Question

The level and the nature/type of diversification have different implications on company’s performance (check lecture video as well as lecture note). Amazon hardly recorded any profit until 2016 which is very surprising given that Amazon is an established big company with reputation. Think about industries that Amazon expanded into over its history. Do you think such a rather disappointing performance for many years could be attributed to its too much diversification by expanding too different industries? Explain what you think.

Answer 1

answer-

Amazon is one of the company which acquired many businesses and operate in more than one industry. Diversification is a corporate level stratgey in which a Company invest in different business and portfolions to grow its business but In Case of Amazon i think Amazon's disappointing performance before 2016 is definitely related to too much diversification.

Amazon in past years have acquired companies like Health Navigators, LLC,Audible, abebooks,Zappos,shopbop,Wholefoods,diapers com etc. Currently company operates in industries like

• Cloud computing
• E-commerce
• Artificial intelligence
• Consumer electronics
• Digital distribution
• Grocery stores

When a Company diversify then they invest millions and billions of dollars to acquire another business. these too many acquisition lead to Fund outflow from Amazon's business that is why it become the first reason of Amazon's poor performance. There is also another source which increase cost that is multi management system because managing each subsidiariy requires managers and employees which are paid from funds of the company so this leads to extra cost and poor performance of Amazon.

second, Overdiversification lead to confusion and diversion from the core competency and main business. This means Lack of Focus or Attention to Your Portfolio.If someone else is managing your portfolio you probably don’t pay as much attention to it, or you wait until it’s too late.

Third, all acquisitions are not succcessful, There are bad Investment Vehicles which lead to bad decisions. Amazon has companies like Myhabit, wholefoods, endless,firephone,amazon askville etc which are not showing profit and considered bad investment.