, product development, and diversification contributed to the competitive advantage of Amazon.

This type of vertical integration is conducted by a company advancing along the supply chain. A good example of forward integration would be a farmer who directly sells his crops at a local grocery store rather than to a distribution center that controls the placement of foodstuffs to various supermarkets.

Amazon started off as an online bookstore selling books, primarily competing with local booksellers and Barnes & Noble. It IPOs in 1997. Amazon starts to expand its services beyond books. It also starts offering convenience services, such as Free Super Savers Shipping.

They generally fall into one of three categories: reseller, private label, and proprietary. If you're thinking about starting an Amazon FBA business, here's what you need to know about the differences between these three types of FBA businesses.

Amazon operates on the business model of a two-sided marketplace. It provides a platform for the buyers and sellers to easily interact and trade with each other without much hassle or difficulties. The company has designed a vast operating model to fulfill the needs and demands of each consumer.

The operational model of Amazon is to do vertical integration using its scale. First Amazon starts using the services itself.

Horizontal integration is when a business grows by acquiring a similar company in their industry at the same point of the supply chain. Vertical integration is when a business expands by acquiring another company that operates before or after them in the supply chain.

Examples of horizontal integration as an expansion strategy include the Microsoft – Activision Blizzard, Frontier Airlines – Spirit Airlines (merger), and Baxter – HillRom M&A deals in 2022 and 2021.

McDonald's has been studied intensively in supply chain management courses and has vertically integrated its supply chain since the early 1990s. By owning more supply chain elements, McDonald's has more control over its product quality and cost.

When two companies that are at the same level in the production chain merge together, this is known as horizontal integration. One recent famous example of horizontal integration is Facebook's acquisition of Instagram.

Is Amazon a forward integration? ›

Another forward integration example includes Amazon forward integration. E-commerce giant Amazon acquired grocery brand Whole Foods to venture into the brick-and-mortar business so that customers could buy the products from the outlets. This is a perfect example of forward integration strategy.

To give one example of the multiple forward integrations in Amazon's business, the company has built its delivery fleet directly controlling delivery to end users instead of relying on third-party services, making a move forward in the supply chain.

Facebook and Instagram. One of the most definitive examples of horizontal integration was the acquisition of Instagram by Facebook (now Meta) in 2012 for a reported $1 billion. 1 Both companies operated in the same industry (social media) and shared similar production stages in their photo-sharing services.

Generally speaking, vertical integration in the processing and manufacturing sectors involves the manufacturer purchasing companies that support earlier processes and provide key inputs. For example, a cereal manufacturer may purchase a wheat farm and a company that produces paperboard boxes.

Apple Inc. has employed a vertical integration strategy for decades. Its software products are placed into electronic devices and computer systems manufactured and assembled by Apple using hardware and components also manufactured by the company.

Carnegie Steel was one of the first and most significant examples of balanced, full vertical integration.

The business strategy of Amazon consists of focusing on investing in technologies, enhancing its logistics applications, improving its web services by fulfillment capacity, M&A strategy, R&D activities in logistics, experimenting with Fintech, and securing its inventions using patents.

Answer & Explanation. 1. Amazon has a strategy of concentric diversification. In order to achieve success, this form of diversification entails increasing the company's product offerings to include complementary goods and services.